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All you need to know about estate planning

Moneymagpie Team 28th Feb 2023 3 Comments

Reading Time: 14 minutes

Estate planning sounds like one of those things that only applies to wealthy people who own country estates. But it isn’t true. All it means is planning for what will happen to your estate when you die. Your ‘estate’ means everything you own, including money and property.

Nobody likes to think about death or leaving behind those we love, but it’s so important to prepare for what happens next after you’re gone.

There are quite a few words and terms and rules that you need to understand and actions that you need to take (like writing or updating your will). In this ‘all you need to know’ guide we will take you through each of them, explain what they mean and what you should do.

There are also lots more helpful articles here.




wonky will



What is a will?

Your will is how you divide up your estate (which is everything you own that has economic value, from your money to your house to your car) in the way that you want, rather than the way the court decides. For example, if your arch-enemy also happens to be your twin sister then it is likely that you might want to leave her nothing. However, the courts may award her everything you owned if you didn’t leave a will telling them not to, simply because she was a close relative.

This is, obviously, among the most important pieces of information to leave your loved ones. As well as saying which beneficiaries get what, you also need to make clear a few things.

What exactly is going to each person?

Maybe, instead of easily countable sums of money, you want to bequeath a diamond-encrusted tortoise to your aunt. She throws her arms up in confusion – WHICH diamond-encrusted tortoise? (This would be a rather satisfying problem to have.) An easy way to avoid confusion is to add in photos of the individual gifts to your will.

Who is the executor?

Nope, this isn’t the guy who administers your lethal injection. You need to nominate between one to four executors of your will, who are in charge of making sure all the stuff you wanted to happen happens. These might be friends, family members, or solicitors who will charge for their services.

What plans do you have for your children?

If your children are under 18 years of age and your partner is unable to care for them, then there are several options open which you will need to think through carefully. We recommend you seek advice on this from a solicitor, who will be able to guide you on what you need to do.

How can your executor contact all your beneficiaries?

It’s easy enough to ring up a charity and make a donation. On the other hand, leaving a mansion to a distant niece is all well and good, but if nobody has her contact details then it is unlikely she will ever be able to collect. Including phone numbers and addresses of your loved ones is a sensible idea, as is letting them know that they’ll inherit.

The risks of not making a will

Dying without a will is known as dying ‘intestate’. The risks of dying intestate include: 

  • Your estate being divided in a way that you wouldn’t have wanted (if you’re not married to your partner, for example, they may inherit nothing)
  • Disagreements between those who are expecting to inherit
  • The inability to make it clear how any dependents (or pets) will be cared for 
  • Losing the chance to leave assets to grandchildren (this isn’t possible without a will)
  • Your family having to appoint an administrator, which adds delay and potential cost to the process

March is FREE WILLS MONTH – click here to find out more.


Reading a will

Reading a will for the first time can be confusing and sometimes overwhelming. Executors can act without a solicitor, however it may be wise to get some legal advice if you are unsure on how to proceed.

For example, if the estate is particularly complicated, legal advice is the best way to avoid any confusion and ensure compliance with the will. In particular circumstances, legal advice must be followed.

Such circumstances may be, for example, if the terms of a will are unclear, money or property was left in a trust fund, part of the deceased’s estate is to go to children under 18 years of age, or the person who died has part of their estate abroad. In these situations, contacting a solicitor should be the first step.

Similarly, if you think anyone is likely to dispute the terms of the will, or you yourself would like to contest it, proceeding with a legal team will help you get the best out of this situation. Any legal fees which are incurred as the result of the occurrences noted above may be paid for out of the estate.


Contesting a will 

So, you have received the will of your loved one, read through the terms and have decided to contest part of the document. What now?

Contesting your loved one’s will may be the last thing you want to do. However, there are reasons recognised by law which means it is necessary to do so.

