How to Make Sure Your Kids Receive a Proper Inheritance
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Money & Finance
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While we all like to think we’ll be around forever, we all know deep down that isn’t the case. It’s the responsible and realistic thing to do to plan ahead for the worst case scenario. Although it may seem morbid, planning ahead for ‘when you’re no longer around’ is about making important financial decisions and preparations so that things are a lot easier for your family for when your time comes around.
One of the main things you may want to secure is an inheritance for your children and your loved ones. With all the rules and regulations that come with allocating your inheritance, it can sometimes feel daunting even beginning to think about where to start. Here are a few simply explained options you can consider to ensure that your children receive a good inheritance.
Discretionary investment management
If you have a decent sum of capital to deal with, it is likely that you will want to invest it wisely so you can maximise what you have and consequently have a larger inheritance for your children.
If finance isn’t your strongest area of expertise, and you don’t quite know the best ways to invest your money, it is worth considering going down the discretionary investment management route. This involves communicating with an investment advisor who has complete discretion (usually with arranged restrictions) to manage and invest your capital without reference to you, other than on the agreed reporting dates. Essentially, you can leave it to the professionals to make the decisions and increase your capital.
However, it is worth mentioning that this method is something that you would need to do years in advance to your death if you aim to significantly increase your capital. So it is better to start planning sooner rather than later, despite whether you want to properly start thinking about the future or not.
Being organised
Inheritance tax can cost your loved ones thousands of pounds in the event of your death, particularly if you are in possession of a large amount of capital and assets. Nonetheless it is possible to avoid getting severely taxed.
When you pass away, the government reviews how much your estate is worth. If the value surpasses the inheritance tax threshold of £325,000 you (or theoretically, your children) will have to pay tax at 40% for the amount over the threshold. To avoid getting severely taxed, you can give the money away as a gift to your loved ones before you die. However, the catch is that you have to give the gift at least seven years before you pass away in order to avoid any inheritance tax. For that reason, it necessitates early planning and overcoming the challenge of deciding when the best time to give the gift to your loved ones is.
Other exemptions
Even if you do pass within seven years of making a gift to your loved ones, there are other exemptions you can contemplate that will help lessen the tax bill. For instance, the ‘annual inheritance tax gift exemption’ means that the first £3,000 given away each tax year is overlooked and therefore will not get taxed if you die.
Moreover, another option is to give £250 each year to all of your children (or perhaps your grandchildren) for their birthday and it will be omitted from inheritance tax. This will gradually make a dent in the bill and help you avoid getting taxed 40% for anything over the £325,000 threshold.
Bearing in mind all of the above factors are tremendously important, if you want your children to receive a good inheritance and avoid large taxes once you have died it’s important to plan ahead. Inevitably, it is not the most pleasant subjects to think about, it is certainly necessary to prepare in advance if you want to make it easier for you and your loved ones later down the line.
One of the main things you may want to secure is an inheritance for your children and your loved ones. With all the rules and regulations that come with allocating your inheritance, it can sometimes feel daunting even beginning to think about where to start. Here are a few simply explained options you can consider to ensure that your children receive a good inheritance.
Discretionary investment management
If you have a decent sum of capital to deal with, it is likely that you will want to invest it wisely so you can maximise what you have and consequently have a larger inheritance for your children.
If finance isn’t your strongest area of expertise, and you don’t quite know the best ways to invest your money, it is worth considering going down the discretionary investment management route. This involves communicating with an investment advisor who has complete discretion (usually with arranged restrictions) to manage and invest your capital without reference to you, other than on the agreed reporting dates. Essentially, you can leave it to the professionals to make the decisions and increase your capital.
However, it is worth mentioning that this method is something that you would need to do years in advance to your death if you aim to significantly increase your capital. So it is better to start planning sooner rather than later, despite whether you want to properly start thinking about the future or not.
Being organised
Inheritance tax can cost your loved ones thousands of pounds in the event of your death, particularly if you are in possession of a large amount of capital and assets. Nonetheless it is possible to avoid getting severely taxed.
When you pass away, the government reviews how much your estate is worth. If the value surpasses the inheritance tax threshold of £325,000 you (or theoretically, your children) will have to pay tax at 40% for the amount over the threshold. To avoid getting severely taxed, you can give the money away as a gift to your loved ones before you die. However, the catch is that you have to give the gift at least seven years before you pass away in order to avoid any inheritance tax. For that reason, it necessitates early planning and overcoming the challenge of deciding when the best time to give the gift to your loved ones is.
Other exemptions
Even if you do pass within seven years of making a gift to your loved ones, there are other exemptions you can contemplate that will help lessen the tax bill. For instance, the ‘annual inheritance tax gift exemption’ means that the first £3,000 given away each tax year is overlooked and therefore will not get taxed if you die.
Moreover, another option is to give £250 each year to all of your children (or perhaps your grandchildren) for their birthday and it will be omitted from inheritance tax. This will gradually make a dent in the bill and help you avoid getting taxed 40% for anything over the £325,000 threshold.
Bearing in mind all of the above factors are tremendously important, if you want your children to receive a good inheritance and avoid large taxes once you have died it’s important to plan ahead. Inevitably, it is not the most pleasant subjects to think about, it is certainly necessary to prepare in advance if you want to make it easier for you and your loved ones later down the line.
