Nicola Waldman identifies 5 financial hazards that could add to the grief of loved ones after you're gone.
The need to make arrangements for what should happen in the event of your death (or prior incapacity) is something most of us would rather not think about but failing to prepare for the unexpected may have dire consequences for those you leave behind. Here are five issues you must consider:
1. The importance of making a will
A will is at the heart of any estate planning and is a simple, powerful and inexpensive document to create. With a will you can stipulate who will inherit your assets and if you have children, it allows you to nominate a guardian for them and arrange for an adult to manage any assets they inherit.
You can also use your will to name someone to look after a pet, direct how any inheritance tax should be paid, forgive debts, set out your funeral wishes and more.
Without a will you will die intestate, which means that your assets will go to close family or, if you have no surviving relatives, to the state. For those who aren’t married or in a civil partnership this means your other half will not inherit your assets and could be left with no right to your property at all, even if you have lived together for many years. It is also important to remember that if you have already made a will but then decide to marry, your will is revoked and you will have to write a new one.
2. Clarify your wishes about end of life care
Advance Directives or Decisions let you set out your wishes for end of life care in case you cannot speak for yourself. Often called living wills, they allow you to refuse treatment in certain specified circumstances in advance of a time when you don’t have capacity to make that decision. Or you may want to have a lasting power of attorney which can appoint someone else to make decisions about your health and welfare more generally at a time when you can’t.
This is a vital part of estate planning as it gives clear and legal instructions for providing care. For those who aren’t married or in civil partnerships it avoids speculation about who is responsible for making decisions. If you haven't talked about or written down your wishes your relatives may not be clear on what you would have wanted or there may be speculation on who is responsible for making decisions.
3. Financial powers of attorney
With a financial power of attorney, you give another person power over your finances. You can make a limited power of attorney for a specific purpose or time, or a lasting power of attorney, in which you name someone to take care of your finances in case you become incapacitated and can’t take care of them yourself.
If you anticipate incapacity, or just want to make sure that your partner (or someone else) is named to take care of your finances in case of emergency, consider making a lasting power of attorney.
4. Inheritance tax
Many people don’t have to worry about inheritance tax as the assets they leave will fall below the threshold for paying tax, currently set at £325,000. For property owners however, massive house price rises in recent years mean that increasing numbers of people are having to consider inheritance tax.
Married couples and civil partners are allowed to pass their estate to their partner tax-free when they die. In other words, the surviving partner can inherit the entire estate without having to pay inheritance tax. They can also pass on their unused tax-free allowance to their partner.
There are also ways to avoid inheritance tax through estate planning, including gifting, making use of trusts and giving away assets.
5. Final arrangements
As part of your estate planning, you should also consider what funeral arrangements you would like to make. It is not morbid to pre prepare - it is commendably practical. You can specify your wishes, in as much detail as you choose right down to the outfits you want people to wear or the music to be played. You can set this out in your will or in a separate letter of wishes.
While your wishes are not legally binding, it can come as great relief to those who have to plan the event. Knowing what you wanted can calm concerns and put to rest any questions about your final wishes. This may be of particular help to your family if you anticipate that people in your life may have strong or conflicting opinions about your funeral arrangements.
About the author
Nicola Waldman is a partner in the private client team at law firm at Hodge Jones & Allen and is an expert in estate planning
You may find these downloadable guides useful as you consider how to plan your estate
Have you considered writing an advance decision (or Living Will)? This template can help you outline your care preferences to share with your loved ones.
Writing a death plan
A death plan allows you to relieve the burden of decision making from the shoulders of those you love and creates the opportunity for a peaceful end of life.
My funeral wishes
This fill-out-and-keep downloadable template can help you share your funeral wishes with your nearest and dearest and ensure you have the send off you deserve.