What is estate planning?

Estate planning is the process of arranging how to leave your money, property and possessions to loved ones when you pass away. It also focuses on passing on your assets during your lifetime in line with your wishes – meaning you can enjoy seeing the positive benefits they bring to the people and causes that matter to you.

In this guide, we will cover:

  • What is your estate?
  • Writing a Will
  • Making use of trusts
  • Minimising Inheritance Tax
  • Passing on Pensions
  • An estate planning checklist

It can feel daunting when having to plan your estate. For practical advice specific to your situation, contact us** to uncover the True Potential of your estate.

What is your estate?

An estate is the collection of all assets belonging to an individual, including money, investments, property and physical possessions – such as vehicles, artworks or jewellery.

Estate planning covers how your assets are transferred. It can also provide instructions for what should happen if you become incapable of handling your own affairs, prior to your passing, and ensure your loved ones are looked after.

Will and estate planning guide

Making or updating a Will

Your Will lays out what happens to your money, property and possessions after your passing. You can write it yourself but you should get legal advice if your Will is not straightforward.

Your Will should cover your whole estate, so it’s a good idea to draw up a list of your assets and debts. It should set out:

  • Who you want to benefit from your will – these people are known as beneficiaries
  • Who should look after any children under 18
  • Who is going to sort out your estate and carry out your wishes after your passing (your executor)
  • What happens if the people you want to benefit die before you

Assets to include in a will:

  • Property owned in the UK and abroad
  • Money kept in savings accounts
  • Investments such as stocks and shares
  • Belongings such as vehicles, jewellery, artworks, furniture and antiques

Debts are also just as important to include:

  • Outstanding mortgage or other loans
  • Credit card balances or overdrafts

Donating to charity in your Will

Leaving money to charity in your Will when planning your estate is a great way to leave a positive legacy for the future. It can also potentially reduce the amount of tax paid by the rest of your estate, meaning your family can get the most out of their inheritance.

Your donation will either:

  • Be taken off the value of your estate before Inheritance Tax* is calculated
  • Reduce your Inheritance Tax rate, if 10% or more of your estate is left to charity

You can donate a fixed amount, an item or what’s left after other gifts have been given out.

Trusts and estate planning

A trust will allow someone else to manage your assets after you pass and on behalf of your beneficiaries. It is beneficial if you want to leave assets to a younger beneficiary, such as a child or grandchild, to have in place until they reach adulthood. Trusts are also useful when it comes to probate** as, generally, assets held in a trust sit outside of your estate, allowing your executors to access them without any delay.

When making a trust for estate-planning purposes, there are several roles that you need to understand:

  1. The settlor – the person who creates the trust and decides how the assets should be used.
  2. The beneficiary – they benefit from the trust. There might be more than one beneficiary, like a whole family or a defined group of people.
  3. The trustee – the person who is responsible for managing the trust. They deal with the assets according to the settlor’s wishes, as set out in the trust deed or their Will.

Although trusts can be useful for Inheritance Tax planning, it can be a very complicated area with lots of different types of trusts and rules associated with each.

Contact our financial advisers** for professional expertise that is best suited to your unique circumstances.

How Inheritance Tax works: thresholds, gifts and allowances

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.

There’s normally no Inheritance Tax to pay if either:

  • The value of your estate* is below the £325,000 threshold
  • You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

You can pass a primary residence to your spouse or civil partner when you pass. There’s no Inheritance Tax to pay if you do this.

The standard inheritance tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

If you leave your home to someone other than your spouse or civil partner in your Will, this counts towards the value of the estate. Your tax-free threshold can increase to £500,000 if you own your home (or a share in it), providing that:

  • You leave it to your children (including adopted, foster or stepchildren) or grandchildren
  • Your estate is worth less than £2 million

Seven-year gifting rule

No tax is due on any gifts you give if you live for seven years after giving them – unless the gift is part of a trust*. This is known as the seven-year rule. Gifts given three to seven years before your death are taxed on a sliding scale known as ‘taper relief’.

