Pass Inheritance to your Family with these 5 Easy Steps

When we pass away, it’s comforting to know that our loved ones will be well looked after. Depending on the value of your assets and estate, your family could have to pay thousands in inheritance tax or suffer undue stress if your affairs aren’t in order. This is why making the necessary arrangements for the future is so important! Fortunately, there are a variety of cost-effective ways to pass on our inheritance to loved ones when the time does come, and in this post I'm going to share just five of these.

Make a Will

Writing your will is one of the essential stages of estate planning. Your will dictates how you would like your assets to be distributed after your death. If you fail to write a will, you will have little control over the distribution of your assets (which will be divided according to UK intestacy rules), and any inheritance may be subject to costly inheritance tax that could have otherwise been avoided. You can use professional will writing services and seek legal advice to ensure that your will meets your expectations.

Property

If you wish to pass on your home to your family after you pass, bear in mind that the process can be complicated when it comes to paying inheritance tax. Many people choose to ‘gift’ their homes to their children when still alive to reduce the value of their estate and its corresponding liability, but it’s worth noting that inheritance tax will still be payable if you die within 7 years. Another option is leaving your property as part of a will, where the first £325,000 will not be subject to IHT as part of the ‘nil-rate band’. A further £125,000 tax-free allowance can be claimed as a ‘main residence nil-rate band’.

Equity Release

Many property owners also use equity release mortgage schemes to pass on inheritance to family whilst still alive. Equity release schemes essentially enable homeowners to either sell a portion of their home or borrow money against the value of their property. While this can be an effective way of distributing inheritance to your family, it’s worth noting that equity release schemes may also shrink the value of assets remaining after your death.

Life Insurance

Making use of a life insurance policy is a guaranteed way of ensuring that your chosen beneficiaries receive payment after your death. Life insurance policies written ‘in trust’ remain distinct from the estate in your will and any payouts are exempt from inheritance tax. Popular policies include ‘term’ assurance policies and ‘whole life’ policies, with ‘term’ policies only valid up to a certain age. The notable downside of life insurance policies is that they can become increasingly expensive as you enter old age.

Money

In the same way that you can ‘gift’ property to your family when alive, you can also give cash gifts. The rules around cash gifts in the UK vary - for instance, there is no inheritance tax applicable to gifts exchanged between spouses or civil partners, or those gifted to political parties and charities. You can also make use of an annual tax-free exemption of £3,000 to gift cash to loved ones.

This is a collaborative post.