Estate planning is an important pillar of your financial plan, ensuring that your assets are distributed according to your wishes after you pass away.
While many people focus on passing wealth to the next generation, it’s likely that you or your partner will inherit from each other before your estate passes on to your children or grandchildren.
It’s understandably difficult to consider the possibility of losing your spouse, but creating a plan can help to reduce the financial stress you experience when the time comes. So, below you’ll find five practical steps you can take to prepare for the financial and legal implications of this.
1. Ensure both you and your partner are actively involved in your financial planning meetings
The first thing to do, if you aren’t already, is to ensure that both you and your spouse play an active role in your financial planning decisions. This offers a multitude of benefits for both now and in the future.
- You can ensure your plan is suitable for both of you, taking both individual’s wishes and goals into consideration and potentially enabling you to achieve your goals more quickly by working as a team.
- It can boost your sense of financial security and confidence.
- You can both benefit from peace of mind by understanding how you are protecting your financial future together.
- You can each build a relationship with your planner, so that if one of you passes away, the other will have a trusted person to consult regarding the financial implications of the wealth transfer.
So, if your partner doesn’t have experience of managing personal finances, or consulting with your financial planner, it may be sensible to invite them to take a more active role.
2. Review and update your will regularly
Your will is one of the most important documents in your estate plan, so it makes sense to review and update it regularly, and to encourage your spouse to do the same.
A few occasions when it is particularly important to review your will include if you:
- Marry or remarry
- Have a child or grandchild
- Buy or sell property.
By updating your will regularly, you can ensure that it reflects your wishes accurately. This can provide peace of mind that your loved ones – including your spouse – will be financially supported after you pass away.
3. Update any death in service benefits you and your partner are entitled to
Some employers offer a death in service benefit, which provides a payout to your loved ones if you pass away while you are an employee of the business. This can either be paid in a lump sum or as a dependant’s pension.
If you are eligible for this, it could help to provide valuable financial security for your spouse in the event of your death. So, it’s important to ensure that your details are up to date on the policy.
For example, if you have remarried since you started working for the company, have you remembered to update your spouse’s details as the nominated beneficiary? Keeping these details up to date could ensure a smoother process if your partner needs to claim the benefit in the future.
4. Organise your financial documents so that you both know where to find important information
Keeping your financial records in order can be a big help during times of grief. Having everything that you need to hand could make the process of claiming on life insurance and transferring assets as smooth and straightforward as possible.
It’s a good idea to store documents such as your will, insurance policies, Lasting Power of Attorney, and other important records in a fireproof safe or box. Keep this in a safe yet accessible place so that it’s easy to find when you need it.
In addition, it might be helpful to create an “in case of emergency” document to hold other important details that your spouse will need after you pass away. This might include:
- Your doctor’s name and address
- Contact details for your financial planner, solicitor, accountant, and any other relevant professional connections
- A summary of your savings, investments, and pensions
- Details of your utility companies and any subscriptions you have as an individual or as a couple
- Any funeral plans or wishes you have.
Having this information easily accessible can also be useful for occasions when you need help with your financial affairs, such as if you need to stay in hospital for a short period of time.
5. Understand your options if you and your partner are unmarried
If you and your partner are unmarried, it’s important to understand the legal implications of your estate plan, particularly as it relates to Inheritance Tax (IHT).
If you’re married or in a civil partnership when you die, you can leave your estate to your partner free from IHT. Then, when your partner dies, you can combine your IHT allowances to pass on your estate to beneficiaries. This includes the nil-rate band, which is £325,000 in 2024/25, and residence nil-rate band, provided you are passing on your home to a direct descendent, which is £175,000 in 2024/25.
However, if you are unmarried, you aren’t entitled to this tax benefit. While you can still leave your estate to your partner in your will, they are likely to need to pay IHT on any portion of it that exceeds the nil-rate band.
Your financial planner can help you to understand the tax implications of your estate plan and offer advice on tax efficiency to help mitigate your bill.
Get in touch
Our team of independent financial advisers in Lewes is here to support you in creating an estate plan that provides peace of mind for you, your spouse, and your family.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients 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, Lasting Powers of Attorney, or will writing.
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