There are two key reasons as to why you may contest a will:

The will is invalid

If you believe the deceased did not have the mental capacity to make a will, the will may be invalid on this basis. Your loved one may have been suffering from a serious illness like Alzheimer’s or dementia when they created their will.

Currently, there are 944,000 people in England alone living with dementia. For their will to be valid, they must still be able to make key decisions for themselves and their illness must not affect this. If you believe this wasn’t the case in regard to your loved one, you may have grounds to contest.

Perhaps you want to challenge the terms of the will on the basis that you believe it doesn’t reflect the deceased’s true wishes or intentions. In other cases, you may choose to challenge the will if you were unfairly cut out of it.

The will does not provide reasonable financial provision

You may have been financially dependent on the deceased. Even if you believe the will itself to be valid, you may have the view that you should have been more greatly provided for under the will’s terms.

If this is the case, you can make a claim under The Inheritance (Provision for Family and Dependents) Act 1975.

It is important to remember that a basic principle of the English Law surrounding wills, is that you may leave your estate to whoever you choose. If you don’t like the way your loved one chose to distribute their assets following their death, it is not a legal reason to challenge the will.


Funeral arrangements and costs

Not only are funerals tough for families but arranging them can be a stressful time. A particular stress that comes with arranging a funeral is the cost. According to MoneyHelper a funeral with burial will cost an average of £4,383, whilst a funeral with cremation averages at £3,290.However, this excludes extras such as a headstone or flowers.

This is an added stress during an already difficult time. Therefore, it is important to be aware of how the funeral can be paid for. First and foremost, it is important to understand who is paying for the funeral, as the person who signs the papers at the funeral director enters into a formal contract to pay for the funeral.

Your loved one may have had a pre-paid funeral plan, so some or all of the cost may already be taken care of. If this is not the case, the cost of the funeral may be taken directly from the estate of the deceased. It is important to bear in mind, however, that it may be hard to get the funds needed in time for the funeral. Therefore, if funds cannot be released on time, the family may need to pay and be re-imbursed at a later date.


‘Death duties’ and what they mean

‘Death duties’ were renamed as the Capital Transfer Tax in 1975, and again to Inheritance Tax in 1986. Inheritance Tax is a tax on the estate of the deceased. This includes their property, monetary savings and possessions.

Whatever the value of an estate, whether it is above the threshold or not, it must be reported to HMRC.

Inheritance planning and tax

inheritance tax advice

What is inheritance tax?

Inheritance tax is paid on the total value of someone’s estate when they die. It’s also sometimes payable on trusts and gifts made during that person’s lifetime. However, you only pay a certain amount if the total estate value is over the inheritance tax threshold (see below). You only pay tax on that amount over the set limit (not the whole estate).

The tax isn’t paid by you: it’s paid by the person inheriting your estate (or part of it) after you die. It’s not about how much each individual inherits – so you can’t avoid it by leaving your estate to multiple people. They’ll all still have to pay inheritance tax on their portion.


How much inheritance tax do I have to pay?

Firstly don’t panic – not everyone has to pay inheritance tax.  It’s only applicable if assets and any combined wealth are over the current inheritance tax threshold (£325,000). Any wealth you own above this allowed amount is taxed at 40% on death, with the main exception being gifts made to your spouse or civil partner.

Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies – to as much as £650,000.

As of April 2017, there’s also an extra £175,000 allowance on the value of your primary residence if you pass it to direct descendants. So, if your entire estate is valued at £450,000, but that includes your home at a value of £200,000 that your child will inherit, there’s no inheritance tax to pay.


When do I have to pay inheritance tax ?

In most cases, you must pay inheritance tax within six months of the end of the month in which the deceased died. Be careful as interest is charged on any tax not paid by the due date, no matter what caused the delay in payment.

Don’t worry if the majority of the tax would be paid through the value of the estate such as a house, because HMRC have kindly developed a system where you can pay yearly installments over 10 years. Fortunately, there are ways of reducing your potential liability (i.e. the enormous amount of tax your children may have to pay).


