Setting out financial plans in case the unthinkable happens is a difficult and emotionally taxing prospect. However, getting your affairs in order is essential if you want to ensure your loved ones are financially secure after you have passed away, particularly if you are your family’s key earner.
Of course, another reason many people put off making a will or staying on top of their life insurance policy is that it can seem time-consuming. For those leading busy and dynamic working lives, it can feel almost pointless to make financial plans for the future. As this article aims to emphasise, however, life is unpredictable. You never know when your luck will turn. This is especially important for cohabiting couples to keep in mind, as surviving partners are not automatically entitled to their other half’s estate or possessions.
The UK: A nation of life insurance avoiders
According to recent statistics, the number of people taking out life insurance policies in the UK is decreasing. Around 8.5 million people do not have any protection policies, and around 19% of consumers who once had life insurance are no longer protected.
What’s more, around half of adults in the UK are resistant to financial advice. Of these, around 34% are confident that they have the knowledge and ability to manage their finances by themselves, a figure that rises to 57% amongst the over-65s.
Despite this apparent financial confidence amongst the general public, however, it is important to remember that financial advisors can help their clients pick from complex life assurance options, as well as navigate difficult tasks such as inheritance tax (IHT) planning that can help save families a significant amount of money. Many UK adults who forgo financial advice services risk losing money and losing out on some excellent life insurance deals.
Planning for the inevitable
Getting your financial affairs in order is an important step in planning for your passing. It may not be easy to think about, but it is one of the most important actions you can take in protecting your loved ones, or at least make your passing less difficult to bear.
What steps do you need to take when making financial preparations for your passing?
Step 1: Estate planning
There are a number of elements to think about when it comes to estate planning and it is important that you do not overlook any. Broadly speaking, they include:
> Life assurance: This is one of the most critical steps you can take in protecting your family from future financial loss and, therefore, one of the first things you should bring up with a financial advisor. Generally speaking, you must ensure that you take out a life assurance policy that adequately covers your assets. Start by making a list of your various assets and their worth and show this to your advisor. They will be able to tell you what sort of life insurance package would work for your situation and whether it should include, for example, provisions surrounding family support, mortgage payments, your pension plan, or cover for your child’s family.
> Making a will: As well as thinking carefully about how you would like your wealth and possessions to be distributed, you must ensure that your will is valid and that people in your family know where it is kept. Many people opt to keep digital records, something financial service providers such as Huggins Wealth Management can help with.
> Arranging care for children: If you are the parent or guardian of a minor it is essential that you think very carefully about who you would like to take care of them in the event of your passing. Remember that arranging care for children is not just important for breadwinners. If a non-breadwinner dies, childcare costs can often skyrocket, leaving another parent financially vulnerable. What’s more, if any of the beneficiaries in your will are minors then you must establish a trust to ensure that they are not given free rein to spend large sums of money frivolously.
> Inheritance tax advice and planning: If you suspect that your family will be faced with a significant inheritance tax bill after your death, you may want to think about how you can go about reducing it. There are legal pathways available for you to increase the amount of money your family benefits from after your death including, for example, trusts and gifts. If you are unfamiliar with the rules and regulations surrounding inheritance tax, it is a good idea to seek help from a financial expert who will be able to help ensure your family enjoys as much money as possible after you are gone.
> Powers of attorney: It is a good idea to establish a lasting power of attorney (LPA) when you make or amend a will. Doing so will allow you to appoint people as attorneys who can make decisions on your behalf in the case of serious illness or infirmity. There are two types of LPA including a health and welfare LPA and a property and financial affairs LPA. Whilst the former involves decisions such as whether you should refuse or accept certain types of medical care and how your daily routine should look, the latter involves financial decisions such as how your bills should be paid or whether your home should be sold.
Step 2: Broaching difficult conversations
Of course, once you have made the administrative decisions surrounding your will and life insurance, you must ensure that the relevant family members are well-informed of your plans. Let them know how your wealth will be distributed and how your decisions will impact individual family members differently. Frank and honest discussions are particularly important for cohabiting couples who are not married as current property laws do not state that assets will be automatically passed on to the living partner. If an unmarried person dies without a will, then their wealth will be distributed according to UK intestacy laws. This means that your estate can only be inherited by a spouse or civil partner, siblings, parents, siblings, or aunts, and uncles.
Why careful planning is so important
With the right planning, you can ensure that your loved ones will be taken care of in the future. As well as bringing you peace of mind, this is an incredible gesture of love that could bond your family closer than you thought possible.
How to protect your family today
There are plenty of ways you can start protecting your family today. Whilst everyone’s financial situation is different, you should at the very least secure life assurance to cover your mortgage and any other outstanding debts, as well as Family Income Benefit to cover the individual incomes of family members. Most insurance companies offer a wide range of life insurance packages that cater specifically to people according to their financial situations, as well as their personal household and family arrangements. By discussing life assurance in depth with your financial advisor, you will be able to ensure that your family is not thrown into financial precariousness if someone dies.
Indeed, most people would benefit from financial advice in relation to getting their affairs in order. As Paul Huggins, Independent Financial Advisor, states: “Planning for the death of a family member is the most important thing you can do to protect your family’s wellbeing. Huggins Wealth Management can help evaluate how much protection you require, how much it would cost, complete relevant application forms, and set up benefits correctly to ensure that money would be paid out to the right people. We have 20 years’ experience in this area, ensuring our clients get protection planning right the first time.”
Whilst inheritance planning may seem a little confusing and arduous, therefore, it can be made much easier when financial advice is sought. If you’ve reached a new milestone in life such as getting on the property ladder or having a child and are keen to protect your loved ones from financial vulnerability, do not hesitate to start estate planning today.