Estate planning involves planning the effective and efficient distribution of your assets both during your lifetime and after your death. Careful planning also ensures your estate is transferred to the people and organizations that you want to benefit in accordance with your final wishes.
In many countries, inheritance or estate taxes mean that it is necessary to plan this transfer well in advance and possibly start passing over wealth to your loved ones during your life. Estate taxes can have a massive effect on the amount of your estate that remains for your beneficiaries if not accounted for beforehand.
Not preparing properly for these taxes doesn't just leave your loved ones with a financial burden at a time they least need it; it could mean the forced sale of a family home or leave remaining family members financially destitute.
To avoid these potential financial headaches, starting early and planning for estate taxes can help reduce the tax liability on your estate.
Some countries do not have an estate tax, but rates in other countries do vary, so local advice should always be sought. Estate tax imposes a levy on estates over a certain value, and includes property, savings, investments, and all your other assets, but not usually marital assets in joint names, but again, this varies.
This tax will usually have to be paid to the government before the remaining assets in your estate can be distributed. If it means selling property or other illiquid assets to fund the payment, it can significantly delay distribution.
With careful planning, you can usually take advantage of allowances and exemptions to minimize or even avoid this tax.
There are several ways to manage and potentially lessen an estate's tax liability, but all need to be put in place, sometimes years before death.
Some ways include:
Giving away assets during your lifetime can reduce the amount of your estate that is subject to tax, but it may take several years to gain maximum advantage.
Leaving some or all of your estate to a registered charity will exempt that portion of your estate from tax in many countries.
Buying life insurance to cover estimated estate tax can provide peace of mind and enable the tax to be paid without selling assets. You will need to check periodically that the cover is still sufficient.
Transferring assets into trust funds can be an effective way of mitigating estate taxes, but they can be complex and come with additional costs. Local professional advice should be sought.
The threshold is the maximum value of an estate that can be passed on without incurring tax, and the amount is set by governments and changes over time. An estate valued at more than the national threshold will incur tax.
Calculating the likely value of an estate before death can be challenging to do accurately, especially if the value of assets is not fixed and can change dramatically, such as equity investments or property. If the estate is being valued for probate purposes upon death, the market value of the assets on the day of death is generally used.
Once an estate value is determined, other factors such as available exemptions, trusts you have set up, or gifts you have made in recent years may need to be added, as they may still be taxable.
The first concern when looking at estate planning is to ensure you will not outlive your money before gifts, trusts, or donations to charity are considered. You should have sufficient income not only to maintain your lifestyle comfortably but also to cover possible future expenses such as long-term care.
All these considerations are addressed as part of our overall planning services to ensure your current lifestyle is supported and your future financial security is protected.
Effective estate planning takes time and careful consideration with expert local guidance. By starting early and making informed and educated decisions, you can minimize or even avoid estate taxes, provide for your loved ones, and gain peace of mind. Walter Graham helps you create a strategy that ensures your legacy is preserved and your loved ones are provided for.
