If you've been putting off preparing your finances for when you pass away you're not alone.
While it's a job nobody enjoys, being prepared will help ensure your wishes are met when it comes to dealing with your estate and make the whole process easier for the family and loved ones you leave behind.
Here's what you need to do to ensure your estate is dealt with in the most efficient way.
Write a will
By preparing a will you can help whoever you choose to deal with your estate make the correct decisions on how you want your belongings distributed to family and friends. To organise a will, you can visit a financial advisor who specialises in will writing.
A will should clearly outline how you want your assets separated and include details like - who will inherit your house and who is responsible for your pets.
For help on how to make a will you can visit the GOV.UK website.
If you would rather complete a will personally, you can buy will writing kits from specialist suppliers, such as WH Smiths for £16.99.
If you are not sure whether someone you know has written a will, you can find out with guidance from the GOV.UK website.
Appoint an executor
Choosing a suitable executor to your will is important to ensure it's properly observed and your assets are divided according to your wishes.
When you appoint an executor they will be responsible for the following tasks after your death:
- Collecting all assets in your estate.
- Calculating the value of your estate.
- Applying for a grant of probate (if applicable, for more details on probate you can visit the HMRC website).
- Paying off any debt, bills, inheritance tax and funeral expenses from the estate.
- Splitting the estate based on instruction from the Will.
- Keeping a record of all money going in and out of the estate, including that of the funds going to any beneficiaries.
You can choose to have up to 4 executors on your estate and these can be any of the following:
- Your spouse (has to be younger than you)
- Younger brother or sister
- Niece, nephew or close relative
- A close friend
If you don't have any of the above able to act as your executor then you can ask a solicitor, accountant, your bank or a public trustee to be your executor, but there will be fees for using any of these people, which will be paid from the estate.
To help your executor and make the process of dealing with your estate as simple as possible try to maintain up-to-date financial records of your assets and keep your will updated as often as possible.
Do you need to seek financial advice?
If you have over £325,000 worth of assets (savings, investments, property) then you could have Inheritance Tax taken off any amount above this figure when you die.
Inheritance tax is set at 40%, meaning that you will be hit hard by this dastardly tax for any personal assets amount over £325k.
If you're married your partner will inherit your assets which will effectively then become theirs, and therefore eliminate the chance of inheritance tax.
If you complete the relevant HMRC forms to 'transfer the nil rate band', which means transferring one person's inheritance tax allowance to their partner, then the person left can receive assets up to a combined amount of £650,000 without any inheritance tax deductions.
It's important to visit a financial advisor to get a clear picture of your assets for this reason. They can help you plan for retirement or even death and limit the deduction of unnecessary tax being taking off your estate. Read our guide on The 5 Step Plan To Finding An IFA You Can Trust With Your Money for assistance.
There are two approaches that a financial advisor may adopt to help you limit the losses on your estate:
Gifting - You are allowed to give up to £3,000 in total each year. If you choose to give a much larger sum of money away then it will be included within your estate for at least seven years. For full details on your gifting limits read our guide How Do I Gift Without Being Taxed?
Trust - There are a number of Trusts you can set-up, with the most popular type being the "Bare Trust". This Trust will give your chosen amount of money to a beneficiary straight away, as long as they are at least 18 years old. For more details on the different types of trust available you can visit the HMRC website.
Where to go for more help
To understand more about Inheritance Tax you can read our guide on How is Inheritance Taxed?
If you are worried about the cost associated with a funeral then you can read our guides "5 Diverse & Effective Ways to Pay for Your Funeral" and "Funeral Planning: A Comprehensive Checklist" to help you plan ahead.
Facing the cost of your funeral can be daunting, and our guide "Can You Afford To Die? The True Cost of A Funeral" explains the cost of a funeral today and how the costs can soon get out of hand.