End of life finances: The ten things you need to do before you die which will save your family angst and stress.

Ahead of time…

In a recent column in the money section of The Times Newspaper they suggest ten steps to prepare your financial affairs before you die. It is really worth putting time aside to do this - and it is a generous act because it avoids leaving family the really difficult task of sorting out the paperwork when you are no longer there to answer questions.

The first vital step is to have the conversation with the family –  make sure you aren’t the only person who knows the way round the family finances. Discussing it  helps to reduce the feelings of anger  or confusion which the family may well feel if things aren’t documented, or, if some of your wishes come as a complete surprise.

Avoid leaving your affairs in disarray

Make your will.

More than half UK adults don’t have a will and a third of these are over the age of 55. Without a will, probate can be more complicated, and the people you might have wanted to inherit some of your assets may not be able to since the rules of intestacy determine where assets go in the event that someone dies without leaving a will.

 It could result in limiting the amount a spouse receives, and more of your estate could be subject to tax. You can write your own will or use a DIY will – many are available online if your estate is very simple – but if you want peace of mind you can pay to use a will writing service or use a solicitor to draft this for you.

Write a list of your assets, and any debts and their estimated value – and keep these up to date. The executors of the will have to do this anyway but if your list is up to date it means they don’t have to spend as much time finding where these are, and then having to work out what they are worth.

Write a letter to those managing your estate – explaining how you would like your assets to be dealt with. This might for example be how old a beneficiary should be when they inherit from you – or whether your children’s partners should have a claim to an inheritance if they separate -  it may not be legally binding but it makes your wishes known.

 Choose the executors of your will wisely.  You can have up to four, but always have at least two. They can also be beneficiaries, but make sure they have the time to do the role – and that they will be able to reach any necessary decisions constructively.

 Think about tax – assets left to a spouse or to charity are free from inheritance tax – but bequests to anyone else are taxed at 40%  above the £325,000 threshold and this level is going to remain in place for another three  to four years according to the recent Autumn Statement.

( Note this threshold rises to £500,000 if your home is passed to direct descendants.)

There are legitimate ways to  reduce this bill – if for example any gifts you make at least 7 years before you die are free from Inheritance Tax – and you can also use relief of up to £3000 per year to make gifts. However to take advantage of this relief you do need to start thinking about this in good time before you die.

Life insurance and trusts. Life insurance policies pay out a lump sum to your estate when you die. These can be really helpful if you have young children and the main income earner dies – so that you have some capital to help cover the costs of childcare if as the remaining partner you have to make new work arrangements.   The life insurance pay-out is tax free ( from income tax ) but will however form part of the estate, so might be liable to inheritance tax. If you set up a trust ( a legal arrangement which lets you leave assets to beneficiaries outside of your estate for inheritance tax purposes)  the life insurance policy could be paid into this and would then be free if inheritance tax. However do get a solicitor to set this up for you.

 Get your Power of Attorneys set up.  There are 2 kinds -  a financial one  which covers financial affairs, and a health and well-being one which  covers things such as the medical care you want to receive. The Power of Attorney allows trusted people to make decisions on your behalf if you, are not able to. They are so important to have in place, as you can’t make them once you lose mental capacity - which may happen after an accident or illness. They can be completed yourself via the Governments  Office of the Power of Attorney . Each one costs £80 to execute – or a solicitor can do this for you which typically costs between £600-£900 pounds.

 Immediately after you die – Your bank accounts might be frozen so make sure anyone who relies on you have some way to access cash – eg through a joint bank account. It can take between 6 – 9 months to get probate done allowing your beneficiaries to access money or property you leave behind.

 Lastly – Make a file where you keep copies of these important documents and make sure your family and executors know where it is kept.