Five top tips for leaving a financial legacy to your family. 

Over a lifetime you work hard to accumulate assets and wealth, enabling you to have a fulfilling life and helping you to support your family.

As investments could grow over time, your wealthiest years could be the final decades of your life. Investments such as Pensions can provide a comfortable retirement and hopefully you’ll enjoy many years benefiting from the wealth you’ve accumulated.

However, what you do need to consider is that while your wealth may be higher in your later years, your health may be deteriorating. This isn’t something people find easy to think about, but it is a reality that should be accepted. By thinking about your death now and taking into consideration what will happen to your assets and finances, you’ll understand the importance of setting in place a plan for your financial legacy.

This isn’t something that only those approaching retirement or retirees should be considering – anyone with assets, wealth or dependents should ensure they have a plan in place for what will happen in the event of their death. As unpleasant as it is, death can impact anyone suddenly and at any age. If you have money and possessions, you are going to want to ensure they end up in the hands of the people you care about.

Consider these top tips for leaving a financial legacy to your family:

Assess your estate value & Inheritance Tax liability.

Your first step in thinking about financial legacy is to assess the value of your estate.

The estate is your money and possessions. Write down a list of all your assets, considering what they may be worth. List things such as savings accounts, your home, investments such as ISAs, businesses, and properties you may own, and all significant possessions that may be of financial or sentimental worth. Keep in mind that Pensions are outside of your estate, this is an investment that can normally be passed on free of inheritance tax, therefore it is important to name Pension beneficiaries within your Pension expression of wish.

Once you know the value of your estate, this can help you think about who you may want to leave certain parts of your estate to. It will also help you see a total value of your estate and consider if this could be liable to Inheritance Tax.

Inheritance Tax is currently set at 40% on the part of your estate over the £325,000 threshold. You won’t pay Inheritance Tax if your estate is under the £325,000 threshold

Under current 2023/24 tax rules, individuals may also have a further allowance which can be offset against your main residence, this is called the Residence Nil Rate Band.

The Residence Nil Rate Band (RNRB) is an allowance which reduces the amount of Inheritance Tax an individual might pay when passing on a qualifying residence to a direct descendent. In the current 2023/24 tax year, the Residence Nil Rate Band is currently £175,000 and is in addition to the Nil Rate Band.

Inheritance Tax can be complicated, speak with a financial adviser if in any doubt.

Keep your Will up to date.

A Will is a legal document that you can write and store with a solicitor to ensure your financial legacy wishes are legally binding.

Begin the Will process by listing the people you want to benefit, which may be partners, children, close friends or charities. These people will be known as your beneficiaries, as they’ll benefit from being named in your Will.

Keep in mind that a Will should be checked in on and updated from time to time. When your circumstances change, the chances are your Will may need changing too. Fluctuations in your assets or relationships may require amendments to your Will, perhaps consider checking in on your Will as part of an annual financial health check.

Name your Pension beneficiaries.

As Inheritance Tax can be a concern for many of us, it could make sense to think about how you could pass your wealth on through a tax efficient means such as a Pension.

Money left in your Pension will not normally be liable to Inheritance Tax. You can name your Pension beneficiary through an ‘Expression of Wish’ form with your Pension provider. This is not a legally binding document but it helps inform the trustees of the scheme how to distubute the pension based on your wishes.

Your beneficiaries could be in a position to inherit your Pension at the discretion of the Pension trustees, and they could choose to withdraw the money or keep it invested to potentially grow further. The money inherited through the Pension wouldn’t be liable to Inheritance Tax, but the beneficiary might pay tax at their marginal rate of income tax if withdrawing the money, depending on your age at death.

This could be a good way of passing significant wealth across generations, and putting more money into your Pension could be a good way of making the value of your estate more tax efficient. It is worth noting however that with investing, your capital is at risk wand you may get back less than you initially invested.

Talk to your family about your wishes.

It may be uncomfortable, but it could be useful to have a conversation with your family about what you’d like to see happen when you die.

This is your opportunity to explain what your choices are, why you’ve made these choices, and what your family could expect in the event of your death.

This conversation could be of great benefit to your family. The time of your death will inevitably be a distressing and confusing time, so by giving your family an advanced understanding of how your financial affairs will be taken care of it helps to give them a good foundation for your financial legacy to be built upon.

What will also be useful to your family is to keep all of your financial documents in a set place. A clear view of all of your accounts could help your family to arrange all of the necessary paperwork and legal work to ensure your wishes are carried out. For example, you may want to let your partner know where you keep important docuements and how these could be useful in the event of your death.

Seek financial advice.

Estate planning is a complicated matter, with ever changing variables such as your wealth, relationships and tax situation. Professional expertise will help you to decide upon a course of action that is best suited to your unique circumstances.

It is never too early or too late to get your financial affairs in order. If you need financial advice or would like to open an account yourself click ‘Start Investing’ or call our dedicated team on 0191 625 0350.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Product eligibility and tax rules apply. Tax is subject to an individual’s personal circumstances and tax rules can change at any time. The Financial Conduct Authority do not regulate, Will Writng, Tax Advice and Estate Planning. This article is not financial advice.