You are worth more than your assets. Your relationships and acts of love form a legacy that no physical inheritance could possibly rival. However, there are valuable financial planning steps that you can take to benefit your loved ones after you die, completely separate from the estate that you plan to leave in your will. From protecting your children to pulling together a financial factsheet, what you do now can be invaluable for your family further down the line.
Financial Planning For Your Dependents
You don’t want to leave anyone behind, especially dependents who will be emotionally and financially vulnerable without you. Usually, dependents are underage children, for whom you should choose a guardian in case the worst should happen. Mothers get automatic guardianship, but a father, step-parent or female partner may not have automatic guardianship of the child unless they were married to the mother at the time of or after the child’s birth. If this isn’t the case for you and you want the other person to care for the child, seek a Parental Responsibility Agreement with the mother to secure guardianship.
When you pick a guardian, you can ask the questions that an authority might not – does this person have the same ethics and style of living? How close are they to your children? What level of love and understanding can they offer through the turbulent years before adulthood? You may also wish to consider location, schools, friends and finances, although it’s crucial to note that a guardian has no obligation to bring the child up using their own money.
This is where financial planning comes in. You might want to loan money to the guardian to support the child’s upbringing, using the trustees of your will. Trustees might also be in charge of buying essentials, such as clothes or shoes, something that you might wish to outline in a letter of wishes. If necessary, your child’s guardian can apply to the government for guardian’s allowance as well as child benefits to see them through to adulthood. From this point onward, they can benefit from money put in trust for them, such as your life insurance.
Getting Household Finances Straight
Think about your household. Who do you live with and how much responsibility do they hold? If you weren’t in the picture, how well would they cope with the day-to-day business of accounts, car insurance, gas and electricity?
People often take responsibility for certain areas of financial planning in the home. If that person is no longer there, other members of the household are left lost, vulnerable and lacking the practical skills that they need. We recommend putting together a list of information on anything you take care of, from loans and house deeds to the location of the fuse box. It’s worth discussing this with your parents, partner or children well in advance, especially when it comes to how they can access protected information – you don’t want passwords and pins lying around!
Minimising Inheritance Tax
The thought of Inheritance Tax (IHT) can be troubling if you haven’t factored it into your end-of-life financial planning. Without taking careful measures, it could deal your loved ones a nasty shock as the government assesses the worth of everything you own above a certain threshold and deducts 40% for tax purposes. If you want to know your potential Inheritance Tax bill, you can use an IHT calculator.
The good news is that you can change this number by considering a number of precautions. Besides making a will, you can stay below the current threshold of £325,000, giving away the excess money as gifts to charity or to your loved ones. This lets you decide where the money goes instead of the government making the final decision, with certain gifts qualifying as exempt from IHT and Capital Gains Tax. There are a whole host of other measures you can take as well, turning IHT into something quite manageable.
Our Light Inside
At Our Light Inside, we know that you are more than just your assets but, with some financial planning, they can be used as gifts and financial provisions for those you love. This is why we offer an online portal with a space to document information about your finances, to be shared with your loved ones after you die.