5 steps to ensure estate planning works

How do you know if the estate planning you’ve done for a client has worked?

It sounds cold, but the only real test is when a client passes away. The good news is, some basic preparation now can help things run smoothly when it matters most.

As head of the Octopus Investments Estates and Probate team, I speak to hundreds of advisers. Those who take five simple steps have far fewer problems when it comes to dealing with a client’s estate.

Not only that, following these steps makes it more likely that a client’s beneficiaries will become clients in their own right. I’ve seen this happen repeatedly.

Here are my top five steps to ensure estate planning works when the time comes.

1. Encourage your clients to talk to their beneficiaries

If you’re planning for somebody’s benefit, it shouldn’t come as a surprise to that person.

Sometimes, though, we see that it does. People can be guarded about their financial planning, so may not share details with executors and beneficiaries.

I got a phone call recently from a beneficiary who was clearing out her father’s house. During the probate process, they had taken the investment and sold it down and taken it as cash. She had just found the Octopus Inheritance Tax Service brochure and noticed that it might have something to do with inheritance tax.

She wanted to know what this meant and what the investment was. I checked it out, it was for £200,000 and had been held for more than two years. As such, it should qualify for Business Property Relief (BPR).

But because the solicitor and the beneficiary didn’t know what the investment was, they hadn’t claimed the inheritance tax relief. Had she not picked up the phone, the beneficiary would’ve been out of pocket for £80,000.

This was a happy ending, but what’s notable is that the beneficiary didn’t know about the estate planning that was done for their benefit. I’m a firm believer that advisers can play a valuable role facilitating conversations between clients and their beneficiaries, and that doing so helps avoid these situations.

2. Don’t assume solicitors or executors will be familiar with your client’s investments

We had a case where we got in touch with an executor and, at first, they weren’t that keen to talk to us. I suspect they thought it was a sales call.

However, when we spoke to them about the investment, it became clear the executor didn’t realise it qualified for BPR, and so could be passed on free from inheritance tax. That single phone call saved the estate £40,000 in tax.

This highlights the value of making sure executors and solicitors are aware of what estate planning has been done, especially if it involves investments that could qualify for relief from inheritance tax.

When it comes to BPR-qualifying investments, it’s important to consider that these types of investments put capital at risk. The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.

In addition, the tax benefit to each investor will depend on their personal circumstances, and tax rules can change in the future. Tax relief also depends on the portfolio companies maintaining their BPR-qualifying status. Shares may be volatile and hard to sell.


3. Be proactive, and ready to step in quickly when your client passes away

Solicitors and executors won’t automatically think to involve the financial adviser when a client passes away. In fact, in my experience it’s quite rare. Advisers need to be proactive to make sure they’re in the conversation and so able to contribute their knowledge.

Research commissioned by Octopus shows that, on average, advice firms have solicitor’s details on file for only about a quarter of their clients. Getting these details now will make things much more straightforward later on.


4. Make sure beneficiaries understand all their options

If you find yourself advising a beneficiary, make sure they understand all their options. I recall an instance where a beneficiary inherited an investment that qualified for BPR. The beneficiary sold the investment without realising that if they retained it they could themselves pass it on free from inheritance tax without any minimum holding period (this is called succession relief).

Unfortunately the beneficiary themselves died less than two years later. Had they held onto the investment they inherited, they could have passed it on without any inheritance tax being due. But they didn’t know that when they made the decision to sell it.

On a happier note, we got a call during the summer of 2018 from an adviser requesting a withdrawal form for a portfolio worth £1.6 million. We discussed the beneficiaries and their own financial situation, and it became immediately clear that they required estate planning of their own. The adviser went back to them to discuss this, and two of the three beneficiaries decided to retain their portion of the investment.

In this case, the adviser was able to keep over £1 million under advice. More importantly, the beneficiaries understood the benefits and risks of retaining the investment and could make a more informed decision.


5. Take action now

It’s never too early to start talking to clients about estate planning. Advisers should ideally be familiar with a client’s will. They should also make the effort to learn who the client’s beneficiaries are, and will hopefully meet them while the client is still alive.

It’s a good idea to have a dedicated process for what happens when a client passes away, and integrate that with your intergenerational planning. Speak to the Octopus Estates and Probate team on 0800 294 6826. We can offer practical information and support that will help you build that process.

You don’t have to wait until a client passes away. And you don’t need to have recommended any Octopus products. We’ll be happy to answer your questions about the nuts and bolts of what happens when a client dies and how you can prepare.

We’ve seen an increase in advisers taking on their clients’ beneficiaries after speaking with us. This is hardly surprising, since supporting executors during the probate process, while also looking to save the estate 40% inheritance tax, is a powerful demonstration of an adviser’s value.

Visit the intergenerational planning section of our estate planning hub for more information on engaging with clients’ beneficiaries.

Ben Charrington
Head of the Estates and Probate team

Important information
We do not offer tax or investment advice. BPR-qualifying investments are not suitable for everyone. Any recommendation should be based on a holistic review of your client’s financial situation, objectives and needs. Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. We record telephone calls. Issued: February 2019. CAM07828.