How can I reduce my inheritance tax?

The only way to reduce the RATE of tax is by giving at least 10% of your estate to charity in your will. This reduces the rate of inheritance tax on the whole estate from 40% to 36% – so, on large estates, it’s worth considering.

You can minimise the amount your beneficiaries pay by reducing your estate before you die. The first way to do this is with financial gifts. You can gift up to £3,000 per year to family members (£6,000 if you didn’t give them anything in the previous tax year), and as many gifts of £250 to friends each year as you want. You’re also allowed to provide one-off gifts of £5,000 to children (or £2,500 to grandchildren) for ‘life events’, like getting married, going to university, or buying a house. You can do the same for friends at a lower limit of £1,000.

If you’re married, you can each give up to £3,000 a year to family members, totalling £6,000 (or £12,000 if you roll last year’s allowance over). However, these payments can’t come from a joint account – it MUST be paid from your individual accounts as two separate payments of £3,000 EACH. Otherwise, HMRC may say the primary taxpayer in the couple is the sole gift provider – and the second £3,000 will come under inheritance tax rules.

Remember, you can also pay into a Junior ISA or pension for your grandchildren – and you can contribute to your child’s pension, too.

Gifting money is a good way to reduce your estate – but it’s also ideal if you want to see your loved ones enjoy their inheritance while you’re still here!

Potentially exempt transfers

You CAN give more than the limits provided above. However, these are known as Potentially Exempt Transfers (PET). What this means is, if you die within seven years of giving the money away, the recipient will have to pay inheritance tax on it. After seven years, it’s not liable for inheritance tax and they won’t need to pay tax.

The amount paid is tapered depending on how soon after providing the gift you die. So, for the first three years after, inheritance tax is 40%. It reduces yearly after that in 8% steps (so 32%, 24%, 16% etc) until the seven years is met.

If you’re not sure whether you want to gift the large amount of money in case your loved one will end up having to pay inheritance tax on it anyway, look at it the other way. When they have to wait to inherit the gift when you die, they’ll definitely have to pay inheritance tax (if your estate is over the threshold). If you give it to them now, and you live more than seven years, they won’t have to pay any inheritance tax – so they’ll get to keep the full amount (instead of losing up to 40% to the taxman).

For even more information on inheritance tax, click here.


What information should I leave my loved ones?

An important part of preparing for what happens after you die is preparing the information that you’re going to leave your loved ones, from your financial details to your last will and testament. You might think you’ll do it ‘when you’re older’ – but it’s essential for adults of every age to have a will.

However important it is, though, it doesn’t mean that people are actually doing it. Around two-thirds of adults in the UK don’t have a will in place – and even more haven’t assigned power of attorney. More than that, most children don’t know where to access their parents’ essential information, bank account details, or title deeds. Without access, sorting a person’s estate after they die is very difficult indeed.

Below you’ll find everything you need to do make sure you and your loved ones are prepared.


Important documents

The biggest part of this is where you get all the essential paperwork together. Kill me now, you’re probably thinking. Well, not until you’ve got this all sorted. To give you an idea, this should include:

  • Bank statements and account details (including passwords)
  • Tax certificates, such as your P60
  • Mortgage information
  • Outstanding bills
  • Pre-paid funeral plan details, if applicable
  • Insurance policies
  • National Insurance number
  • Credit card statements
  • Property deeds
  • Birth, marriage and divorce certificates
  • Passport, driving licence and other ID
  • Details of savings and investments, for example share certificates, Premium Bonds and pension plan statements

If you use online banking, print out copies of the relevant information.

Another way to make life easier (or rather, to make death easier) is to set up joint accounts, for example with your husband, wife, or someone else you trust. This means that if you die, money can still be taken from your account without having to wait for probate to be granted. So if you are the breadwinner and you die, your partner can still make use of your money to pay the day-to-day bills without needing to wait months for the money to be released.


