How to Determine your Estate Planning Needs

estate planning needs
estate planning needs

To ensure your intended beneficiaries receive the maximum from your estate, it is always recommended to fully investigate your estate planning needs now to guard against unintended parties laying claim to part of the estate.

Since no two estates are the same, there is no single solution to handling your estate planning needs.

Regardless of the value of your estate, or the assets that make it up, there are many factors that can threaten your wealth, from taxation to commercial creditors or even more personal circumstances such as disagreement between family members. Any of these factors could have a negative effect on how your estate is handled after your death, and even during your lifetime.

It will be almost impossible to plan ahead for certain factors, whilst other possible threats to your estate can be foreseen. Whatever the factor, examining your estate planning needs well in advance is always the best way to safeguard the interests of your heirs.

One of the biggest threats to passing on your estate is that of Inheritance Tax, set at 40% of the taxable estate value. At this level, inheritance tax is a concern for many people, notably homeowners, and not just those of high net worth.

Add to this the fact that HMRC may seek to restrict reliefs that could alleviate the level of inheritance tax payable, and it is easy to see why planning ahead and taking early advantage of any of these reliefs is important.

By examining your estate planning needs and objectives well ahead of the time when there is any need to act, you can identify the various ways to protect your estate and the interests of your beneficiaries.

What are your obectives?

Knowing exactly what you want to achieve is the first step towards shaping your estate planning. For instance:

  • Is your main aim that your estate be handled with tax efficiency in mind?
  • Are there particular assets that you wish to protect?
  • Are there conditions to a family member inheriting from your estate?
  • Do you wish to protect the interests of your beneficiaries overall, regardless of what this may mean for certain assets?
  • Do you wish to pass on a family business?
  • Is it necessary to protect your estate against bankruptcy after your death to safeguard your beneficiaries’ inheritance?
  • Does your estate include property that you want to pass on but with the least inheritance tax to pay as possible?

Once you’ve identified your aims for your estate, you can then put corresponding plans in action.

Tax efficiency

Planning ahead for how your estate is taxed after your death is often a balancing act between protecting your estate from taxation while maintaining a desired level of control and access to your finances and assets while you are alive. Unfortunately, a higher level of tax efficiency generally means a lower level of accessibility.

So what methods can be used for estate planning with a view to improving tax efficiency?


A will is an efficient method of transferring assets, including finances, to your heirs when you die. Generally, the higher the value of an estate and the more complicated it is, the greater the need to take professional advice in drawing up a corresponding will.

A will allows you to:

  • state your intended heirs, guarding against claims from individuals who may feel they have a claim on your estate
  • stipulate the conditions of inheritance and the apportionment of estate held assets
  • remove the burden of decision making from your family and friends on how your estate should be handled

A will should always be kept relevant to your current circumstances and updated as changes occur.

Lifetime gifts

It is possible to reduce the value of your estate by making a lifetime gift to a beneficiary. Certain gifts are exempt from inheritance tax, for instance, those made for maintenance of dependants and gifts made up to the value of £3,000.


Trusts are a tax efficient method of protecting assets, limiting tax liability to the individual though the transfer of assets to the trust, and thus reducing the estate.

The benefits of using a discretionary trust include:

  • a level of control over the assets, including finances, placed in the trust and any income from those assets
  • control over who benefits from the trust
  • assets held in a trust are not seen as part of your estate
  • any gain made from the increased value of the assets is outside your estate for taxation purposes

The main tax benefit is where assets are gifted into a trust. Such gifts may, however, incur inheritance tax and capital gains tax may also apply. Further tax implications may arise as a result of the category of asset and the particular situation.

When transferring assets into a trust, rather than gifting them, there may also be an inheritance tax and capital gains tax implication. Should the value of a transfer of assets into a trust be higher than the nil rate band, £325,000 as of January 2019, and where business property relief is not applicable, an immediate inheritance tax liability of 20% will be incurred. There will be no further inheritance tax payable, should the donor live for another seven years. Should the donor die within seven years, however, inheritance tax will generally apply.

Trusts are subject to their own rate of inheritance tax (6%) at 10 year intervals from the setting up of the trust, or when capital is paid out from the trust.

The transfer of an asset into a trust is regarded as a disposal in a capital gains tax context, but it may be possible to defer any resulting gain. Generally, capital gains tax will not apply where the transfer is of cash alone.

It may be possible to transfer assets to an employer trust to avoid inheritance tax or capital gains tax, but this would depend on the details of the transfer, donor, and other circumstances. Using an employer trust in this way could still prove useful for a family investment company.

Business relief and business property relief

With regard to inheritance tax, business property may be liable for Business Property Relief. Generally, 100% business relief is available where a deceased individual owned a business or had an interest in that business, and 50% relief is available on land, buildings or machinery.

Equally, shares in an unlisted company and shares controlling over 50% of voting rights of a listed company may qualify, once they have been owned for more than two years.

Agricultural property

Certain agricultural property may qualify for Agricultural Relief. Such agricultural property includes land used to grow crops or rear animals, and farm buildings that are in current use.

Nil rate band

This is also known as the inheritance tax threshold. As at January 2019, the basic nil rate band is £325,000.

A double nil rate band can be brought into play where the deceased transfers their complete estate to their spouse or civil partner at the time of death. The surviving partner will receive the deceased’s nil rate band on top of their own, and therefore when that partner dies, their estate will benefit from a double nil rate band.

Since 2017, there has been an additional Residence nil rate band available for the passing of property to a direct descendant. For the 2018/2019 tax year, this amount is £125,000, rising in 2019/2020 to £150,000, and then in 2020/2021 to £175,000. Further to that, it is intended to increase the nil rate band in line with the Consumer Prices Index.

Once the Residence nil rate band has been taken into account, the standard nil rate band can then be applied to the remainder of the estate.

For estates that are valued at a net amount of over £2 million, the Residence nil rate band will be subject to a tapered withdrawal.

Family partnerships and family investment companies

Investment assets transferred into a family trust will often incur a heavy inheritance tax liability, so the use of family partnerships and family investment companies may prove more tax efficient.

Family partnerships, whether limited liability partnerships or limited partnerships, are often used to protect family assets in the context of capital gains tax and stamp duty.

Family investment companies, however, are more often used when the asset in question is cash. The transfer of cash to a company generally does not incur capital gains tax or stamp duty. Where property is transferred, however, stamp duty could be incurred, and a transfer of any chargeable assets could equally incur capital gains tax.

When shares in a family investment company are gifted to family members, a tax liability will generally only arise where the donor does not survive for seven years after the gift is made.

Pension schemes

The use of a pension scheme can be extremely tax efficient and as such, it is recommended as a valuable tool in your estate planning considerations.

Keeping your estate planning up to date

Over the years, your personal circumstances, assets and estate planning needs are sure to change but alongside this, tax legislation will is also likely to be altered.

To ensure that your estate planning meets the needs of your changing requirements and takes best advantage of any changes in tax law, it is always recommended to regularly review and update your plans.

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute tax, financial or legal advice, nor is it a complete or authoritative statement of the rules and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.

Before acting on any of the information contained herein, expert tax, financial, legal or other advice should be sought.