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Simon Says: Part 4 of 9: You are immortal and do not need to worry about legacy planning. Really?

October 16, 2017

By Simon Misiewicz

I have decided to write a blog series that captures my experience of dealing with over 1,000 property investor clients over the past 10 years.

My discussions with clients along the way have enriched my knowledge and understanding of what makes a successful property investor.

I am going to cover the following subjects with you:

We are immortal

I wrote this with tongue in cheek, as I know that a lot of people I speak with are not too concerned about the future. In fact, I believe that people do not wish to talk about their death, understandably. The reality, though, is that death is part of a normal cycle. Not discussing our death and plans thereafter means that we could be leaving behind all sort of mess for our loved ones to pick up.

I had a client whose father sadly passed away. Clearly the son was grieving for his father, whom he was very close. The problem he faced is that his father was not very organised and was also re-married to a person that he did not like, as she pulled the family apart wth frequent arguments.

He made his son the executor, but did not make a Will. As such the executor, son, had to give all the assets to his ‘step mum’. His father wanted to leave him all of the wealth, but ‘never got around to it’.

None of the intended assets would be passed onto his son due to the lack of a Will and everything went to his wife. His son got to carry out all the work as executor but would share no benefits of the assets.

Does this look or sound familiar?

We are mortal and creating a basic Will is the very least we should do to ensure that the assets we wish to leave behind reach the correct person(s). Please do read my article here about this in more detail.

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How will your mortgages and IHT liabilities be paid?

Upon your death if you have assets over £325,000 (as an individual and unmarried) then the assets passed to your beneficiaries are likely to be taxed at 40% above this amount.

This is a serious amount of tax that could be prevented through some careful tax planning, as we discussed in another article here.

However, if no tax planning took place and someone dies with £1m net asset value, then the £675,000 would be subject to 40% tax.The IHT liability on this amount is £270,000. Typically HMRC want their tax within 12 months of debt.

So, what IHT liabilities are your parents leaving you to pay?

Additionally, if you died and have no partner then the Buy-To-Let mortgages would also need to be paid, typically within 12 months of passing. The remaining spouse would need to re-apply for Buy-To-Let mortgages even if they are married but the mortgages were not in joint names.

Mortgages will need to be paid back within 12 months of someone passing away if the remaining parties are unable to successfully go through the application process.

I saw one client that had a portfolio with mortgages amounting to £2.3m and a IHT liability of £1.3m.

This (debt) amount needed to be paid within 12 months. Can you imagine being the executor and working a way to pay off £3.6m debt. Properties had to be sold at a discount to get this amount of money together.

I am sure this would have been quite difficult when they are going through the grieving process. 

It could have been worse. What if they entered yet another recession at the time of death? I wonder how much money they would have got by selling their properties on fire-sale.

Would they have actually been able to pay off the IHT liability and mortgages?

What Buy-To-Let mortgages do your parents have that will need to be paid back within 12 months of their death?

It is possible to pay off these liabilities using certain insurances: find out how in this article.

Book your wealth planning session. Let’s address your tax issues and build family wealth that is sustainable for your future generations. 

I have now delivered financial and wealth planning sessions to over 100 clients. This is the type of service that does not just look at the tax return for the preceding year; it focuses on the future aspirations of the property investor, and the family structure to meet their lifestyle needs.

The greatest concern I see from property investors is that they do not know when enough is enough.

Stephen Covey said that “people climb to the top of the ladder, only to find out that it is set against the wrong wall”. How many people do you know are like that – could it be you, too?

I have also seen that people have purposefully lived other people’s lives. How many property investors say they need £10K per month, even though they earn a 1/4 of that and they will never spend that type of money anyway. I think it is time that property investors understand what they want and need.

Once this is established, it is about buying the right investments that provide tax-efficient income to meet the desired lifestyle. Learn more about the Finance, Wealth and Tax Planning service – Click Here.

Please use the redeem code “Article 33” to get 33% off your wealth planning call. Face-to-face in our Nottingham office.

Do not trust your kids???!!!! How to protect your wealth 

There are going to be times when your children do things or say things that make you realise that they are not ready to make good financial decisions.

You may wish to protect your assets especially – if they are young, rash or irresponsible.

We have seen plenty of times in the headlines whereby children have abused the wealth that their parents have built by squandering it on material things.

I wrote an article here all about Discretionary Trusts and how they can be used to protect the assets you have built up through your hard work.

You may even have a child that is married, but their relationship is breaking down and you may not be too fond of their partner. Using a Discretionary Trust on death allows you to put assets into a safe environment and only realeased upon certain criteria being met that you have set in place.

The criteria could be as basic as age where upon they reach, say 25, and the assets are then passed onto them in full. An alternative criteria could be that they must be working or have children. You can decide when and how the assets are passed to your loved ones after your death.

As you can see that there are a number of things to consider when you think about your loved ones and what will happen upon your death.

We all need to answer the basic question “will the people I love be provided for when I die?”.

Fail to plan and you will plan to fail.

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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk