The Government recently introduced controversial changes to the way probate fees are calculated. This change has led some people to refer to it as the ‘stealth death tax’. If you are concerned how these changes will affect your own estate or those of friends and family, it is better to start thinking about your estate planning now.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
The Financial Conduct Authority does not regulate tax advice.
Plan for the inevitable
Our article, ‘A bit about the new death tax’ covers the specific changes in further detail.
As property usually makes up the bulk of someone’s estate, these changes are likely to affect those who live in areas with high house prices, such as the South-East and particularly London.
The only way to counteract the rise in probate fees is to reduce the value of the estate. Some of the ways this can be done include:
Bare Trusts
A Bare Trust is where assets are held in the name of the trustee but the beneficiary has the right to access the capital and income of the trust once they are over 18 (England and Wales) or 16 in Scotland. Bare Trusts are usually used when passing assets onto young people.
Discretionary Trusts
The trustees of the Discretionary Trust have the power to make certain decisions about how to use the trust income and sometimes, the capital. Such as what gets paid out of the trust and when. This type of trust can be used for children or grandchildren who may need more financial help in the future.
Life Insurance Policies
You should also consider paying into a Life Insurance policy that pays out on death to cover the probate and Inheritance Tax costs.
If the policy is written in trust it can be immediately accessed on death without the need for probate.
This important if the main bulk of the estate is made up of property and the beneficiaries need immediate access to funds to pay the probate fees.
Probate Trusts
A Probate Trust takes the assets held in it (typically the family home) and puts it outside of the estate from the point of view of probate. The benefits of a Probate Trust are that it can speed up the distribution of assets after death.
Probate Trusts also significantly simplifies the paperwork associated with probate.
Making ‘gifts’
You could consider making lifetime gifts. Lifetime gifts are cash or assets or some other disposal that are gifted during the lifetime, thus avoiding the need for probate fees.
Things to consider
- Bare Trusts removes the control of the beneficiary until that person reaches 18, or 16, depending on where they live.
- Trusts who assets are not passed directly onto beneficiaries do not qualify for the new residential nil rate Inheritance Tax bond or ‘family home allowance’.
- Gifts paid into Discretionary Trusts attract an upfront Inheritance Tax charge of 20% on amounts over £325,000.
- Probate Trusts do not help reduce Inheritance Tax as no money has been given away and the individual retains ownership of the assets within the trust. Probate trusts are not suitable for estates that face high Inheritance Tax charges.
How can you avoid rising probate fees?
Dental & Medical Financial Services have been helping doctors and dentists with financial and retirement planning for over 25 years. Call to discuss your options with Darren:
Tel: 01403 780 770
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