A big worry for many people who are about to pass on legacies to their heirs is the inheritance tax. This can be pretty high, depending on local laws. If you want your heirs to get more of your money, several options are available to you. Here’s a closer look at some of them.
Keep Assets Below The Tax Threshold
One of the simplest ways to avoid high inheritance taxes is to keep your assets at a certain level. In the UK, the inheritance tax nil band is the amount you can pass on without experiencing any inheritance tax. The current level is at £325,000 for a single person. You can then transfer this to your spouse or partner on death so that you both have £650,000 in exemptions. That is a large amount and should be enough to cover most savings and assets. But several laws judge assets separately, and if you have property, your heirs might end up getting taxed. You also need a will to ensure that your assets are divided in the way that you want them.
Giving Away Your Assets
Another option is not to wait in giving your assets. Inheritance taxes only apply when it is an inheritance. If you give your assets to people before you die, then it isn’t technically covered. But it would be best if you did it early. All gifts made seven years before death are covered by the inheritance tax. Additionally, if you give your assets away, then they will be out of your control. That is not a good thing for some circumstances, while many people don’t want to give up what they worked so hard for. You should also be aware of capital gains taxes that might hit these gifts, so be careful.
Put Assets Into A Trust
You can also put the assets in a trust fund. Whether it is a basic family trust for your children or a trust for a friend to who you want to give money, trust funds protect the assets inside from inheritance taxes because they aren’t part of your estate anymore once they are inside it. They are considered separate entities and have separate laws to govern them. If you want to be completely sure about the funds, work with a lawyer to cover all the bases and find a dependable trustee. You can put the assets in a trust while you are alive and live on the profits from them with minimal taxes on you.
Donate Some To Charity
Charity donations can be a big help in reducing the inheritance tax bill you have to face. Big donations mean that there are fewer assets that get taxed. But another great result is that you can get a tax deduction from the donations. This is mainly to encourage charitable giving, but the threshold is pretty reasonable. So now, instead of a 40 percent tax, the inheritance will have a 36 percent tax. That doesn’t sound large of a deduction, but percentages can be deceiving an additional four percent from a large inheritance is nothing to sneeze at.
Sign Up For Life Insurance
Life insurance is an indirect way to handle the inheritance tax issue. Most life insurance plans have a big payout. This is usually enough to allow your heirs to pay for the inheritance tax, with enough for a leftover bonus. But the problem is that the payout can go into your estate, which increases the tax. So a better approach would be to arrange the insurance payout to go into a trust so that there will be minimal taxes on it. Arrange this with your insurance agent and your lawyer for the best results.
Spend It Now
Similar to donating, spending your assets so that they meet the zero inheritance tax threshold is a reasonable move. You worked hard for years to earn these assets; you should be enjoying them. Go on a cruise or a trip. Experience things you missed out. Have a full life during your retirement and leave your heirs with minimal worries by going for the zero inheritance tax option level.
Inheritance tax itself is not bad. It helps the government get revenue and assists in moving static wealth into circulation again. But it can be excessive for a lot of the smaller legacies who already don’t have much to leave to heirs. Taking steps to minimize your inheritance, tax fees will make it a lot easier for everyone involved. Work with your lawyer about your options so that you get the best results.