Estate Planning
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Estate Planning
Guy Layman explains how estate planning works.
What is estate planning and why is it so important?
Ultimately, estate planning is the process of organising someone’s finances, assets, property and, crucially, their wishes. It’s the process of making sure everything is managed in line with their instructions post-death. Not a cheerful topic, but a very important one nonetheless.
It really just makes sure that someone’s decisions are clear and unambiguous and can be carried out once they have passed away.
What should be included in an estate plan?
There’s no set list. The starting point typically is a Will. People at any stage of life should have a Will in place, because if you die without one, that’s known as dying intestate. Depending on the family and marriage situation, it can mean that the state takes control of their assets – even as far as care for children. So a Will is very important.
If you speak to a Will writer, they would probably suggest arranging a Power of Attorney at the same time. Power of Attorney is engaged during one’s lifetime, to be used if someone becomes unable to make decisions for themselves around their health or their finances.
From there, we would work through someone’s assets. Pensions would form part of that, and life insurance policies, which may be written in Trust.
People also like to consider provision for their care later in life. There may also be considerations around Inheritance Tax relating to property and assets. The list could go on, as everyone is in a different position.
Do I need a Will? Do I need a Power of Attorney?
Yes, I think everyone needs a Will as it gives you control over what happens to your estate. You can name guardians for young or minor children and it can help avoid family disputes. It just makes clear your thoughts, plans and wishes beyond death.
Without a Will, nothing is clear to family members and certainly not to the state or the legal system.
Power of Attorney works in a slightly different way because it’s engaged while someone is living. It gives clear indication as to who they trust to look after their finances and deal with banks, investments and so on – and also around healthcare.
Someone is appointed to make those key decisions. Power of Attorney gives peace of mind during your lifetime, and a Will gives a family peace of mind post-death.
Do I need to consider care provisions in estate planning?
We are living longer, which is great. But some of us may live longer while not in the best of health. Planning for long term care is crucial from a financial perspective, but also from an emotional perspective.
Thinking about your wishes if you needed to go into a home is important. We hear stories of people being placed in nursing homes or care facilities far away from loved ones. Some provision around funding of care later in life helps manage those emotional aspects, and is quite important.
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What should I plan to do with my pension? What is Inheritance Tax?
Inheritance Tax is a tax paid on the value of one’s estate above certain levels. It’s quite expensive – the rate of Inheritance Tax in the UK is currently 40%. There are some allowances called nil rate bands, which mean we’re all allowed up to £325,000 worth of assets before tax will apply [information correct at the time of recording in July 2025].
There’s also something called the residence nil rate band, where if property is left behind under certain circumstances there’s no tax up to a higher limit. The nil rate band can be transferred between spouses.
Without getting into all the technicalities, if one’s estate was worth above a certain level, there would be a 40% tax liability for the estate, which is obviously not insignificant. This is an important area where we at Rockstone can help.
There are various ways to reduce the Inheritance Tax liability entirely legitimately, such as Trusts and various different financial products.
The pension side is interesting, because in the budget of autumn 2024, the Chancellor announced that pensions are being brought into the Inheritance Tax regime for the first time.
As it currently stands in July 2025, the value of a pension isn’t included in the assessment for Inheritance Tax, so previously leaving a pension in place was a good option from an Inheritance Tax perspective. But from 2027, that is no longer going to be the case.
The way we plan around Inheritance Tax will therefore be very different. With high property values and large pension values, more people are going to be paying Inheritance Tax than ever before. So, planning for that is very important.
Can estate planning specialists ensure I don’t pay too much Inheritance Tax?
There are lots of ways people can reduce the potential liability for Inheritance Tax. For example, you can gift assets into a Trust for future generations.
We’re also all entitled to make gifts during our lifetime that are exempt from Inheritance Tax within certain rules. A financial planner or tax specialist can certainly explain the methods to reduce your tax liability.
How do I make a gift as part of estate planning?
Gifts are a little more complicated than they sound, because they are treated differently for Inheritance Tax depending on the type of gift.
If I were to give my child some money, that would be classed as a Potentially Exempt Transfer. It means that the assessment of that gift for Inheritance Tax wouldn’t take place until I died. And if I live for seven years after I’ve given the gift, the value of that gift isn’t brought into my estate for that tax calculation.
A lot of people are aware there’s a seven-year rule – and that’s what it applies to. If I make a gift today and survive seven years, that gift isn’t brought into the calculation for Inheritance Tax.
There is actually a tapering relief, so the tax rate changes over the seven years, but that really is getting into the complexities.
Some other gifts we make could be Chargeable Lifetime Transfers, which means that the value of that gift is assessed twice – at the point the gift was made and then also on death. It is complicated, but generally, if you give a certain type of gift and survive for seven years, it’s outside of your estate.
Therefore, the younger we are when giving money away, the better. We are all allowed to give gifts within our lifetime that are not included – you can give away up to £3,000 a year under the annual exemption.
There are also small gifts exemptions of £250 per person that we can give to family members when they get married. There are limits of up to £5,000 for a child, £2,500 for a grandchild or £1,000 to anyone else. So you can give money away to benefit from inheritance tax planning.
The earlier one starts with the planning process, the more likely you are to reduce the tax liability.
What do family estate planning services do?
Whilst it sounds specialist, actually this is what any good financial planner would do. It’s about looking after the whole family with intergenerational planning.
It’s having a discussion to work out how subsequent or future generations might receive your assets or wealth, as well as looking at tax.
Guardianship also comes into that, in terms of looking after any children. People who have businesses might also look at business succession. Estate planning is about considering all of that, and also deciding on the people who might be trustees or beneficiaries.
What else do we need to know about estate planning?
This is a complex topic. We could talk about this for hours and still only touch the surface.
Everyone’s circumstances are very different, too, so an advisor needs to understand their individual wants, needs, plans, hopes and dreams.
By getting into the details and doing tailored planning, we can help people protect their wealth and their assets. We make sure that subsequent generations understand what the plan is and what’s been put in place. That’s what any good advisor should be doing.
The value of pensions & investments and any income from them can fall as well as rise. You may not get back the amount originally invested.
Tax treatment varies according to individual circumstances and is subject to change.