It’s a topic that most of us like to avoid, but failing to prepare your finances for death could mean paying unnecessary tax bills, leaving assets to the wrong people and make an already difficult time for your relatives worse. Here’s what you need to do to better prepare.
The first thing to consider is who will get your assets after you die. If you don’t have a will, then you are leaving your estate at the mercy of the laws of intestacy. That means distant relatives or separated spouses could benefit ahead of your loved ones. Getting a will drawn up also provides you with an excellent opportunity to do a bit of estate planning to minimise any potential inheritance tax bill for your estate.
Writing a will needn’t be an expensive matter. A straightforward will should cost around £100-£200. Once it is done, be sure to keep it updated when your circumstances change, for example, when grandchildren arrive or a beneficiary gets married or divorced.
November is Will Aid month, which means you can search for a solicitor via WillAid.org.uk and find a legal professional who will draw up your will in return for a donation to charity. Next you need to think about what would happen to your loved ones if you were to die suddenly. Are they reliant on your salary? If they are then consider taking out a life insurance policy so that they won’t be left in financial strife.
Finally, it’s important to budget for your funeral expenses. Final send-offs cost an average of £4,000. If you can’t afford to put this money aside, consider taking out a prepaid funeral plan, or starting to build up some savings to cover it.
If you can afford it, how will your friends or relatives access that money? Most funerals take place while your estate is still in probate. Some banks may release funds from the deceased’s frozen accounts to cover funeral costs, though this isn’t a given. If your family and friends can’t afford to front the money and claim it back from the estate later, you may want to consider opening a joint account with the funds in so they can access them. Alternatively, some life insurance policies will pay out a lump sum quickly to cover these costs.
To my wife, I leave my Facebook account…
In the modern age, you need to consider more than your physical assets when preparing your estate. These days most of us have substantial digital assets too. As a nation, we have around £25bn in digital assets, according to PriceWaterhouseCoopers, which covers everything from music files to ebooks to photos. So, what happens to it all when you die?
Unfortunately, in many cases you don’t actually own the asset. When you buy most digital music, television and film downloads you are only actually purchasing a licence to enjoy that media during your lifetime. When you die the licence expires. So, you can’t hand on your iTunes library to your children.
However, cash and investments that you are holding in online accounts obviously do belong to you, and you need to take steps to make sure those assets are included in your estate. The simplest way to do this is to sit down and make a list of all your online accounts, the passwords needed to access them and what you want to happen to the assets after your death.
Obviously, you don’t want to leave this lying around where it could be stolen, so either store it in a safe or, ideally, with the solicitor who holds a copy of your will. As with your will, make sure you update that list of accounts if anything changes, and someone knows where to find it.
Finally, don’t forget your social media accounts. Make sure you tell your loved ones what you want to happen to these after your death. Again, the simplest way is to make a list of each account, the password and whether you want it turned into a memorial account or shut down.
In the news this week…
• Mothers who stay at home to look after children may have missed out on hundreds of millions of pounds of state pension rights as a result of 2013 changes to child benefit rules, reports The Guardian. Since January 2013, families with a parent earning more than £60,000 incur a tax charge that cancels out the value of child benefit. As a result, many couples stopped – and now don’t even start – claiming.
However, what many do not realise is that the act of claiming child benefit counts as a national insurance (NI) credit, and if a stay-at-home mother fails to do so, she will lose state pension rights worth £231 a year for every uncredited year.
Over the course of an average 25-year retirement, that is equivalent to nearly £6,000. Women who had their first child after January 2013 are most at risk, since anyone who claimed before the changes will still get NI payments for that child until they reach the age of 12. The number missing out is thought to be growing by 20,000 each year. To avoid being one of them, either “claim the benefit and pay it back via a tax return”, or, more simply, claim at a ‘zero rate’.”
• Insider bank fraud is on the rise, but the true extent of it is “being swept under the carpet”, because banks can simply dismiss culprits without telling the police, says Ali Hussain in The Sunday Times. The total lost from 39 frauds reported to seven police forces was £5.4m. However, these figures are “probably just the tip of the iceberg”, as banks are “under no obligation” to report fraud of this type. Thirty-seven out of 44 police forces in the UK said they were unable to provide data about fraud carried out by bank or building society staff.
Making it even more difficult to get a firm grasp of the scale of this problem, victims may be asked to sign a confidentiality agreement as a condition of having any money returned, even though banks are legally obliged to refund losses if a payment is unauthorised and the victim is not to blame.
The most dangerous aspect of insider fraud for consumers is the fact that fraudsters might quote detailed account information, enabling them to persuade consumers to authorise transfers. In one example, a couple lost £22,500 after agreeing to transfer money from their Santander bank account to fraudsters.