Talking Finance

Welcome to my first blog. I am hoping to raise awareness of various financial issues that are not always at the forefront of people’s minds.

In my view ‘financial advice’ is now more about managing risk, and by that, I mean what can happen that can have an adverse effect on your finances.

Once you have established a risk, then you have to decide if you ‘want to do anything about it’. If you don’t, then just accept whatever downside occurs.

Today I want to focus on the hot topic of probate fees, which has been in the news recently. It really is another stealth tax, which is how most taxes work these days. It seems unavoidable, as everyone will eventually die, but is it? Let’s look at the plus side. The threshold, in which you do not have to pay probate fees has been raised to £50,000. With the correct advice and careful advanced planning, it is quite easy, with the use of trusts to place the majority of your assets outside your estate and therefore outside the remit of probate fees.

You should also consider that depending upon the confidence and competence of your executors and beneficiaries there may also be professional executor fees. These can now run into substantial amounts to be deducted on your death and paid by your estate. For example, an estate between £500,000 and £1 million will now attract a probate charge of at least £2,500.

I believe, that this is also the thin edge of the wedge and will likely rise to 1% of the estate within 10 years.

When you add potential professional executor fees of an average of 2%, then death can be a very costly affair. People do not accumulate assets for this reason.

On top of this more and more people are being dragged into Inheritance Tax (IHT) territory (40% of everything over £650,000). So what can be done about it?

Well firstly you can place assets in trust, which is effectively gifting your assets whilst you are alive. This subject is far too complex and there are far too many different types of trusts to cover here, but basically consider it a bit like buying a funeral plan or a burial plot. You are paying in advance and setting the price at outset (reducing risk). You will also be making it simple for your dependants and beneficiaries on your death and giving them the time to mourn properly. There are lots of other advantages as well that pretty much make it a cost neutral strategy. With the potential to save your estate a very large amount of money I have attached a link to an article from the Daily Mail Journalist Alex Brummer, who covers this subject far more eloquently than I could. If you want more information on this subject, just contact our office.