22 August 2017

How (and Why) to Avoid Probate

Probate is the process of sorting out someone's assets when they die - their estate. In some cases their executors need a "Grant of Probate" before they can pass on the assets according to the Will. But this takes time (and form-filling) so if it can be avoided it is worth doing so.

It is possible to apply for probate yourself, but most people use a solicitor or a probate service. If a solicitor or a bank has provided the Will then they may have written themselves in to provide the probate service (often with a hefty charge), so watch out for that.

If there is any Inheritance Tax (IHT) to pay then probate will be necessary. But for smaller estates it is worth avoiding the need for it. Here's some ways to do that:

1. Put assets into trust - a Probate Trust is not difficult and you can still benefit from the assets if IHT is not an issue. That wouldn't work for ISAs, though, since they can only be owned by an individual.

2. Give up your ISA and investments. That sounds drastic, but if your only individually owned asset is an ISA it may be more cost-effective to lose the tax advantage and avoid probate.

3. Give it away or spend it - then it's not yours and you don't have to account for it!

4. Own it jointly - typically with a spouse. Then it just passes over 100% to the other owner. BUT there are other issues with this to think about, like tax. And if one spouse loses mental capacity the joint account could be frozen while the bank confirms that you are entitled to continue to use the account.

5. Pensions and Death in Service Benefits - make sure the trustees know who you want to pass these on to if you die, otherwise it could become part of your estate and trigger a requirement for probate.

6. Ask your bank what their limit is to require probate. Above a certain value across all your accounts - typically in the £5,000 to £15,000 range - the bank or building society will require probate before releasing those funds.

In spite of those tips, what is right for one person is not necessarily the best for someone else, so taking professional advice may be the best thing you can do.

14 August 2017

How to Take Income from Investments

Broadly speaking there are two reasons to invest money: to grow your capital or to take an income. The second of those is the more tricky one, with various options available. 

Traditionally, holding dividend-paying investments has been the first port of call, with the hope that you will also get some capital growth - enough to protect against inflation, at least. But the approach I tend to prefer is a "total return" approach whereby any dividends are reinvested, and a regular amount is paid out by withdrawing from the investment. 

The advantage of that approach was illustrated recently with a client who moved into a care home and needed to increase her income. That's not possible with the traditional approach - dividends pay what they pay - but with a total return approach we could adjust the income for her quite easily. 

As ever, there is no one size that fits all; investor objectives need to be considered as does tax, and taking withdrawals at an appropriate level is very important. But overall it tends to give a better level of control over your money.

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