Read more articles in: Blog, Rachel Blackburn

How to incorporate gifts into your estate plan legally

When planning your estate, making gifts can play a pivotal role in reducing the Inheritance Tax (IHT) burden on your estate.

Under the seven-year gift rule in the UK, any gifts made more than seven years before your death are exempt from IHT, providing a beneficial way to pass on wealth to the next generation without a tax penalty.

If you pass away within seven years of making a gift, it remains part of your estate for IHT purposes. If the gift (or the collective value of numerous gifts) are over £325,000 then the tax payable on them decreases on a sliding scale if the gift was made three to seven years before death.

It is not only about the duration but ensuring that the gift qualifies under the legal definitions, which is where legal guidance becomes invaluable.

The importance of making gifts

Beyond tax savings, making gifts is about providing for your family’s future.

It can help support major life events, from educational expenses to first home purchases, at a time when economic conditions might make such milestones challenging.

Legally, it is vital to ensure these gifts are structured to avoid disputes or unintended consequences.

Legally documenting each gift’s details including its date, value, and recipient is a safeguard against potential future legal disputes.

Gifts must comply with current laws, including those related to taxes and ownership transfers.

For instance, transferring real estate as a gift requires proper registration in accordance with property laws to ensure that the transfer is recognised legally.

Consultation with all parties

To avoid future disputes, especially in the case of substantial gifts, it is advisable to consult with all potentially affected parties.

This includes family members who might expect to inherit or have a stake in the estate.

Transparency can prevent misunderstandings and disputes among heirs.

Understanding the dynamics within the family can guide how gifts should be structured.

For example, if there is a history of disputes within the family, it might be prudent to structure gifts in a way that minimises potential friction, possibly through the use of trusts or specific conditions attached to the gift.

Avoiding implied trusts

Be clear about the terms of the gift to avoid the creation of an implied trust.

If the donor appears to retain some control over the gifted asset, it may not qualify as a gift for legal or tax purposes and could lead to disputes or unintended tax consequences.

Each situation is unique, and the right approach depends heavily on individual circumstances and objectives.

Seeking legal advice

While the principles of gifting and the seven-year rule may seem straightforward, their application often involves complex legal considerations.

Considering incorporating gifts into your estate plan?

Our solicitors are equipped to assist you with all aspects of estate planning, ensuring your peace of mind and securing your legacy in accordance with your wishes.

Contact us for specialised legal advice.

Rachel Blackburn

Head of Wills, Probate and Older Client Services

I joined Mander Hadley’s Wills, Probate and Older Client Services Team in 2018.I specialise in the preparation of Wills, Probate and estate administration, trusts and trust administration and Lasting Powers of Attorney. I also have experience of care fee planning and appeals of Continuing Health Care decisions.

Latest posts by Rachel Blackburn (see all)