There are said to be two certainties in life – death and taxes. Whilst we will readily discuss our tax affairs, death is an uncomfortable conversation for many to have and is too often one that is avoided. However, avoiding such discussion can add to the emotional and practical difficulties that family and loved ones can face when you pass away.
In this blog, we outline key points to consider when thinking about organising your personal affairs in preparation for when you pass away.
Why is end of life planning so important?
Planning can ease the administrative burden for your loved ones after you die but also the emotional one. Making as many advance decisions as possible removes the burden of having to make these, often quite quickly, on your behalf after you pass.
Additionally, by creating legal documents and having conversations with key professionals ahead of time you can increase the likelihood that your wishes will be respected during crucial moments and that the people that mean the most to you are being taken care of.
How can you ease the burden for family and loved ones?
Discussing death early
A difficult conversation to have with others, and perhaps even think about, but it is vital that you talk to your family and friends about your wishes.
If you are unsure how to approach the conversation or what to say, you could perhaps start by involving the other person in the conversation and asking a question such as ‘have you thought about what you would like to happen at your funeral?’ to broach the topic.
You could speak with them about whether you have any funeral preferences, for example, if you would prefer to be buried or cremated, where you would want your ashes to be scattered, what music you would like played or whether you want funeral donations to a particular charity.
It will be of great comfort to those having to make those decisions knowing they can fulfil your wishes.
Creating a document with important information
Nowadays, many important documents are stored online, of which only you can access. This can create difficulties. You could print out a hard copy of important documents, or you may wish to create a digital or physical file outlining where your important documents are stored. Useful information includes – who you have accounts, investments and policies with, which utility companies you use, what assets you own, whether you have any debts, who your accountants and solicitors are etc.
Our paperless age has made it increasingly difficult to gather information quickly, especially if nobody else has access to your emails or banking details. It is also important to provide secure information on usernames and passwords (perhaps in sealed envelopes stored separately in a safe or lodged with a Will).
If you chose to create a physical file with all your information stored, you will be able to keep original documents such as your latest Will, birth and marriage certificates within the folder too.
Contact your pension provider / life insurance company
Most pensions and many life insurance policies are held in a trust which means that they may pass outside of your estate, making your pension pot a tax-efficient way to pass on your wealth to certain beneficiaries.
If your pension passes outside of your Will, it is important that you tell your pension provider who you would like to benefit from any proceeds after your death. When you first join a pension scheme, you will usually be asked to complete an expression of wishes form. However reports indicate 75% of people have not told their pension company who they would like to nominate to receive the proceeds when they die. This can create delay and could results in unintended people benefiting from your wealth.
It is also essential to keep these nominations updated regularly, particularly after significant life events such as having a new child, marrying or following a relationship breakdown. It is also essential that if you have had multiple pension schemes throughout your career, you have informed each provider of your wishes. If you would prefer, it is possible to nominate different beneficiaries for each scheme. This could include an ex-spouse or partner instead of your current partner.
Ensure you have a Will and that it is up-to-date
More than half of UK adults do not have a Will. Without a Will, your estate passes in accordance with the statutory intestacy rules. These are particularly unsuitable for blended families, unmarried couples or where you are estranged from certain members of your family.
You can listen more about why you should have a Will in our video here.
Think about your tax situation wisely
Whilst the tax rules are complex, at a basic level, if you have an estate valued at more than £325,000, anything you pass to non-exempt beneficiaries above this amount results in an Inheritance Tax (IHT) charge of 40%.
However, with careful planning, large amounts can pass to friends and loved ones free of tax. For example, assets left to a spouse or a charity are free of IHT, the formation of a trust may reduce a tax bill, and no IHT is due on any gifts you make during your lifetime, as long as you live for 7 years after gifting them. Lifetime gifting is an excellent strategy to pass wealth and reduce your IHT bill.
In summary, end of life planning results in the following:
- Your wishes are more likely to be followed,
- the administration of your estate is likely to be quicker and cheaper,
- your intended beneficiaries are more likely to benefit, and
- the amount of tax payable on your estate is likely to be lower.
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We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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