If youâre an ostrich, you prefer not to think about the inevitable. Being an ostrich means trusting the fortunes of your loved ones to chance once youâve gone, and having no control over what happens to your possessions and who should benefit from them. To an ostrich, death is five letters, one syllable, and a load of stigma.
If, however, youâre a wise owl, you take the time to think, question, and act in order to write a will, and take tax-saving steps to protect your loved ones when youâre gone.
Iâm betting that as youâve picked up this book youâve had enough of the ostrich lifestyle and want to be a wise owl instead! So donât be squeamish â this book has lots of examples of things that can happen when youâre no longer around, so grit your teeth and bear it! Iâm going to be talking about your death â yes, yours â so no hiding behind the sofa; itâs time to look the grim reaper squarely in the scythe and make proper plans for the inevitable.
In this chapter, I look at the basics of what should make up a bang-on strategy to protect your loved ones and frustrate the tax-collector.
Recognising the Advantages of Putting Your Estate in Order
A particular life event â a wedding, the birth of a child, or a health scare â can prompt you to start thinking about planning for the inevitable. Alternatively, you may just have a general feeling that itâs time to stop putting off writing down your big plan.
Oddly, people spend days choosing everyday items such as cars, kitchens, or just the right colour scheme for the downstairs loo, but wonât spend a few hours â and thatâs all it has to take â drawing up a will and getting their bits and pieces into tax-saving shape to save their loved ones a mountain of heartache.
Whether youâre in your twenties and have just got your foot on the property ladder, or youâre an octogenarian with a gaggle of grandchildren around you, making a will and tax planning have huge benefits. The benefits include:
A will allows you to set out clearly who should get what from your
estate (everything you own at the time of your death, from your home to your teapot).
A will empowers you to appoint special people to deal with your estate and look after your loved ones when youâve gone.
A will enables you to give your property away in a tax-efficient way.
Tax planning while alive can reduce inheritance tax when you die.
If your estate is worth more than ÂŁ300,000 (2007/08 tax year) or ÂŁ312,000 (2008/09 tax year) when you die, HM Revenue & Customs may impose an inheritance tax (IHT) charge (no, I donât know what the âHâ stands for either). Turn to Chapter 15 on ways around paying too much IHT.
If you do decide to make a will and have a spouse, ex-spouse, children, or other people who depend on you for their upkeep, you are required to look after them through your will. Failure to provide for these people could lead to your will being challenged in the courts. Chapter 4 has more.
Understanding what happens if you donât plan
Sorry to bring the tone down â this is a book about death and taxes, after all â but think about the situation if you were to die next week, tomorrow, or even right now! What state would your financial affairs be in? Most people would answer: A bit of a mess.
More than half the UK population dies without making a will, and an even higher percentage make no tax-saving plans during their lifetimes. The tax-collector loves these people because they leave their estates wide open for a tax grab. However, the family left behind is probably less pleased at the lack of forward planning.
Whatâs more, the tax-collector doesnât hang around, but, in most cases, demands IHT before the deceasedâs assets can be sold. As a result, the deceasedâs nearest and dearest sometimes need to borrow money to pay the tax. Just a small planning step like buying a life insurance policy to cover any IHT bill can save loved ones a great deal of hassle and heartache at what is likely to be a very difficult time.
Making plans for the inevitable makes you, as Yogi Bear was fond of saying, âsmarter than the average bearâ. Your plans may take the form of a full-blown will with lots of tax-saving steps built in, or you may simply decide to talk to those around you and sort out your paperwork, making it easier for those who have to cope when yo...
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