Let’s face facts; estate planning is something of a niche activity and one that most people aren’t completely familiar with.
In fact, many of us aren’t even fully aware of the basics of estate planning, creating a scenario where it’s relatively easy to make simple and costly mistakes that are harmful to your finances.
In this post, we’ll consider some of the most common estate planning mistakes, while asking what steps you can take to avoid them.
1. Not Having an Updated Plan
There’s an old adage that suggests that if you “fail to prepare, you must prepare to fail, and this is never truer when discussed in the context of financial management and estate planning.
It’s not enough to have a simple or basic plan in place, however, as you’ll need to cultivate a detailed plan of action that’s viable and compliant with UK law. Make no mistake; the key to successful financial planning lies in the detail, so you may need to liaise with an expert to ensure that you achieve your objectives.
Similarly, you’ll need to ensure that your plan is regularly updated to suit your circumstances and any changes in law, so a proactive approach is absolutely imperative here.
2. Forgetting Digital Assets
According to one study by the Law Society, a staggering 93% of people who have made a will fault make a provision for digital assets, while only 25% of respondents understood what would happen to their digital assets in the event of their death.
Including photos and videos, digital assets refer to anything that exists in a digital format and comes with the right to use.
Data that doesn’t possess that right is not considered to be an asset, but it’s important to undertake a complete review of your digital holdings to ensure that they’re accounted for as part of your estate plan.
3. Failing to Utilise Gifts to Reduce Your IHT Bill
Current laws enable you to gift money or assets from your state while you’re still alive, as a way of reducing your inheritance tax (IHT) bill.
The key is to ensure that the gift in question is given outright, otherwise, it may fail to meet the specific criteria and prevent you from realizing your goals from a tax perspective.
For example, if you transfer property to your children but continue to live there and benefit, this would not qualify for exemption from IHT. Conversely, if you award the house in full and your child is able to move in immediately, this will qualify and you can remove them from your future estate for tax purposes.
There are several allowances that you should be aware of in this respect, including annual exemption (in which each person can give away £3,000 worth of gifts every tax year) and wedding or civil ceremony gifts (which can be added on top of your annual exemption and awarded up to the value of £1,000 per person).