UK Inheritance Planning 101

UK Inheritance Planning 101: basic terms and considerations to help you prepare

What is UK inheritance planning and why is it important?

In simple terms, succession planning should enable the smooth transfer of family wealth that aligns with a family’s values and long-term goals. 

Most importantly, having a plan in place means that it is made easier for your loved ones to understand what they need to do at one of the most stressful and unsettled times in their life.

We have put together the below guide to help children of wealthy families start the process of having these important conversations with their family members to help avoid future complications.

What is the difference between inheritance and succession planning?

Both inheritance and succession planning look to ensure the smooth and efficient transfer of wealth from one generation to the next.  Inheritance planning has a particular focus on transfers when a person passes away, whereas succession planning may have more of a focus on transfers whilst someone is alive, for example the transfer of management of a family business.  Both are interchangeably used and the key is to ensure there is a plan in place!

Key questions to ask your parents in respect of their succession plan:

1. Have your parents made a Will and will they share their intentions with you?
2. Have your parents received inheritance tax advice on their plans?
3. Who have your parents appointed as executors?
4. Where is your parents’ Will held?
5. Do your parents have any plans in place for Powers of Attorney?

Key definitions to understand to help you prepare for future succession conversations – with both parents and advisors

There are many terms used in relation to succession planning which can make the process complicated and confusing for everyone involved.  Below is a high level summary of the most common terms and what they mean:

Power of Attorney:  This gives someone the ability to control your finances during your lifetime.  Typically these will only have effect if someone becomes incapacitated and unable to deal with their own finances.  These can also be granted for medical purposes, which would allow someone to make decisions on your healthcare should you become incapacitated.  Typically spouses will appoint the other in the first instance, but it is important to consider who would be appointed if the spouse has passed away or is incapacitated themselves.

Executor:  An executor isappointed under the Will to manage the deceased’s estate, ensure that all outstanding expenses and debts are repaid, file relevant tax returns, apply for the grant of probate and ensure assets are distributed in accordance with the Will. Usually an executor will be a solicitor or assisted in carrying out their duties by one.

Will:  The legal document that determines how an individual’s assets are distributed on their death.

Letter of wishes:  Sometimes a Will may be accompanied by a letter of wishes, which might cover things like which items of jewellery should go to which child.  The benefit of having this as a letter of wishes rather than a will is that it is much simpler to update.

Probate:  Broadly, the executor must apply for probate to get official permission to carry out the wishes of the Will.  The executor must first determine the value of the estate and any inheritance tax due, reporting to HMRC, before they can apply for probate.

Joint tenants:  Where assets are held as joint tenants (such as property or joint bank account), the half interest in the asset will automatically pass to the surviving tenant.  It should be noted that whilst this should be straightforward for bank accounts, often banks apply stricter rules on when they will allow the surviving tenant to access the cash on the death of the other.

Tenants in Common:  Tenants in common holds a separate interest in the asset (i.e. property) and their interest can be unequal.  Holding in this way allows the person to dictate who they wish for their interest to pass to without it automatically going to the surviving tenant.

What to do next:

This is just an introduction to some of the terms and questions that need to be considered when starting your succession planning. Bentley Reid will be sharing more content around inheritance and succession planning.

Need more advice? Reach out to our experts:

Anna Warren – Tax Director

anna.warren@bentleyreid.com

Mike Winstanley- Director, Wealth Management

mike.winstanley@bentleyreid.com