When you’re deciding how to pass on assets and who you want them to go to, understanding their value, and how this might change, is crucial. 

Last month, you read about why estate planning should be part of your overall financial and life plan. Now, read on to discover why getting to grips with what your estate covers is important. 

Essentially, your estate is everything you own when you pass away. This could be material items or assets like your investments or savings. As a result, when you first think about what you’d like to pass on to loved ones, it can be easy to miss some things out.

Going through your estate now can inform what you want to happen to certain assets when you pass away and ensure you’ve taken appropriate steps so that your wishes will be carried out.

Understanding the value of your entire estate and individual assets could also mean you’re aware if you’ll need to consider things like Inheritance Tax (IHT) when creating a long-term plan. 

So, where should you start when assessing your estate? 

Bringing your assets together to calculate the value of your estate

A good place to start is by listing your assets along with their value, starting with the most valuable. Among your largest assets could be:

• Property
• Pensions
• Investments
• Savings

You should also consider personal possessions, such as jewellery, a car, or artwork. In some cases, getting a professional valuation can be useful. 

You will then need to consider liabilities, which you should deduct from the total value of your assets. Liabilities may include a mortgage, loan, or other forms of debt. 

Don’t forget that some gifts may be considered part of your estate for IHT purposes for up to seven years. If you’ve given significant gifts to loved ones, such as a lump sum for a property deposit or shares, in the last seven years, you should include them too.

Some gifts are considered outside of your estate immediately when calculating IHT. If IHT is something you need to consider, making use of these could reduce a potential tax bill.

IHT exempt gifts include the annual exemption, which is £3,000 for the 2023/24 tax year, up to £250 to each person, and gifts made from your income. Please contact us if you’d like to discuss how gifting could reduce an IHT bill. 

This process of valuing your estate now can be useful, but you also need to think about how it’ll change over time.  

Why you should forecast how your estate will change during your lifetime 

During your lifetime, the value of your estate will change. This could be due to decisions you make or outside factors.

Your pension, for instance, is likely to fall in value as you use it to create an income in retirement. In contrast, the value of your home could rise as property prices are expected to climb over the long term. 

To ensure your estate plan continues to reflect the value of your assets, considering potential changes is important. Making estate planning part of your overall financial plan means you could consider how values may change. For example, what returns do you expect your investment portfolio to deliver each year, and how would this affect your estate in 10 or 20 years?

When you consider how your estate may change, it could alter your plans. The value of assets increasing could mean you decide to make additional gifts during your lifetime. Or perhaps one asset rising in value means that your children wouldn’t receive an equal share of your estate unless you updated your will.  

Frequent reviews of your estate plan are important. It means you have an opportunity to ensure it still reflects your wishes and changing circumstances.

We can help you understand how your long-term plans and the decisions you make could affect the value of your estate over the short, medium, and long term to create an effective plan that suits you. 

Read the blog next month to learn about how you can pass on assets to loved ones

Once you understand your estate, you can start thinking about who you’d like to benefit from it. There are several ways you can pass assets on, from gifting during your lifetime to leaving an inheritance in a will. Read next month’s estate planning blog to learn more about your options and key considerations. 

If you have any questions about your estate plan or would like to arrange a meeting, please get in touch. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning or tax planning. 

Much of 2022 has been marked by investment volatility and economic uncertainty, and October was no different.

According to the International Monetary Fund (IMF), there is a rising risk of a global recession.

The organisation downgraded its global growth forecast for 2023 to 2.7%. It said financial instability was linked to shocks caused by the Covid-19 pandemic, the war in Ukraine, and climate disasters.

While uncertainty can be worrying as an investor, remember to focus on your long-term goals. If you have any questions about what the current circumstances mean for you, please get in touch.

UK

In the UK, political turmoil continued to influence the markets.

After September’s mini-Budget led to volatility, the now former chancellor Kwasi Kwarteng reversed some of the announcements, including the abolishment of the additional-rate of Income Tax.

It did little to calm the markets, and the Bank of England (BoE) was forced to step in after some pension funds were placed at risk. The BoE pledged to purchase £65 billion of government bonds that had fallen in value.

The IMF praised the BoE, saying it acted “very appropriately and quickly”.

The backlash from the mini-Budget led to now former prime minister Liz Truss sacking Kwarteng, with Jeremy Hunt taking his role. The new chancellor cancelled nearly all the mini-Budget announcements, including cuts to Corporation Tax.

Truss followed shortly after, saying she was resigning because she could not deliver the mandate on which the Conservative Party elected her – making her the shortest-serving prime minister in British history.

