Legacy Planning – Start Thinking Early

Graeme PegmanFinancial Planning



What is legacy planning?

[x_text]Often when we think about legacy, we think of something that is left behind after a person has passed. That’s true… as far as it goes.

But we can also think of legacy in a wider way. Legacy could also include sharing what you have learned, not just what you have earned. It could be about leaving lasting values not just valuables.

Material wealth may be only a very small part of a person’s legacy, and often it’s our time, our knowledge and our support and kindness that makes the biggest difference to others.[/x_text]

[x_text]If your legacy is to benefit your children or grandchildren – do you want to wait until your death for them to benefit?

Here we’ll use an example of inter-generational planning; perhaps we want to help our children or grandchildren through school or university, or (increasingly common these days) assist them onto the housing ladder. These goals probably aren’t best addressed via your will, and may need to be planned much earlier. Legacy planning can help you achieve these aspirations while you’re still around to enjoy it.

Preparing a financial plan can help you identify which of your assets you need, and which you can afford to live without, and any assets you don’t need for your own lifestyle can be used to help others during your lifetime.

Not only do your chosen beneficiaries get the help you want to give them earlier, but also consider that this allows you to see them prosper and benefit, and share in that experience.[/x_text]


What do you think the world needs from you, and what can you give to meet that need?

[x_text]Have a clear ambition about what you’d like to achieve with your time or assets – for example would you like to benefit your family, your close friends, or perhaps an educational establishment, a sporting club, a charity, etc?

I’d also recommend that you document your wishes, to act as a guide to those you choose to help you; for instance family members, personal representatives, trustees or legal professionals.

You can include guidance on who you’d like to benefit, in what way, and when, and also include details of anything you’d like to avoid.

Many high net worth families use written briefings to guide trustees and beneficiaries about their beliefs and values, giving guidance about their expectations, and helping to pass down family values over many generations, ensuring that the family’s ethics and standards are preserved over the years. To me, this seems to be a common sense approach, and probably shouldn’t be confined only to wealthy families.[/x_text]



[x_text]Commonly thought to be the preserve of the rich, trusts are increasingly used by many families to preserve their assets, and to retain a measure of control over gifts and legacies.

Trusts are legal arrangements created in order to be able to make gifts and bequests, but also to retain some third party control and protection of the trust’s property.

For example, a gift to a young child with the intention of assisting with educational expenses can be placed in trust, giving the trustees guidance as to how and when the property can be used.

Trusts can also be useful to protect assets in the case of matrimonial split, or from creditors should a business fail.[/x_text]



[x_text]A will is the final (and often the only) opportunity to clearly define your wishes about what you want to happen once you have passed away.

However please don’t limit the scope to mere financial aspects – I’d recommend you give very careful consideration to all aspects of your life:

  • Who will look after any dependents? What financial resources will your dependants need?
  • Who do you want to be your personal representatives?
  • Would you like to make provision for charitable giving – whether by direct bequest or the creation of a charitable trust?
  • Do you have any specific bequests? These are often the most difficult, but in some ways the most meaningful aspects – for instance who would you like to have your wedding ring, or your favourite wristwatch?

I’d recommend that everyone has a will, and reviews it periodically, making sure it continues to reflect your current wishes. Not only does this provide peace of mind, but it also avoids the delays, complications and expense of intestacy (dying without leaving a will), which can mean that your assets are distributed in a way you hadn’t intended.

Personally, I’m an advocate of having wills professionally prepared by a solicitor rather than a will writer or “do-it-yourself” service. These are properly qualified and regulated professionals, and in my opinion it’s worth engaging with specialists in such an important matter.[/x_text]


Inheritance Tax

[x_text]Many people dislike or even resent the idea of paying tax when they pass on their assets to future generations.

Taxes on passing assets after death were introduced in the 18th century, and originally applied to the wealthiest estates.

However, with property prices having risen significantly over the last 40 years, a much larger percentage of families will find themselves within the scope of the current Inheritance Tax regime, so it may well apply to your estate. A brief outline is as follows.

Regardless of their value, any assets you leave to your husband, wife or civil partner are exempt from Inheritance Tax.

For assets left to anyone other than their spouse or civil partner, each individual has Nil Rate Band (effectively an allowance), which currently stands at £325,000. Any part of this that is unused on death can be passed to your spouse or civil partner but not to common law partners or children. Above this nil rate band, any assets you leave will be subject to Inheritance Tax at 40%, which must be paid to HMRC before the estate is finalised.

For many, especially those with high property values, this means that their nil rate band is taken up by the value of their home, with everything else being taxed.

There are some exemptions, such as some business and agricultural interests, and also gifts to registered charities which are exempt from Inheritance tax.

Additionally, recent changes in legislation mean that in addition to charitable giving being exempt, if someone gives 10% or more of their taxable estate to charity, the rate of IHT charged on the remainder is reduced to 36%.

There are strategies to legally avoid some of your IHT liability – a financial planner or STEP (Society of Trust and Estate Planners) accredited solicitor will be able to advise on your options.[/x_text]

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Mitigating IHT during your lifetime

Gifting – in general terms, certain gifts can be made which reduce the value of your estate, subject to you surviving for a period of seven years after making the gift.

You also have several allowances and exemptions, such as gifts you make from normal income, an annual allowance of £3,000 per donor (with the possibility of using last year’s allowance if you haven’t already). Gifts in consideration of marriage are also allowable (subject to certain limits), as are small gifts of up to £250 to any number of beneficiaries (please note these can’t be used in conjunction with any other exemptions).

These are broad guidelines; as ever recordkeeping is very important when making any sort of gift, in order to make the calculation of your estate for Probate purposes as straightforward as possible.[/x_text]

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An Alternative

In some circumstances, you may be unable to reduce your estate’s liability to a point you’re comfortable with. For many, it’s possible to consider insuring the IHT bill. This doesn’t actually reduce your tax liability, but it can provide the funds (paid into trust for your beneficiaries) with which to settle the tax bill. Premiums for this can often be considered to be a gift from income.[/x_text]


Legacy planning checklist

[x_icon_list][x_icon_list_item type=”file-o”]Have a clear plan of how you can leave the legacy you want.[/x_icon_list_item][x_icon_list_item type=”clock-o”]Decide whether you can give now, or wait?[/x_icon_list_item][x_icon_list_item type=”database” style=”line-spacing:50px;”]Identify the assets you need for your lifetime, and those that can be used immediately for your legacy.[/x_icon_list_item][x_icon_list_item type=”comment-o”]Give some guidance – wills, trusts, briefings for trustees and family[/x_icon_list_item][x_icon_list_item type=”user”]Consider using professionals to guide you – Financial Planners and Solicitors can assist with this, and many will be happy to discuss your specific requirements in some detail prior to you engaging them.[/x_icon_list_item][/x_icon_list]
[x_text style=”font-size:14px;”]This document is intended to provide a broad scope of matters you may wish to consider when planning your legacy. You should not consider this to be definitive advice regarding your own circumstances, and Vital Wealth Management can accept no responsibility for your acting, or refraining from action, based on the contents of this document. We would of course be happy to provide advice regarding your own specific circumstances.

Tax benefits are subject to possible future legislation change and depend upon your own individual circumstances. Any reference to legislation and taxation is based on our understanding of law and Her Majesty’s Revenue and Customs practice at the date of publication (March 2014). Legislation and taxation are liable to change in the future.[/x_text]