INHERITANCE: how to PROTECT YOUR CHILDREN

For families, it often becomes difficult to talk about your will as that conversation involves thinking about death. A lot of your financial planning involves thinking about your family, particularly your children. So, as uncomfortable as this conversation may be, it is truly beneficial to plan in advance and safeguard your children’s future. When thinking about their inheritance, you have to take into account your retirement plans as well as how much you save. 

You may consider leaving your wealth to your spouse; however, this may not be a surefire way of ensuring that your children are well taken care of. If your partner remarries or changes their will, this situation may alter plans for your children. 

Throughout this planning, you must keep sight of securing your future. Even though you may already have a retirement plan in place, you must also ensure that you don’t spend it in such a way that your children’s inheritance is spent for your needs. Manage your investments wisely and factor in rising costs of living as well as healthcare. Medical expenses, especially those for long-term illnesses, tend to be unforeseen and can create a dent in your finances. 

Your estate should be capable of growing not only with higher costs but also with your family. 

Trusts

You can have your life insurance put into your will. The trust maintains your partner for the rest of their life, but the capital is inherited by your children. So, while your partner can earn from the income that your assets generate, the capital passes on to your children. A life insurance policy also allows beneficiaries access to access in case they have to pay any fee related to the inheritance. You can use services offered by companies or appoint a trustworthy person to be the trustee. The trustee manages the assets and has discretionary powers to provide your partner with the income from the assets. 

An alternative to the life insurance trust is a discretionary trust. It offers more flexibility to the trustee. One thing you must be careful about is jointly owned assets. They must be organised in a way that instead of going to the other owner, the asset is handed over to the child in the trust. 

An irrevocable trust is considered a gift that you can neither control nor take back. A revocable trust, on the other hand, remains under your control till the time of your passing. Ultimately, assets within a trust are exempt from inheritance tax.

Gifts

These are given when one is alive. Gifts that fall under the annual exclusion from gift tax are tax-free and do not need to be filed for a return. These are called annual exclusion gifts. An annual exclusion applies to every person who receives a gift from you. If your partner is financially secure even without your assets and earnings thereof, you may consider adding a gift to the trust. However, you must analyse the inheritance tax consequences before doing so.

These are common ways of securing your children’s inheritance. At the same time, it is crucial to ensure that inheritance tax does not eat away the benefits of this planning.

Inheritance Tax

A common misbelief that is prevalent among expats is that UK inheritance tax rates only apply to UK assets. 40% is the standard inheritance tax rate in the UK and applies to expats and their assets globally. At the same time, assets outside of the UK may also be subject to the tax laws of the particular country where they lie. There may be differing and additional rules for expats alongside probate fees and inheritance tax due on assets. Potentially Exempt Transfers, called PETs, are tax-free gifts if they are created seven years before death and given without reservations. However, even if the seven-year gap does not apply, they may be worth making, given that tax applies at a lower rate.

Pensions are just as, if not more, helpful in saving tax liability. Since it doesn’t account for your estate, it cannot be taxed. With one less worry, you can effectively manage your assets that will eventually be taxed. Gifts given for public use to universities, the government, or otherwise are not charged inheritance tax.

This is barely scratching the surface of what planning a will and your children’s inheritance may entail. There are options and routes that you can tailor to your needs. In any case, it remains indisputable that planning your estate for your children’s future should not be put off. Start your journey with effective planning. Speak to a specialist and analyse the best options for you and your family.