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After being released from the pressures of your working life, it’s fair to say that your years of retirement should be carefree, spent doing the things you find important.
However, with recent research from Aviva showing that 3 in 5 Brits are stressed about later-life planning, organising your finances during your latter years clearly provides a greater challenge than you might realise.
Yet, it certainly doesn’t have to be as difficult as some people end up making it for themselves, and there are plenty of simple tips you can use to make your later-life planning easier.
Read on to discover three useful tips you can use to ease the stress of later-life planning.
Creating a will in advance could prevent your partner from receiving nothing
According to figures from Unbiased, nearly 6 in 10 UK adults don’t have a will. This includes 3 in 10 over-55s in the UK, too.
Judging from these figures, much of the UK’s adult population is in no hurry to create a will, which could cause complications regarding inheritance in the not-so-distant future.
Firstly, if you don’t create a will in time and die “intestate”, your estate will be subject to intestacy law. This could result in your wealth being divided between your beneficiaries in a way you may not have preferred.
If you’re unmarried, this could mean your partner receives nothing from your estate without a will.
As well as your estate being divided in a way that you would not choose, it may also leave your children with an Inheritance Tax (IHT) bill to pay. This would not be the case if you left your entire estate to your spouse or civil partner in your will, as there’s no IHT to pay if you do so.
Even if you have no family members to pass your wealth to, this may still not be your preference. For example, you might want to leave your money and assets to charity instead, which you can specify in your will.
Offsetting the hidden costs of death
Scrupulously planning the expenses of a loved one’s death isn’t likely to be anyone’s strong suit and it can be very unpleasant to think about, let alone pay for.
This is why leaving money aside for your family in your will to cover the various costs of your death could reduce the financial burden on your family when they come to foot the bill.
Some of the later-life expenses that could end up being passed to your family include:
- Any care you may need before you pass away
- Your funeral
- A potential IHT bill.
Not only could you grant yourself peace of mind in knowing your loved ones aren’t burdened by the cost of your death, but it could also avoid the expenses eating into the inheritance you’ve left for them.
These are just some of the circumstances in which dying intestate could prevent your estate from being inherited in the way you would have preferred.
So, creating a will as soon as possible can give you a better chance of avoiding such complications before it’s too late.
Creating a Lasting Power of Attorney can help to remove some of the stress from making tough decisions
This year, Canada Life revealed that 78% of UK adults haven’t registered a Lasting Power of Attorney (LPA). This figure remains at 77% for over-55s.
An LPA is essentially a legal agreement that allows an individual you have nominated to oversee and make decisions for you in the event that you are unable to do so for yourself.
There are two types of LPA: financial and welfare. You can register for one or both types of LPA, and each can be used for either personal or business reasons.
A financial LPA would usually involve decisions regarding your:
- Property
- Bank or building society accounts
- Payments
- Benefits or pensions
Meanwhile, a welfare LPA would normally oversee matters regarding:
- Daily routines (washing, diet, and exercise etc.)
- Residence
- Medical care
Registering an LPA only costs £82 for each type and can be completed through the Office of the Public Guardian. You can also seek professional help from a solicitor or legal adviser.
It can take time for your LPA to be registered before it will be usable. This means that having an LPA in place before you need to rely on one could save you valuable time in a moment of need, while also avoiding a stressful period of limbo.
Taking early action to reduce your Inheritance Tax liability can give you clarity over how much of your estate will be passed on tax-free
Acting on your IHT liability sooner rather than later could help you to pass on more of your wealth and avoid the stress of reshuffling your assets at the last minute.
Not only can this simplify your planning process, but it can also help to maximise the amount your beneficiaries can receive before being subject to IHT.
In this case, it’s useful to consider the nil-rate band (NRB), whether your assets surpass it, and if so, by how much.
As of the 2022/23 tax year, the NRB is £325,000 and will remain so until 2028. You can combine your NRB with your spouse, taking your total tax-free threshold to £650,000. The amount by which your estate exceeds the NRB could then be subject to IHT at 40%.
There is also a residence nil-rate band (RNRB) standing at £175,000 in the 2022/23 tax year if your main residence is inherited by your children or grandchildren. This means the total amount you can pass on tax-free is up to £500,000 – or £1 million for couples.
If your estate exceeds the NRB, you could consider reducing your IHT liability through gifts.
The maximum allowance for IHT-exempt gifts is £3,000 annually. This can be combined with your partner’s allowance and can be carried over to the next year, giving a total tax-exempt, giftable allowance of £12,000 in a single tax year.
Meanwhile, as long as a gift is given at least seven years before your death, it is typically not considered part of your estate so will not be charged IHT.
If you have no remaining NRB or the gift exceeds this threshold, it will be subject to a tapered rate of IHT, depending on how soon you die after making the gift.
Addressing the value of your estate and taking the initiative on ways to reduce your IHT liability during your later-life planning could save you stress and worry, while saving your beneficiaries a potential tax bill.
Get in touch
If you’re worried you may not make the most of your finances or find yourself stressed during the planning process, we can help to make a collaborative later-life plan that suits your needs.
Email us at office@verve-financial.com or call 0330 320 5048 to find out how we can help.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.
Power of Attorney is not part of the Quilter Financial Planning offering and is offered in our own right. Quilter Financial Planning accepts no responsibility for these aspects of our business.
Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.
Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.
