Five new year resolutions to protect your family wealth

Clarke Willmott’s private capital team suggests some strategic resolutions that will help protect your family and its wealth in 2022:

1. Review your Will

You should review your Will every five years or when there is a significant change in your circumstances. The freezing of the inheritance tax nil rate band at £325,000 since 2009 has brought many more individuals within the scope of inheritance tax as asset values have continued to rise. This means that a review of your Will to maximise its tax efficiency would be well advised in 2022.

2. Draw up a Lasting Power of Attorney (LPA)

If you become incapable at any point an LPA will enable a trusted person of your choosing to manage your financial affairs on your behalf so avoiding an expensive, time consuming application to the court. A professionally drafted LPA can also ensure that your affairs are managed in the optimum way. It could for example, provide that your chosen attorneys must produce accounts each year to a third party such as your solicitor or accountant, so ensuring professional scrutiny over how your finances are being managed.

3. Review the division of assets between yourself and your spouse or civil partner

Your tax liability (to income tax, capital gains tax and inheritance tax) could be adversely affected if there is an imbalance of assets between yourself and your partner, For example, it can be advantageous in some circumstances to consider a trust in your Will to use the inheritance tax nil rate band (currently £325,000) but this will not be possible unless there are sufficient assets in each partner’s sole name (and not in joint names) to take full advantage of this.

4. Consider using your annual exemption to reduce your inheritance tax (IHT) liability

Every person is entitled to an IHT annual exemption of £3000 per annum. This can be carried forward for one tax year so if you did not use your annual exemption in 2020/21 you have until 5 April 2022 to use both years’ exemptions totalling £6000 for an individual or £12000 for a couple. Gifts within the annual exemption are IHT free however long you survive them. In addition, if you have a larger IHT liability you might like to consider whether you should undertake further action. There are a number of valuable IHT reliefs but these can be lost if care is not taken.

5. Consider whether your estate could benefit from asset protection

If you have been:

• married before and wish to ensure your assets pass to your children from that marriage
• if you are concerned about care fees eating into your assets or
• have a child whose nature or circumstances make it inadvisable for them to receive a large sum of money,

You should give some thought as to what actions can be taken to ensure your estate is protected. Trusts can be used either during your lifetime or in your Will to ensure that your assets are distributed as you intend, and to provide the maximum possible protection against third party claims.

If you would like help in implementing your resolutions, or in determining a personal plan to manage your family wealth in 2022, then please do not hesitate to contact us.