Inheritance tax is generally not the first thing on people's minds. The idea that it is a "voluntary tax" coupled with the lack of overall knowledge from scarce bits of information creates a recipe for loss. The government has taken millions in inheritance taxes, and the laws are written to help assure that this tax remains effective.
Failure to plan for the inheritance tax is typically due to the lack of awareness. Many of today's families who are hit with such a burden were never aware of it to begin with. Those past retirement age are often unaware as well. Most people become aware when they or someone they know is confronted with this reality.
While there may be other assets to draw from, the main investment that the government narrows in on is the home. Homes are typically the single biggest asset. In many cases, the home is worth more than other investments and is an easily taxable entity. There are ways to plan around the home ever being included in the total of the estate, but it is not always in everyone's best interest to make this arrangement.
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Failing to plan for the eventual claim the government may issue is a common mistake. One of the potential resolutions can be found in a good life assurance policy. This is not a solution for everyone, as age and health can make it almost impossible to find an affordable policy. If you are not prepared with a pre-existing policy, getting one after retirement is often too pricey and difficult. The coverage of the policy can often allow the family to pay off the taxes and keep the home and what remains of the assurance payment. An inheritance tax can be much higher than most people expect it to be, so it is important to evaluate the overall probability of the payment through a professional.
Eliminating the home from the estate and being better prepared for the application of inheritance tax can be done through other methods as well. In some cases, all it takes is an equity release. At one time, equity release was used as a front for a scam, and thus many people are not comfortable with the idea. New regulations were implemented, which has restored the credibility of this method.
Prior to the credit crunch that stalled the economy, inheritance tax issues were on the political agenda. However, since the effects of that crunch are still and will be felt over the long term, most of today's politicians don't believe it will be back on the agenda for a long time. Aside from being one of the fastest ways for the government to collect taxes, it is also easier than any other form of collection. The estate is held in reserve until the probate court has ruled, the claim is paid upon the ruling, more or less. It is not up to the individual to pay. This creates a cycle of convenience.
The retiree population has often assumed that the ISA funds they have accumulated will be the answer. This is not a protective measure when it comes to protecting the estate from inheritance tax collection.
Establishing a legal will can protect the estate from the taxation process for multiple generations. Your will, however, needs to be in line with all of your current circumstances. Divorce, children from multiple households, and other factors can play a big role in determining whether your funds will be distributed as you wish. A strong, well written, closely planned will that adheres to all of the requirements is a safeguard to prevent the sudden closure of a tax bill on your estate.
If your circumstances are particularly unusual or complex, it is often best to discuss the essential elements of maintaining your estate and preserving it for future generations with a professional. Using a professional can also help you to remember the importance of reviewing your will periodically, as many professionals will send you a reminder notice. During the construction or review of a will, it is essential that you and the professional address the issue of inheritance tax in order to be clear about the professional's knowledge and ability to handle it.