BLOG: How to get your financial affairs in shape post-lockdown
The lockdown period has for some, been a time of juggling work and childcare, while for others it has been an opportunity to catch up on the tasks they have been putting off.
At the start of the lockdown period, we saw significant numbers of people looking to make their own will. This was welcome news given that reportedly more than half of UK adults don’t have a will in place and six in ten parents don’t have a valid will.
For many of us a will can be a very simple document. For others, particularly those with non-nuclear families — including children from a first marriage and stepchildren from a second, for instance — it can get more complex.
Wills also need updating particularly after life events like divorces, weddings and births of children and grandchildren. It’s important to review your will regularly to make sure it matches your current wishes.
If you’re looking to get your financial affairs in order, wills are a good, and important, place to start. However, there are also other steps to take to make sure your financial affairs are in the best shape possible as restrictions ease.
Put in place and update ‘expression of wish’ letters
Though you may now have an up-to-date will, your pension provider needs to know who is to be the beneficiary of your pension on your death. This is done through a simple expression of wish letter or completion of an online form.
This is particularly relevant as savings in pensions are not subject to inheritance tax (IHT). This means many people could prioritise using other savings first, with the intention of leaving as much money as possible in their pension pot for children or grandchildren to inherit. If that’s the plan, you want the money to go to the right people.
Put in place powers of attorney
Lasting powers of attorney (LPAs) give legal authority to those you wish to make decisions on your behalf in the event of you being incapacitated, whether physically or mentally. In England and Wales there are two main types — a health and welfare LPA and a property and financial affairs LPA.
The first gives an attorney (named family members, for instance) power to make decisions about your medical care, moving into a care home or delivery of life-sustaining treatment. The second gives them power to make decisions about your financial affairs.
Review your insurance
Life insurance is designed to pay out a lump sum (though sometimes an income) on your death. It can be set up to protect a mortgage debt, to support family members on the death of a breadwinner or to insure against IHT liabilities.
If you have not done it already, consider writing the policies in trust. This can help ensure beneficiaries receive the proceeds more efficiently and can reduce IHT liability. It is neither expensive nor complicated, but advice is crucial. Think about other insurances while you are at it — like critical illness cover.
Review your IHT position
The number of people paying IHT has doubled in the past nine years with the tax generated for HMRC in 2018/19 standing at £5.4bn. Each of us has a nil-rate band (the amount of assets that are exempt from IHT) of £325,000. This rises to £500,000 if you own your home (or a share in it) and plan to leave it to your children or grandchildren and your personal estate is worth less than £2m. It means a couple may have a combined IHT exemption of £1m.
The IHT rules are complex, and a financial adviser can help you navigate them safely. With smart planning, you can seriously reduce the amount of tax paid from your estate.
Tidy and summarise your affairs
It is worth considering what it would be like for your loved ones to manage your affairs if you were to die suddenly.
For example, is everything in one place? Do you have any piles of obsolete documentation that should be shredded rather than left to confuse a family member, who might spend hours chasing a with-profits policy you cashed in years ago or a pension you transferred elsewhere?
You should also think of your digital life. Now most things are online, it’s more important than ever to leave a summary of where your assets are and subsequently how your online life could be accessed.
Make the most of what you have
This is a good time to think about whether you are making the most of your money. A financial plan built on a good cashflow modelling can liberate you to enjoy spending capital you know you can afford to spend.
For some this means travelling — when it is permitted again — while for others it means giving money to charities, children or grandchildren and taking pleasure from seeing it help fulfil their needs. For many it means a combination of all these things.
This could be a good opportunity to re-evaluate your needs and desires and work out how your money can enhance your wellbeing and happiness. Taking the time to review your financial affairs now and make sure everything is in order will give you peace of mind that your loved ones will be protected if the worst happens.
Emma Watson is head of financial planning at Rathbone Investment Management