Losing a loved one is a horrible thought – but by planning now you can help make dealing with the aftermath easier
It’s important to plan for all aspects of the future – including ones you might not want to think about.
If a loved one dies, sorting out financial and administrative matters can be the last thing you want to consider at a time when you’re least able to think properly.
But by taking steps in advance, you can make it easier.
Protect your assets with a Will
If you’re married, in a civil partnership, or living with your partner, you should have a Will. A Will expresses what you want to happen to your assets (your Estate) after your death. This includes how it is split between your partner, any children you may have, relatives and friends, or organisations you may wish to support.
Dying without a Will is known as ‘dying intestate’ and the rules around what happens to your assets in this situation are well-defined. You might think that being married or in a civil partnership means your partner will automatically inherit everything, but this is not the case.
If your Estate is valued at more than £250,000, your partner will receive the first £250,000 and 50% of everything above this amount, with the remainder split equally between any children you may have .
It’s also important to realise that if you’re living with your partner but not married or in a civil partnership, they will likely have no legal claim on your assets. And if you have been divorced or are separated, it’s important to make or update your Will to ensure it reflects your current wishes.
This infographic explains how your assets will be divided if you die without a Will.
Property and IHT – new Nil Rate Band
When you die, inheritance tax (IHT) may be payable on part of your Estate. At the moment, you can pass on up to £325,000 without incurring IHT if you’re single or divorced, or up to £650,000 if you’re married, in a civil partnership or widowed.
A new allowance covering the value of your family home has also been introduced. The ‘main residence nil-rate band' is being phased in in stages and will be worth up to £175,000 per person by 2020.
This means a couple will be able to pass on a home worth up to £350,000 to their children or grandchildren without being subject to IHT – although there are restrictions over how this allowance can be used.
In many circumstances, an Estate worth up to £1 million will be able to be passed on from 2020 without incurring IHT.
If you have savings built up in ISAs, your spouse or civil partner can inherit their total value, even if you don’t leave your ISAs to them in your Will.
Under what is known as an Additional Permitted Subscription (APS), your spouse or civil partner can inherit the ISA allowance you have built up over the years, including any interest earned up until the date of your death.
For example, if you had saved £50,000 in ISAs and earned £500 interest on them and left this to your children, your spouse or civil partner would be able to save up to £50,500 tax-free by using their APS allowance. This is in addition to their £20,000 annual ISA allowance.
If you intend to use your APS allowance, you must do so within three years of your loved one’s death, or 180 days after the completion of administration of their estate if this is later.
Funerals can be very expensive to arrange. According to the SunLife 2016 Cost of Dying report, the cost of the average funeral in the UK was £3,897 in September 2016 , while one in seven people (13%) who organised a funeral between 2012 and 2016 said doing so caused them notable financial concern.
Many said they had resorted to selling belongings, using credit cards, taking out loans, or borrowing money from family and friends to cover the cost.
By taking out a pre-paid funeral plan, you can ensure that many of the costs of arranging a funeral are taken care of in advance, providing financial peace of mind.
Many providers offer a range of plans with differing levels of service. It’s important to be aware of what a pre-paid funeral plan does – and doesn’t – cover. For example, while cremation fees are usually covered, burial costs vary, so funeral plans usually contribute a given sum towards burial funerals (rising with inflation).
Other funeral costs such as Doctor's or Coroner's fees, a memorial or headstone, flowers, and catering for a wake are usually not included in funeral plans.
Loss has many meanings
Losing a loved one doesn’t necessarily mean someone passing away. Physical or mental incapacity, such as dementia, can mean your partner is no longer able to look after themselves or make their own decisions.
As well as the emotional challenge of coping with this type of loss, you may have to make decisions on behalf of your loved one.
It’s a good idea to put in place a Power of Attorney, a legal document that gives a person or persons you trust – known as an Attorney – the power to make decisions if you are unable to do so, including over your health, wellbeing, and financial matters.
If you intend to appoint Attorneys, it’s vital you do so while you have the mental capacity to do so. If you didn’t have a Power of Attorney in place and decisions about your health or your finances needed to be taken, your family or friends would need to apply to the Court of Protection for a court order.
This can be a lengthy and expensive process that must be completed before anyone can deal with your affairs.
Skipton can help
Skipton Building Society is here to help you plan for all aspects of your life ahead. If you’d like to know more about the services we offer and how we may be able to help you, get in touch to get the conversation started.
Retiresavvy is brought to you by Skipton Building Society. This article has been commissioned by retiresavvy and any opinions voiced are the author's own.