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Facts About Legalized Wills

Facts About Legalized Wills

There are tax laws regarding everything that has to do with an individual, even in death, and this is where Inheritance Tax applies. It focuses on the trust and tax process about the provisions of your will, although not all factors apply to every will. 

One of the first steps to ensure that your taxes are in order after you’re gone is to constantly review your will and revalue your assets, at minimum every five years. Reviews are also crucial whenever there is a significant change in your financial circumstance. 

When an individual passes on, their estate is valued alongside the value of transfers completed in the last seven years before death. The total value will be subject to inheritance tax. Inheritance tax is also tax that is payable on all your assets after death. 

These assets include those you shared with others and lifetime gifts received in the last seven years before death. It is also required that inheritance tax be payable on assets you gave away if you still sing it. A good example is giving your house to your daughter, but continuing to live with her. You will still be required to pay inheritance tax based on the value of the property after death. 

After death, the inheritance tax charge on the estate you leave behind will not be up to the nil rate band and 40% of the balance. The Nil rate is at $451, 912 and will level up until April 2021. 

But you should note that the value of lifetime gifts you receive within the seven-year mark before death is included in this threshold. Your estate can gain some benefits from an additional nil rate band if you give your daughter your house. 

If you gave your child or grandchild your home, an additional $139,049 to $243,337 of your estate would be taxed 0%. Then all unused nil rate bands can be transferred from the deceased spouse. 

If you are married, your spouse or your civil partner will inherit the unused portions of your nil rate bands as this will reduce the inheritance tax on the estate when they die. 

Some gifts are exempted from inheritance tax and do not take up your nil rate band; these include:

  • Gifts got consistently because of your excess income.

  • Gifts to charities 

  • Gifts for spouses

One of the aims of drafting a will is that no inheritance tax is paid when your spouse dies. If this is your goal, you’ve got to limit the value of the gifts in the will (within the seven years before your death to non-exempt receivers) to an amount lower than the nil rate band. 

So a gift to your civil partner or a charity is exempt. But a gift to your child or grandchildren is not exempted. You can then instruct in your will that a particular gift of a specified asset like cash, personal possession, or property is accountable to inheritance tax. Therefore the tax due for the gift will be paid from the present. 

Death is an inevitable finality to life, and although we don’t enjoy talking about it, the reality of post-death taxes exists, and we must prepare for it. I am no longer enough to write a will and “Assume” that the people you leave behind will handle all tax-related issues. 

This is why the article is so timely, as you have to know how to handle tax-related issues in your will, and it all begins with a consistent review process. All assets, losses, and additions on your legalized will should be reviewed for appropriate inheritance tax documentation. 

* Nil rate refers to the brink above which inheritance tax is billed.



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