Gary O’Brien

7 January 2021

5 ways financial advisers can support the estate planning process

When clients think about estate planning, they probably focus on how to protect their wealth through legal structures like wills and trusts.

Effective estate planning is about so much more than writing a will. A financial adviser can help clients understand how much money they need now, how to pass on assets in the most effective way, and how to take action early to minimise Inheritance Tax.

Read on to discover five ways financial advisers can support your clients through the estate planning process.

1. Ensure clients have enough money to enjoy life now

It’s easy to think of estate planning in isolation, but the most effective estate plan will take a holistic view of the client’s current and future financial needs. An estate plan will only be sustainable if the client has enough money to live on and is able to enjoy life now.

By involving a financial adviser at an early stage, the client will have a clear picture of how much money they need to maintain their current lifestyle and, in turn, how much wealth they can realistically pass on.

A financial planner will use intricate cashflow modelling software to show how the client’s financial future might look based on their income, costs, investments, and lifestyle. This will give the client confidence that they can live the life they want and pass on assets without worrying about running out of money.

2. Reduce or manage an Inheritance Tax bill

Solicitors and financial advisers both play a critical role in reducing and managing a client’s Inheritance Tax (IHT) bill. Solicitors can draw up wills and create trusts to protect a client’s wealth from the taxman.

A financial adviser can assess the client’s current finances to determine what action they can take now to minimise IHT. This could include making gifts and putting money into investments that qualify for Business Relief.

By using cashflow modelling tools, a financial planner will help clients understand the affordability of gifting strategies. They’ll calculate how much money the client needs to live on and show the impact of potential long-term care costs.

A financial planner will also determine whether Business Relief-qualifying investments are suitable for the client, based on their goals and attitude to investment risk.

3. Give advice on passing on a pension

Many retirees automatically use their pension as the main source of their retirement wealth. However, pensions can play an important role in estate planning. Unlike ISAs, pensions don’t usually form part of someone’s estate for IHT purposes.

A financial adviser can assess whether the client could afford to leave their pension untouched and withdraw money from other assets instead. By using ISAs and other investments to fund their retirement, clients may be able to pass on their entire pension and reduce the size of their taxable estate.

The financial adviser will ensure the client’s pension is invested the right way, enabling clients to grow and preserve their wealth for future generations.

There are other advantages of drawing money from ISAs before pensions in retirement. Money can be withdrawn from ISAs tax-free. With pensions, up to 25% can be withdrawn tax-free and the rest is taxed according to the client’s marginal Income Tax band.

A financial planner can help structure the client’s retirement income in the most tax-efficient way possible.

4. Arrange life cover to protect the client’s estate

A financial adviser can also arrange the right life insurance policy to guard against an IHT bill on death. If the policy is written in trust, the sum assured won’t be subject to IHT. The client’s beneficiaries could use the payout to cover the estate’s IHT liability.

Using life insurance in trust reduces the risk of the family having to sell assets or take out a loan to pay IHT. Since the plans don’t form part of the client’s estate, the funds are immediately available to the named beneficiaries.

A financial adviser can search the market for the right life insurance policy for the individual client’s needs.

5. Explain how life events could affect the estate plan

Estate planning isn’t always a one-off process. Often, a client’s estate planning needs will be altered by life events, such as divorce and remarriage. These may affect the client’s pension, wealth, and decisions around IHT.

Financial planners keep in regular contact with their clients, so they can make sure their estate plan continues to reflect their needs and wishes.

Get in touch

At Ardent, we provide clients with personalised financial planning and advice which is tailored to their needs. By getting to know our clients and their goals, we can ensure their money is invested the right way while minimising their tax liability wherever possible.

To find out how we can work with you, please email or call 01904 655330.

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