Please see here for more information* on taper relief and the sliding scale (site originally accessed and up-to-date as of 03/05/24).

Taper relief only applies if the total value of gifts made in the seven years before you die is over the £325,000 tax-free threshold.

A ‘potentially exempt transfer’ is a lifetime gift which is potentially free of Inheritance Tax.

It’s a transfer of anything that has value, such as possessions, property or money, and becomes fully exempt if you live for seven years after making the gift. If the circumstance arises where there are more than three years between the date of the gift and the date of death, then taper relief will reduce the tax payable.

Use our Inheritance Tax Calculator** to get an indication of how much your estate is liable for and contact us** to discuss your results and potential options in more detail.

Passing on your Pension

Pensions** can play a big role when it comes to estate planning and naming a pension beneficiary is one of the key ways to do more with your money.

A pension beneficiary is the person who will receive the money remaining in your pension when you pass. Your pension is left to your beneficiary through your ‘Expression of Wish’.

Your pension sits outside of your estate, meaning your beneficiary won’t normally pay any Inheritance Tax on the money inherited through your pension.***

There are a couple of options for your beneficiary to :

Flexi-access drawdown

This option allows your beneficiaries to take inheritance from a pension as an income. As much or as little income as they want can be withdrawn while funds remain within the pension wrapper. Access is indefinite and cash can be drawn at any time.

Inheritance is paid to your beneficiary tax-free if you are under age 75 upon passing, and flexi-access drawdown is elected within two years of passing.

If you are 75 or over, then benefits will be taxed at the beneficiary’s marginal rate of tax.

Taking the lump sum

This option allows your beneficiaries to take some or all of the pension fund as a lump sum. If you are under age 75 upon passing, and benefits are paid within two years, the sum is paid to the beneficiary tax-free.

Lump-sum benefits will be taxed at the beneficiary’s marginal rate of tax if you are aged 75 or over or if the payment was not completed within two years of passing.

If you are in any doubt or want to make sure your beneficiaries are named correctly, it could be worth contacting our financial advisers**. They’ll be able to assist with your beneficiaries and ensure your pension is tax-efficient and aligned with your goals.

Estate planning checklist

  • Identify what you are aiming to do and how you would like to cover any personal or business affairs
  • Outline your assets and debts
  • Write your Will or, if you already have one, make sure it is up to date
  • Decide who you would like to distribute your estate
  • Set up a trust to allow your assets to be managed
  • Decide whether you wish to leave a charitable legacy
  • Consider any ways you may wish to potentially reduce Inheritance Tax

Estate planning from True Potential

Estate planning is a varied process and requires close attention to make sure that your beneficiaries stand to gain as much as possible. The various solutions discussed in this guide have different timescales and risk profiles.

Our financial advisers** can offer professional guidance that is best suited to your estate-planning goals.

If you’re a True Potential Wealth Management client and have any queries about the tax and inheritance aspects of planning your estate, you can speak to one of our financial advisors or call our Relationship Management Team on 0191 500 9164. They’re available 7am-8pm on weekdays and 8am-12pm on Saturdays.

If you’re not an existing client, call one of our experts on 0191 625 0350 to learn more.

The Financial Conduct Authority do not regulate Will Writing, Tax Advice and Estate Planning. The guidance and/or advice contained within this blog is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.

This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.

Tax is subject to an individual’s personal circumstances, and tax rules can change at any time. Pension eligibility and tax rules apply.


*All data indicated has been appropriately sourced from http://www.gov.uk/ and accessed on 3/5/24

** All data indicated has been appropriately sourced from True Potential and accessed on 3/5/24


*** If a pension is claimed more than two years after the pension holder’s death, tax might be payable. Any money taken out of the pension scheme before death, or any investments bought with cash from the pension scheme, will count as part of the deceased’s estate and might be subject to Inheritance Tax.

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