Rishi Sunak was appointed as the new prime minister within days after all other candidates dropped out of the race. In his first speech at Downing Street, Sunak said there were “difficult decisions to come” and the UK was facing a “profound” economic challenge.

Amid this turmoil, it’s not surprising that growth forecasts are being downgraded.

Deutsche Bank now expects GDP to fall by 0.5% in 2023 before growing by 1% in 2024 when the economy would finally return to its pre-pandemic level.

Data from the Office for National Statistics (ONS) highlights the pressure businesses are facing. Company insolvencies in England and Wales hit the highest levels since 2009 due to high energy prices, supply chain disruptions, and rising material costs. Construction firms were among the hardest hit and made up 20% of all insolvencies.

Worryingly, further ONS data suggests many businesses aren’t in a strong financial position to overcome a downturn. 40% of UK firms have either no cash reserves left or have less than three months’ worth.

Consumers are also facing challenges.

ONS figures show that once inflation is considered, average pay is falling. Excluding bonuses, pay fell by 2.9% in real terms between June and August 2022.

This is having a knock-on effect on the housing market. HMRC figures show that residential property transactions fell by 32% in September when compared to a year earlier.

EY ITEM Club warned that falling house prices are a sign of things to come. The forecasting group expects property prices to fall by 5% over the next year.

Energy supply also continues to be a significant challenge facing the UK. The war in Ukraine has led to soaring prices and disruptions in supply. The National Grid issued a warning that UK households and businesses could face planned power cuts throughout winter if it was unable to import electricity from Europe.

Europe

There was some good news from the eurozone – industrial output increased by more than expected.

Across the whole area, output increased by 1.5% in August. France and Italy led the way with increases of 2.5% and 2.3% respectively. However, Germany, which is often the economic powerhouse of the bloc, saw its output decline by 0.5%.

The eurozone also recorded a high trade deficit due to soaring energy prices. According to Eurostat, despite exports increasing by 24%, the deficit is €51 billion due to imports surging by almost 54%.

While many countries are facing inflation, Belarus announced a bold way to control it – President Alexander Lukashenko imposed an immediate ban on consumer price rises. The country has been hit by sanctions due to its support of Russia and consumer prices have increased by around 18%.

US

Like many other countries, the US is at risk of falling into a recession. Capital Economics says it’s now “more likely than not” that the economy will contract.

Inflation continued to be an issue for both businesses and consumers. The rate reached a 40-year high of 8.2% in September.

The White House also commented on the energy challenges that many other economies are facing. After the Opec+ oil cartel and its allies agreed to cut oil production by 2 million barrels a day to push up crude oil prices, the White House said it highlighted the US’s need to become less dependent on foreign producers of oil.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The “boomerang” trend isn’t new, but the soaring cost of living means that far more adult children that have been living independently are considering moving back to their childhood homes. As a parent, it’s natural to want to lend a helping hand, but you may also have concerns about what it would mean for you financially.

In the 12 months to October 2022, the rate of inflation was 11.1%. It’s a rate that’s much higher than the Bank of England’s (BoE) 2% target. For many families, rising costs have placed pressure on household budgets.

In response to high inflation, the BoE has increased its base interest rate. This has led to the cost of borrowing, from mortgages to loans, rising. This has further increased essential outgoings for some households.

There’s also speculation that the UK could fall into a recession due to economic uncertainty. So, it’s natural that many people are worried about money and financial security. Some young adults, who are often more vulnerable to financial shocks, are considering moving in with family as a result.

9% of young adults have already discussed moving home with their parents

According to Aviva, 1 in 5 adult children that have been living independently are considering moving in with their parents to cope with the rising cost of living. 9% have already discussed the possibility with their parents.

Parents are also expecting their adult children to broach the topic. 3 in 10 parents say their child has shown an interest in moving home even if they haven’t spoken about it yet.

The boomerang trend of young adults leaving their childhood home only to return later in life has been growing. According to the Office for National Statistics, 4.8 million people aged between 18 and 34 live with their parents in the UK.

59% of adults that live with their parents have moved out at least once. A fifth of the people in this group has done this more than once.

One of the main reasons is soaring property prices. Aspiring homeowners have faced challenges in saving a deposit to buy a home while paying rent. Many have returned home for a period to build up the savings they need.

As the cost of living rises, it’s likely to push more young adults to move home.

As a parent, it’s natural that you want to provide support to your children. But it’s also important to consider how it could affect your own finances.

3 practical things to do if your child moves back home

1. Calculate how it will affect your expenses

Another adult in the house could mean your expenses increase. From buying more groceries to higher energy bills, if your child is moving home, you should consider how it’ll affect your regular outgoings.

