Write a will
A will names your beneficiaries – the people you want to inherit your assets when you die, and appoints executors – the people who will manage the financial process. However, more than half of UK adults don’t have one.
One of the main reasons is that they believe everything will automatically pass to their spouse or civil partner. But this is not necessarily true because your estate is shared out in a standard way defined by the law of intestacy. This decides who gets what and how much, as well as the order of priority starting with immediate family members, and then moving further down the line.
Unfortunately, if you are not married or in a civil partnership your partner is not treated as a family member, so will not inherit anything through the intestacy rules, no matter how long you have been together.
If you own your home jointly, they will, however, inherit that unless a will says otherwise.
If your situation is at all complicated it is wise to hire an expert rather than attempting to set things out on your own. But be warned: will writing is an unregulated market. Ben Mason, chief executive of the estate planning law firm Kinherit, advises you check for a qualification from the Society of Trust and Estate Practitioners when searching for professionals.
Include a letter of wishes
This is not legally binding but it can help provide important, more personal, guidance to friends, family and a partner on what to do when you die. It can contain views, opinions and details that complement the will.
Think of the crushing disappointment someone may feel if they have been excluded from a will with no explanationEquilibrium Financial Planning’s Andy Baker
You can, for example, give details about the distribution of your personal possessions, give instructions for how you think capital should be managed, or explain the background to any inheritance. You can even make “requests”, such as encouraging beneficiaries to make use of some of their inheritance in a certain way.
“This is your chance to dispel any potential misunderstandings or wrong assumptions that may occur after your death,” says Andy Baker, partner and chartered financial planner at Equilibrium Financial Planning. “Think of the crushing disappointment someone may feel if they have been excluded from a will with no explanation.”
Set up a trust
Trusts are not only for the wealthy – they can also be useful if you have young children or a complicated family setup.
For example, if you are worried a beneficiary might spend their inheritance all at once, a discretionary trust can be set up so they get smaller sums over a period. A trustee needs to be appointed to manage it on behalf of the beneficiaries in the will.
When it comes to property, often the largest asset people include in a will, a life interest trust can help to safeguard the family home from the full impact of care home fees for the surviving spouse.
This is useful if you have children from a previous relationship – your current partner or spouse can live in the property until they die, then the it is left to your children.
According to MoneyHelper, a free advice service provided by the Money & Pensions Service, it costs £1,000 or more to set up a trust using a solicitor. It should be paid for and put in place along with your will before you die.
Beat inheritance tax
Anything over the £325,000 limit can incur inheritance tax (IHT), which is 40%. But you can save by leaving everything over this limit to your spouse or civil partner. And anything you don’t use of your limit can be used by a surviving partner when they die. Your home can be left to your spouse or partner tax-free, and the IHT limit rises to £500,000 if you leave it to your children.
Early planning can reduce the IHT bill. For example, you could transfer money to beneficiaries as gifts during your lifetime. You can give away up to £3,000-worth of gifts a year, and there are separate rules that allow large sums to be given when people get married.
If you die within seven years of making other financial gifts, your estate or the recipient of the money may be liable to pay IHT. However, if they are from your regular income, form a part of your “normal expenditure”, are paid out on a regular basis, and do not have any impact on your own standard of living, they will be exempt.
View image in fullscreenYour home can be left to your spouse or partner tax free, and the limit rises to £500,000 if you leave it to your children. Photograph: Powered by Light/Alan Spencer/Alamy
Insure yourself
A life insurance policy will provide some financial protection to dependents and loved ones who receive a lump sum or regular payments upon your death. How much they get depends on the level of cover you buy. The greater the cover, of course, the more expensive the policy. The cost – typically paid on a monthly basis – is also determined by factors such as your age, lifestyle and family medical history.
Life insurance can be bought through your bank, an insurer, a specialist broker or even from big supermarkets. Before you buy, however, check whether you are already covered through work. Many employers include death-in-service insurance as part of their benefits package, paying out a tax-free lump sum if you are on the payroll when you die.
The advantage of this type of cover is that there’s no annual or monthly premium and the payout is linked to your salary. You may find it’s enough and you don’t need a life insurance policy as well. But unlike life insurance, death in service cover ends if you leave the company.
View image in fullscreenThe cost of a typical funeral is about £4,100. Photograph: Andrew Parker/Alamy
Whatever type of insurance you opt for, however, it is vital you continually review the policy to ensure it still offers the right cover for your current circumstances and, importantly, the people named as beneficiaries are also up to date.
Plan your funeral
The cost of a typical funeral is now about £4,100. The cheapest is cremation. For example, prices for a direct cremation start from £999, according to Sally Howarth, the founder of the price-comparison website Funeral Plan Market. This service – made famous by David Bowie – is unattended, with the remains of the deceased returned to the family who can celebrate a loved one’s life in their own way.
Burials can cost £5,033 on average – in addition to purchasing the plot, there are interment fees to think about. Where you live also makes a difference, with London still the most expensive place to die with funerals costing £5,235 on average. Northern Ireland is the cheapest place, with average costs 23% below the national average.
To help, you could invest in a prepaid funeral plan. Not only does it enable you to decide on arrangements in advance, your money is safeguarded and payments are held in a trust or whole of life policy.
And with the cost of a funeral doubling in the past 12 years, says Howarth, a prepaid plan fixes the cost at today’s prices.