Power of attorney

Setting up a ‘power of attorney’ is a good idea if you’re expecting a long period where you are unable to make decisions yourself, for example if you’re suffering from a degenerative terminal illness or you know that dementia runs in your family.

Power of attorney is an official arrangement where you grant someone the formal ability to act on your behalf, and do things like set up accounts or pay bills for you. When the end of the road is in sight, having someone you trust to deal with these things can make the final stretch less stressful for all involved. You must set up a power of attorney whilst you’re still in a sound mental state – otherwise, someone trying to take care of you will need to apply to court to be appointed as a deputy. This can be expensive and drawn-out, and is something you want to avoid.


Record of gifts

As we explained above, the main ways of reducing inheritance tax are to:

  • Leave everything to a spouse or civil partner
  • Spend it
  • Donate to charity
  • Give it away

We’re going to talk about the giving-it-away option here. The first three will all be documented anyway, and so it is easy to prove to a court that they were carried out.

Gov.uk explains that:

“People you give gifts to will be charged Inheritance Tax if you give away more than £325,000 in the 7 years before your death.”

This means that gifts must have been given more than seven years before you died, or they will still be counted as part of your estate, and the recipient will be taxed accordingly. There are quite a few exceptions to the rule, so it’s best to read our full article about gifting money here.

The information to leave your loved ones in this case is a record of the gifts you have given with a value above £250. Stipulate if they were for a special occasion, such as a wedding, or if they fell within the permissible annual limit for family members. The law is quite complicated! You need to record what you gave, to whom, its value, and the date it was given.

For more information and some frequently-asked questions about IHT, check out our article here.


Passwords and logins

In a digital age, we all have several logins, online accounts, and social media channels that need managing. Without leaving these passwords for your loved ones, you’re opening up your accounts to fraud. You may also have recurring digital subscriptions, such as Netflix, Prime, or Spotify, that need to be cancelled.

Make a list of your passwords and login details. Tell someone you trust where it’s stored, and keep it VERY safe! A digital version is handy, but a printed copy is essential if you want to ensure someone can get into your accounts to close them. Otherwise you might find you’ve saved it on your computer… and forgotten to tell anyone your laptop password!


Getting the information together

Once you’ve managed to get everything together, your family need to know where to find it. Make sure to tell your executor or executors where it is, preferably in writing. If nobody knows where your will is then it can be ignored, and your evil twin sister might be able to steal everything!

Where to store your will:

  • If you made a will with a solicitor or a will-writing service, then it can be stored in their archives (usually for a small fee).
  • Deposit the will with the Probate Service. This costs £20 and is one of the most secure options, as only you can access it while you are alive.
  • Keep a copy of it in your paperwork files at home – but make sure you’ve filed an official copy with a solicitor or the Probate Service, too.
  • You should NEVER store your will in a safety deposit box. This can only be accessed by you or those you nominate in your will – so if you’re dead and the will is inside the box, no one will be able to read it (and that’s assuming they know where it is in the first place).

As for everything else, you could:

  • Create a physical folder full of all the printed documents and certificates.
  • Create a computer file with all the important documents scanned in or in PDF form, with directions to the location of the physical counterparts.

Some law firms offer document storage as well as will storage, so this could also be something to look into.

Something important to note is that you should never attach anything to your will with staples, paperclips or anything similar, as this can raise questions about whether the will is complete or if there are any missing pages.

Ultimately, going for several options is the safest route. Keep the original will somewhere safe and official, such as with your solicitors. However, also keep a copy with you at home with your other documents, and have an online file for backup.


More information

Read on…


*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.


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Bridge Dale
Bridge Dale
2 years ago

 Would never have known this if I hadn’t read it here. People have a hobby of making it seem easier than it is but it’s actually not. These details we should know before we pay extra amounts in taxes.

3 years ago

Excellent article. Appreciate the information.

4 years ago

Informative article on inheritance tax.

Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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