Whether you want your child to contribute to the household budget or not, understanding how your expenses could change is important.

2. Set out if you want your child to contribute to the household budget

Being clear from the outset whether you want your child to contribute to expenses can help make sure you’re all on the same page. It means both parties can create a realistic budget.

More than half of parents say their child pays rent for their bed and board, while a quarter contributes in other ways. On average, adult children pay £197 a month, according to parents.

Due to the cost of living crisis, 12% of parents have asked their children to pay more, and 35% are considering doing so. Make sure you consider how your expenses have increased and how they may change in the future.

3. Consider how you could improve your child’s long-term financial security

Your child moving home is a good opportunity for them to improve their long-term financial security. Having a conversation with them about their plans and goals could help them stay on track and identify how you may be able to help.

Around 40% of adults living at home are doing so to buy their own property. Working with your child to create a realistic plan for saving a deposit and helping them understand what they’ll need to consider could help them reach their goal.

There may be other steps that could make sense for your family too. For instance, could providing gifts during your lifetime, rather than leaving an inheritance, help your children improve their financial security? Weighing up your options, as well as considering how they could affect your plans now and in the future, is important.

Make supporting your children part of your financial plan

By making supporting your adult children, whether through providing gifts, them moving home, or supporting their education, part of your financial plan, you can balance it with other goals that you may have. Please contact us to talk about your priorities and financial plan.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Not all mortgage contracts are regulated by the Financial Conduct Authority. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

The State Pension is set to increase by a record amount under the triple lock due to high levels of inflation. If you’re claiming your State Pension, read on to find out what it means for your income.

While there had been speculation that the triple lock would be suspended this year, the Conservative Party under Liz Truss committed to maintaining it. However, new prime minister Rishi Sunak hasn’t commented on the triple lock yet.

For pensioners, it’s an important way to maintain spending power as the cost of living rises.

The State Pension increase will be based on September’s inflation rate

The State Pension triple lock guarantees that it will increase each tax year.

As the cost of living generally rises gradually, this can help pensioners to maintain their standards of living throughout retirement. The Bank of England (BoE) has a target to keep inflation around 2%. While this may seem small, it can have a significant effect on how far your income will stretch during retirement.

Let’s say you retired in 2011 and needed an income of £35,000 to achieve the retirement lifestyle you wanted. According to the BoE, your income would need to have increased to more than £41,700 in 2021 to deliver the same lifestyle as average inflation was 1.8% a year.

Over a retirement that could span several more decades, the effect of inflation can really reduce your spending power.

The current high inflation environment – the rate was 10.1% in the 12 months to September 2022 – means that pensioners’ income may be stretched more than they expect.

As a result, knowing that your State Pension will increase each tax year can provide some peace of mind. While the State Pension often isn’t enough to reach lifestyle goals alone, it does provide an important foundation for many people.

So, what is the triple lock? It means that the State Pension will increase by one of three measures, whichever is higher. These measures are:

• Average wage increase
• Rate of inflation
• 2.5%

The inflation rate was the highest measure at 10.1%, and pensioners are set to receive the largest rise in income since the triple lock was introduced.

The full State Pension will increase by £972 a year in April 2023

Pensioners that receive the full State Pension will see the income it provides rise from £185.15 a week to £203.85. The annual income it will deliver will be £10,600 in 2023/24 – an extra £972 a year.

Under current rules, you must have at least 35 years on your National Insurance record to be entitled to the full State Pension.

If you have between 10 and 35 years, you will be entitled to a proportion of the full amount. If you don’t receive the full State Pension, the amount your income will increase for the 2023/24 tax year will be lower.

State Pension rules have changed over the years, including significant reforms in 2016, and they can be complex. If you have any questions about what you’re entitled to and how the triple lock will affect your income, please contact us.

Do you need to update your retirement plan as inflation rises?

The triple lock means the State Pension you receive will increase next year. However, as it’s likely to be just a portion of your income in retirement, it’s a good idea to reassess how your expenses and income needs may have changed.

Inflation may mean that your regular expenses have increased over the last year. Your disposable income that helps you reach retirement goals may also not stretch as far. 

In some cases, you may want to take a higher income from your pension or other assets, like your savings and investments. It’s important you consider the long-term effects of taking a higher income now – could it mean that you run out of money in the future?

Taking the time to review the effect of inflation on your retirement plan can help balance short- and long-term needs.

Contact us to talk about your finances in retirement

Whether you have questions about how rising inflation will affect your pension or other parts of your retirement plan, we’re here to help. Please contact us to discuss what you want to get out of retirement and how to achieve it.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.