Six ways to clean up your inheritance planning arrangements

For family members mourning a loss, the last thing they want to deal with is money. Coping with the death of a loved one is already incredibly difficult, without adding the stress of trying to find passwords and wade through call centres. But unfortunately, there’s a lot of work that needs to be done. However, there are some steps you can take to smooth this process, making it easier for your family to find your assets, fulfil your wishes and reduce the burden of inheritance tax.

One of the more memorable examples I’ve seen is when one of my colleagues sadly died last year after a long illness. On his desk was a folder labelled, ‘Dad’s dead – what next!?’

No room for ambiguity there!

While this brought a smile to the faces of his family who appreciated his dry humour, it was also an incredibly thoughtful and useful parting gift. The folder contained everything his family would need to administer his estate, including account numbers and contact details of people who could help.

It’s a relatively simple measure that can be a major benefit to those left behind. If you’d like to do the same, here are six examples of what the folder should contain.

It makes sense to start with documents specifically created for this purpose. A copy of your Will is an obvious inclusion in the folder, as is your lasting power of attorney (if relevant) and details of any trusts you've set up.

Now is also a good time to make sure the trusts have at least two appropriate trustees. Be sure to keep copies of the original trust deeds. I’ve seen many cases where clients are adamant that certain investments are in trust, but we can’t prove it if we don’t have access to the trust deeds.

This used to be more straightforward. You could almost always find a filing cabinet or a drawer somewhere, filled with statements and letters containing most of the information you’d need.

Not anymore.

With everything moving online, most of your account numbers, balances and tax information is hidden inside a digital safe. Some assets, like cryptocurrency or digital bank accounts, may have no physical trace at all.

If you have a financial adviser, an easy solution is to provide this contact information. They should have a complete record of your assets and can help your loved ones work through the administration process.

If not, your folder should contain an up-to-date list of all your assets and accounts. Be sure to include all your pension accounts, as well as any death in service insurance or other life policies you may have.

Don’t forget to include debts in this document such as credit cards or personal loans. They’ll need to be repaid before the estate can be finalised.

Unusual items, such as my collection of guitars, might require a little more information. A list of their approximate values and contact details for someone who can help sell them, can be very useful.

The details of any financial gifts made over the past seven years (or in some cases, 14) are important when it comes to calculating your inheritance tax liability. Without a specific record of the gifts you’ve made, there could be a major challenge for your executor.

There are also specific rules for gifting a property, which you should understand before making any decisions.

Any regular gifts made from spare income (not capital) which don’t impact your own standard of living are immediately exempt. This is known as the gifts out of surplus income exception, but you’ll need to prove these amounts had no direct impact on your own lifestyle with a breakdown of your regular gifts alongside your living expenses.

The easiest way to do this is to use the tables, which can be found in HMRC’s form IHT403, where you can keep a running record of your income, expenditure and regular gifts.

Even with some detailed inheritance tax planning, your estate may still have a bill that needs to be paid. If this is the case, you should have a plan for how it will be settled.

There are different rules to consider, such as the ability to pay the bill over 10 years for assets that may take time to sell, like property. Depending on how accessible your assets are, the executor may need to borrow money to pay the inheritance tax liability.

Having a documented plan in place can avoid this and speed up the process of obtaining probate and having your money paid out sooner. Some options might include earmarking certain cash assets to cover the liability, or setting up a life insurance policy within a trust to pay out the estimated amount.

Naturally, we leave behind far more than just a list of assets and liabilities. Keeping your personal items organised and as uncluttered as possible can be a big help, as can making notes on any items you want to go to specific people.

A list of utilities suppliers, internet providers, home and car insurance details and any other regular payments like subscription services can allow your executors to stop payments quickly.

Sharing your preferences around your death and funeral arrangements can be a confronting conversation to have, but it can reduce the pain and stress when the time comes.

My closest colleague lost her father last year at age 90, after a long illness. They’d had the opportunity to discuss his wishes for his funeral, including the songs he wanted to be played at the service.

This meant that when the time came, she knew she was doing exactly what her dad would have wanted.

While we’ve not gone into the details of inheritance tax in this article, it’s worth briefly mentioning that there may be some changes on the horizon under the new Labour government.

If you’re considering your inheritance tax and estate planning arrangements, it’s worth keeping an eye on the upcoming Autumn statement. As with any plans you make now, you should make the time to review them on a regular basis to ensure they’re still right for you and your loved ones.

Planning properly to manage your estate is a complex undertaking. From getting in place Wills, trusts and other legal documents, to managing your inheritance tax liability, the earlier you start, the better. If you have any questions about your own estate planning or inheritance tax situation, book an initial consultation online or by calling 020 7189 2400, or speak to your usual Evelyn Partners contact.