Death isn’t something many of us like to think about, however ignoring it until it happens could have negative consequences on the people you leave behind. Financially preparing for death can be important both for lowering the costs for your loved ones and for ensuring that your money goes to the right people. It’s never too early to start making preparations. In fact, starting plans early can sometimes have benefits. Here are just a few ways of financially preparing that could be worth considering.
Write a will
A will allows you to decide how your money and assets is distributed. Without a will, local laws will govern how your wealth is shared out – which could mean certain people getting more or less money than you would have liked. Having a will allows you to choose who gets what, which could prevent any unfairness or arguments from taking place.
It’s worth hiring the help of wills and probate solicitors when writing a will. Whilst you can write a will without a lawyer, it will have less legal strength which could lead to complications. Costs for hiring these legal services vary, so it’s worth shopping around.
It’s possible to make alterations to your will at any point, so don’t feel you’re committed to whatever you decide now. You should tell your loved ones that you have a will in place as well as leaving some contact details.
Plan to leave behind savings
If you don’t feel you have any wealth to leave behind, you could start saving up some money now. This could be money to put towards funeral expenses or money to simply help your loved one support themselves when you are gone.
By starting savings early, you can accumulate more money. If you’re simply looking to provide some savings for funeral costs, starting saving early could allow you to spread out the cost over a longer period so that you’re only having to contribute a small amount each month.
There are all kinds of savings accounts to consider. Choosing an account with high interest rates could allow you to accumulate even more funds on top of what you contribute. Most of these accounts will allow you to add a beneficiary – this is someone who your savings get passed to when you die. It’s worthwhile to set up a beneficiary if you only want these savings to go to one person, otherwise these savings may be shared out.
Take steps to reduce inheritance tax
Your loved ones may have to pay inheritance tax on any money or assets that you leave behind. In the UK, there is a tax threshold of £325,000 – if somebody inherits more than this, they will have to pay 40% inheritance tax on these extra funds/assets.
There are ways of getting around this law. For instance, if you want to leave behind funds to a specific person with a value of over £325,000 you can pay this money into a trust. Because the money is in a trust, it no longer legally belongs to you, which means that it cannot be taxed. You can also put assets such as property into a trust to give them the same protection.
Another option meanwhile is to donate a part of your wealth to a charity. Any money that is given to charity is not taxed. You can similarly leave part of your property to charity.
Pre-pay your funeral
Some funeral companies are able to set up prepayment schemes that allow you to organise and pay for your own funeral in advance. These schemes are becoming increasingly more popular – not only do they allow you to pay for your funeral, but they allow you to choose every detail of it. This can help to take away the financial burden for your loved ones as well as taking away the difficulties of having to choose what they think you would have wanted.
The earlier you start one of these schemes, the more you can spread out the cost over the months, so that you’re paying less each month. Most funeral companies allow you to make changes at any time to your funeral arrangements.
It’s worth always looking into the small print to ensure that your money is kept secure. The majority of funeral companies will have protection in place that means your money will be kept safe in the event that the company goes bust or is sold to someone else.
Consider life insurance
Taking out life insurance could be another measure to consider when financially preparing for death. A life insurance company will pay out money to your loved ones when you die. This money isn’t taxable as it belongs to your insurance company making it another way to get around inheritance tax. Unlike other schemes that are affected by how much you pay in, your life insurer will pay out the same amount regardless of how many insurance payments you’ve made, so if you were to die next month your loved ones would still get full compensation.
Life insurance rates may vary depending on your general health, how dangerous your job is and how old you are. There are companies that are catered towards older people or people with high risk jobs that could save you money. Most fixed rate life insurance schemes last ten years and then need to be renewed, although there are some schemes longer than this. Some can be combined with other types of insurance such as home insurance and car insurance – this can usually save you money overall.