Planning for later in life

27 June 2019 - Elizabeth O'Hanlon

According to recent data from the financial database Unbiased, over 31 million UK adults (60% of the population) are at risk of dying without a will. There are significant benefits by arranging a will through a regulated solicitor, but are there other financial considerations to think about? 

Neil Hewitt, Chartered Financial Planner and Director at Scrutton Bland explains some of the other financial planning matters upon which advice should always be taken simultaneously. 
Do you have adequate insurance protection?
In the event of a death, household income is often significantly reduced, which means any outstanding debts you had may become a burden to your surviving family.  Reviewing your existing insurance policies should be done on a regular basis to ensure those plans remain relevant or appropriate cover is put in place.
Ensure your life assurance policies are written in trust
There is a two-fold benefit in doing this.  Firstly, the death benefits are paid directly to those the policy holder wishes to benefit.  Secondly, if the policy is not written in trust, the benefit then becomes part of the individual’s estate and be liable for Inheritance Tax.  If the policy is written in trust the proceeds will be paid outside of the estate and therefore be exempt from Inheritance Tax.
You can nominate who will benefit from your pension fund in the event of your death.  If the pension fund is paid as a lump sum to the estate, it will potentially form part of your estate for Inheritance Tax purposes.  If it is nominated to be paid to an individual, as with life policies above, it will not form part of the estate for Inheritance Tax purposes.  It is not uncommon for many people to have nominated a beneficiary many years’ ago but not revisited this situation in despite a change in their circumstances such as divorce, remarriage and the birth of children, so check to ensure your preferences are current.
Inheritance Planning
We all benefit from an Inheritance Tax free estate of up to £325,000 (£650,000 for a couple), above which valuation your estate is liable to Inheritance Tax at a rate of 40%. For those that qualify for an additional allowance, known as the Residence Nil Rate Band, this sum can be increased for a couple by a further £350,000 by April 2020, although not everyone will qualify for this.  Many estates are paying significant levels of Inheritance Tax, simply because they have not sought advice.  There are many financial planning solutions that can reduce, if not remove, this liability, so make sure you review these whilst arranging or reviewing your will.
Maximising tax-free allowances    
Pensions are extremely tax efficient and monies held in pensions are exempt from Income, Capital Gains and Inheritance Tax.  Everyone should try to maximise their pension allowances each year, as they will be lost if not used.  Upon your death the pension funds can pass (as a pension fund) directly to your nominated beneficiaries who can retain these valuable benefits. ISAs are also extremely tax efficient as they are exempt from Income Tax and Capital Gains Tax, but not Inheritance Tax.  However, for married couples, upon first death, the value of any monies held within ISAs passes to the surviving spouse in the form of ISAs in their name and they continue to benefit from these tax exemptions. 
Care home costs
As average life expectancy increases, we are all at a greater risk of requiring care in later life.  The cost of care home fees is extremely high and so it is prudent to:
a) review your retirement income and investments to ensure an appropriate strategy is applied to lessen, if not avoid, the risk of depleting these funds;
b) reduce exposure through structuring your will in an appropriate way and/or the use of trusts and/or other planning strategies. 
Powers of Attorney
We readily accept the benefits of a will, but it’s easy to overlook the need to ensure our assets are looked after properly should we lose mental capacity.  This scenario can be greatly relieved by arranging appropriate Powers of Attorney to ensure that those you nominate are given the legal right to look after your affairs.

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