Estate Planning

bostonerimus

When my Mum died the value of her estate was under the estate tax threshold. She had done some planning like making a will, valuing everything, appointing an executor and she knew that she didn't need to do anything else. However, with some of the numbers I see on this forum quite a few people will be over the estate tax limit of 450k if you are single, so if you are planning for drawdown it is prudent to also have an estate tax plan in place. That might be as simple as spending things down, although the value of the house can be an issue even with the new allowance. So are people giving to charity, relatives or doing stuff with trusts?

lisyloo

genuine question: Why is spending things down "simple estate planning" when none of us know when we'll die?

Yes it is prudent. I haven't got round to it (I'm married).
Not a brilliant excuse but down my list of priorities. Not great but sometimes there really are higher priorities.

I would say having an LPA is prudent as well as some of us will lose capacity for example with dimensia. I have an EPA but no replacement attorneys (if my husband is dead or incapacitated). It's on my list as well, but I'd say that's probably more important as it's about health and welfare not just money.

bostonerimus

Those are excellent points. Paying for care and uncertainty when you’ll die are enormous factors. It does seem a little abstract sometimes, particularly if you are married and can get the 900k exemption. But I have a married friend who lives in London and her house has appreciated so much in the last decade that iit is now worth more than the allowance..

House price appreciation and drawdown instead is annuities is going to make estate planning increasingly important

Linton

What I have started doing is to change my planning approach. Previously a fixed but inflation matching expediture budget was set and provided the financial model showed a large sum still available in my 90's I was happy. Now I do things the other way round - set the plan with a smaller but still reasonably large amount of money available in my 90's and determine the annual inflation linked expenditure that would achieve it.


The problem is then to spend up to budget. This may well require significant donations and gifts in addition to better holidays etc. The key outcome is that it encourages a steady but constrained decline in wealth over time.



The house had long concerned me - it seems a waste to have a small fortune in wealth tied up in a pile of bricks until death. So my intention is to reduce the equity to a low amount by Equity Release once we reach a suitable age.


This may seem at first sight seem to be a risky approach. However with a plan review every year approaching problems ahould be detected well before they become insurmountable. A relatively small change in planned annual expenditure continued over the next few decades can have a major impact on wealth at death.

lisyloo

A relatively small change in planned annual expenditure continued over the next few decades can have a major impact on wealth at death.

Don't mean to be morbid, but don't we also need to account for dying unexpectedly early.
Presumably the max wealth point is at retirement (and it's not unknown for people to die shortly after this drastic change in lifestyle).

particularly if you are married and can get the 900k exemption

you mean married with kids? and have an expensive home?

Wenlock

I have never understood why people are so resentful about paying a little bit of tax.

If your estate is worth more than the exemption, your beneficiaries are going to be very well off after your death.

I am not in that position. If I was, I would hold onto my money in case I needed it for care home fees etc. If there was enough left on my demise for HMRC to take a few quid then so be it.

Linton

lisyloo wrote: »

Don't mean to be morbid, but don't we also need to account for dying unexpectedly early.
.......

I would say we neednt worry about dying young, we ahould simply plan on living into extreme old age. If that's what happens you can be happy that you looked after your future self. On the other hand, unless you believe in an after-life. you can never know that you died young leaving a wasted fortune.

bostonerimus

Linton wrote: »

What I have started doing is to change my planning approach. Previously a fixed but inflation matching expediture budget was set and provided the financial model showed a large sum still available in my 90's I was happy. Now I do things the other way round - set the plan with a smaller but still reasonably large amount of money available in my 90's and determine the annual inflation linked expenditure that would achieve it.

.

It's a bit ironic that we do drawdown and then try to achieve essentially what an annuity would gives us.

My problem is that I live in a US state with a low estate tax threshold, but an obvious solution is to move 50 miles to the next door state which has a far higher threshold and probably buy a less expensive house and release some capital for gifting. Of course that assumes that I have time to implement this plan and don't drop dead suddenly. The US allows tax free gifts of up to $15k/person per year and gifts to charity of any amount directly reduce the size of the estate. So I could leave it all to a charity in my will and there'd be no estate tax, but I think the family would be a bit miffed.