18 August 2021
As strange as it may sound, planning for your death isn’t really about you.
In reality, your estate planning is about your family. It’s your chance to make decisions that safeguard your wealth for your children, grandchildren, or anyone else you want to have it.
It’s also an opportunity to help deal with the processes that your family will face when you die, making preparations for the costs and stresses of complicated paperwork.
That’s why planning for your death is one of the best gifts you can give your loved ones.
Dealing with financial affairs after a loss can affect a person’s mental health
When a person dies, it’s often their loved ones who end up looking after their estate. Family and friends are often left to deal with probate, unearth all the relevant paperwork, close accounts, deal with insurance payouts and settle any tax bills.
Without knowledge of the issues involved, your loved ones could find it hard to deal with everything. And, having to go through a complicated legal process is likely to be the last thing a friend or family member might want when grieving.
It’s perhaps no surprise, therefore, that recent research found that two in five people dealing with the financial affairs of a deceased person experience a marked deterioration in their mental health. Additionally, one in four people suffered financial difficulties as a direct result of acting as an executor or administrator.
Planning for your own death while you are alive can ensure that your loved ones are better prepared to deal with your affairs when you pass away. So, here are some ideas of what you can do now to help them later.
Remove the stress of uncertainty
The first estate planning step you need to take is to write a thorough will, containing clear instructions for what you want to happen when you die.
Your will is your chance to have your say over what happens to your wealth, including who’s entitled to what and how much.
This is particularly important if you’ve ever divorced or remarried, as it increases the number of people who may think they have a claim to your wealth. You can entirely remove the uncertainty of these disputes by making clear instructions in your will, helping your family to avoid a potentially stressful situation.
You may think writing a will is just a concern for older people. However, if you have young children, you can include details in your will for who you’d like to become their legal guardian if something unexpectedly happened to you.
This ensures that your children are cared for by people you trust, rather than the decision being made for you by a court.
Protect your family’s inherited wealth
As part of your will, you may want to consider trust planning to make sure your wealth passes to the right people.
Putting money in trust means it’s kept aside for a beneficiary of your choosing. You also appoint someone to oversee the trust fund, known as a “trustee”. The trustee will then give access to the beneficiary at a time of your choosing, following the instructions in your will.
This kind of planning fully protects your money from claims to your wealth, ensuring that your children, grandchildren, or whoever else you choose receives the money you intend for them.
Create a plan in case you ever lose mental capacity
One of the worst things that could happen for your family is for you to lose the ability to make decisions for yourself without creating a Lasting Power of Attorney (LPA).
Creating an LPA gives someone you trust the legal right to make decisions on your behalf. This ensures that someone will be able to manage your finances, even if you lose the mental capacity to do so for yourself.
Even if you never need to use it, having an LPA is a vital part of planning that protects your family just in case.
Ensure as much of your wealth goes to your family as possible
One of the most important parts of your estate planning is to consider how to reduce a potential Inheritance Tax (IHT) liability.
IHT is charged at 40% on the total of all your assets above a tax-free threshold called the “nil-rate band” (NRB). As of the 2021/22 tax year, the NRB is £325,000.
You can also make use of the residence nil-rate band (RNRB) of £175,000 if you pass your home to your direct descendants, such as your children or grandchildren. In total, that means you may have an IHT allowance of £500,000.
If you’re married, you may be able to combine your NRB with your spouse, potentially giving you up to £650,000 tax-free, or up to £1 million if you’re able to use the RNRB.
However, any value on your estate above this amount is potentially subject to IHT. That means the wealth you worked so hard to accrue could end up going to the government, rather than to your family, if you don’t consider ways to mitigate your tax position.
A financial planner can help you find the right methods for you that reduce the amount of tax you owe, ensuring your family receive as much of their inheritance as possible. Keeping careful and accurate records can also make it much easier for your loved ones to administer your estate.
Cover the costs of expensive processes
All in all, your death will be expensive for your family. Not only will they be grieving for you, but they’ll also have to deal with some expensive and laborious processes. You can help with some of these processes by preparing for them before you die.
Firstly, your family will have to apply for and deal with probate. This is the process through which another person becomes legally able to administer someone else’s estate.
Probate can be time-consuming, potentially taking as long as 12 to 18 months, and there are many administrative costs involved. You can help your family with this by providing money to pay for it in your will.
You could also employ an expert to deal with probate on your family’s behalf, removing the difficulty for them entirely.
Secondly, you can make preparations for your funeral in your will.
It may seem morbid to pay for your own funeral, but these costs can easily reach thousands of pounds when everything is added up.
You can provide specific funds in your will that cover the costs of your funeral, so your family won’t have to worry about it.
Get in touch
Want to find out the best ways for you to plan for your death and help your family? Get in touch with us at Depledge.
Email email@example.com or call 0161 8080200.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing. Levels of taxation may be subject to change and their value depends on the individual circumstances of the consumer.