Estate planning: How to understand the value of your assets and estate

February 2023

Understanding what your estate includes and the value of your assets is crucial in creating an effective estate plan. Find out what you should consider here.

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.

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