How to get your finances in order before you die

Putting your affairs in order during your lifetime can give you and your loved ones peace of mind for the future and make sure your wishes are carried out after you’re gone.

Sorting all the paperwork and administration involved can be difficult and time-consuming, but planning ahead and creating a record of your personal and financial details, as well as communicating your wishes to your loved ones, can make a big difference.

We look at some steps to consider taking.

Write your will

Writing a will means you can officially declare what you want to happen after you die, giving you control over how your assets and belongings are inherited.

Without a will, your possessions could be split in ways that you may not have wanted and make the process of inheritance more difficult.

Your will should include instructions about how your money, property, and belongings (like jewellery or other personal items) should be divided once you die, who you want to inherit parts of your estate and if you want to give any money to charity.

The will should also detail who you want to look after your children if you die while they are under 18, who you want to be the executor of your will, and other relevant wishes for what you want to happen after you die.

While you don’t need a solicitor to write a will, it is recommended you get advice from a professional if your will is not straightforward.

You will need to make sure your will is legally valid.

You can keep your will at home or store it with your solicitor, bank, the national probate registry, or a company that stores wills. Tell your executor, a close friend or relative where it is.

It’s sensible to write a will early on but review it every few years and after major life events, such as marriage or divorce, to make sure it still reflects your wishes.

Olly Cheng, financial planning divisional lead at wealth manager Rathbones, said it can be a good idea to start having conversations about what will happen to your assets after you die early on.

“The first thing is for people to get comfortable with the idea of having those conversations,” he said. “Going in, you need to understand that your children [if you have them] will have opinions but that’s okay because the final decision is still yours. But having that conversation will save a lot of hurt later.”

Check your pension inheritance wishes and how they will be undertaken

You may be able to leave your pension wealth to your loved ones but you can’t leave your pension in your will.

Who inherits your pension is decided by who you nominate in an “expression of wish” or “nomination of beneficiary” form that you give to your pension provider(s).

In this document, you will nominate a person or multiple people who you want to inherit your pension.

There are two main ways this can be set up: under direction, or under discretion.

If you chose inheritance to be under direction then who you nominate in this form will be final.

However, there are scenarios where this could cause problems.

For example, you may have filled out the form early in your life and forgot to update it after a major life change, such as remarriage, meaning the stated beneficiary may not be who you want to inherit your pension.

In this scenario, your pension scheme would legally have to pay your pension out to the state beneficiary regardless of when that form was submitted.

This is where choosing inheritance to be under discretion can help. When you choose this, a pension scheme administrator will use your ‘expression of wish’ form to help guide their decision, but it will not be the final say.

If the administrator’s investigation concludes that the stated beneficiary is different to who they believe you would have wanted to inherit your pension, then they can overrule the form.

Most pension schemes are under discretion, according to the government.

Clare Moffat, pensions and tax expert at Royal London, said that while it can be daunting to give this power over to somebody else, it can be a sensible decision.

She said: “It’s useful to remember that the main purpose of the scheme administrator is to find out where you would have wanted that money to go. If that’s not clear because you’ve not filled out a form or it’s a very old form, then they will investigate to find out where that money should go, and they will ask different people.

“They’ll get evidence from solicitors. They’ll ask how many family members there are. They’ll ask lots of questions, but if inheritance is set up under direction and you don’t keep your forms up to date, then that money could be going to someone you didn’t want it to go to.”

Either way, it is important to update your relevant pensions inheritance forms regularly, to ensure your pension goes to the right person.

If you have bought an annuity or are considering one, you should check what its inheritance rules are. Some annuities provide lump sums or continue for beneficiaries after you die, while others stop payments immediately.

For example, if you bought a joint life annuity, then payments will continue to be made to your surviving partner after you die, though rules about the exact amount paid will differ. On the other hand, if you bought a single life annuity then the beneficiary wouldn’t inherit the annuity.

Plan for inheritance tax

In the UK, your estate will only be liable to inheritance tax if it is worth more than £325,000 and you leave it to someone other than your spouse. If you are leaving your home to your children or grandchildren, then the threshold increases to £500,000.

Anything in your estate above this threshold is taxed at 40%, or 36% if you leave 10% or more of the net value of your estate to charity in a will.

If your estate is likely to be above this threshold, you might want to plan to reduce inheritance tax liabilities during your lifetime.

Cheng at Rathbones, said: “The biggest misconception is that you need all these complex structures [like trusts], but actually for most people it can be really simple. The idea is, if you can gift money to your kids, that’s usually the best thing to do.”

The ‘seven year rule’ means that you can give away as much of your estate as you like during your lifetime, and if you live for seven years after the gift is given, it won’t be subject to inheritance tax.

There are various inheritance tax gifting allowances that can be used each year to give money or assets away free from inheritance tax liabilities. This could lower your overall estate.

Cheng said that while structures like trusts can be useful for some people, most people assume they need complex tools when they do not.

“Trusts and all these other things are often about control, not about tax – if you put money in trust, you’re still going to have a seven-year clock. So, what most people miss is that actually the best thing is just to have a really grown-up conversation with your children. And there may be reasons not to give them money directly, but it should always be the starting point.”

This being said, there are situations where setting up a more complex structure like a trust can be the right thing to do. This may be because you have a blended family, or you do not want to give your children all the money at once.

If this is the case, consider speaking to a professional wealth manager or financial planner and see if a trust is the right way forward.

However, Cheng warned that when starting to plan for inheritance tax, you should not immediately start gifting your estate away without first considering how much you actually need to live through retirement.

Plan for your funeral

Some people may decide to outline their funeral wishes before they die.

If you want to do this, consider creating a detailed document that provides straightforward instructions of what you want to happen at your funeral.

Some things you may want to include are the location, whether you want to be cremated or buried, whether you want to donate your organs, whether you want a religious funeral, and any particular wishes.

Tell your loved ones where they can find this document. You can also outline these wishes in your will, although they aren’t legally binding.

You can also prepare for how the funeral will be paid for.

Some life insurance policies will include funeral cover and if yours does then you should tell your loved ones this. You may consider buying a pre-paid funeral plan. Otherwise, funeral costs can be taken from your bank account even if it is frozen.

Create a fact file and tell your loved ones where to find it

Creating a file of your finances can mean your loved ones don’t need to search for personal and financial information after your death.

In this document, include a list of all your financial accounts with a description of what they are, what they are used for, and how to get into contact with the organisation. This may include your current account and credit card providers, mortgage lender, pension provider, and insurance brokers.

Royal London has created a “When I’m gone” document covering many of these areas that you can access for free, print, and fill out. Don’t write security information about your accounts, such as passwords and PINs in the document.

Keep the document securely in a place that you remember and your loved ones know about. For example, this could be in a locked filing cabinet in your home, or in your solicitor’s office. It may be a good idea to keep it in the same place as your will.

Additionally, you could include a list of your important online accounts, like social media profiles, so your loved ones can access them and close them or turn them into memorial accounts.