Road to Wealth #1 - Beyond the Grave: What Happens to Your Money When You Die?
💸 In today's episode, as part of our new series, we get into the topic of death. While many of us avoid thinking about our own mortality, it's crucial to plan for the unexpected. What happens if we were to pass away tomorrow? How can we protect our assets? And how can we care for aging parents at the end of life? Join us with Abigail Banks, Senior Chartered Financial Planner at The Private Office, as we discover the significance of estate planning and delve into topics such as life insurance, digital assets, trusts, and the importance of regularly updating your estate plan.
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What happens to your money if you were to pass away?
What will happen to your assets, debt, and any other financial matters, if you were to suddenly die?
When you die, the first thing that's really important (for your family or dependents to do) is to obtain a death certificate. So if you have will when you die, typically the executive of your estate will start going through the process and dealing with your estate.
When you leave a will, your executor is responsible for getting probate. So this means giving them the legal right to deal with someone's property, money, and possessions. And they can't make any financial plans or sell any assets until they have probate granted.
Gather all the different pieces of information, and work out any inheritance tax that's due and that will need to be prepaid, normally in full or part of it before probate is granted. Now, once that's granted, the executor then can then pay off any debts on the estate. So if you had a mortgage, for example, that can be paid. Any taxes that are due on the estate will be settled by HMRC.
An executor can do this themselves, but it is really encouraged for them to seek the advice of a private client solicitor. So particularly where it's a complex estate or maybe there are some contentious family issues, that can be really helpful in taking them through the process and taking some of the burden in what is quite a difficult period for somebody.
What is the deal with estate planning?
An estate plan simply put is just saying: how do you want your estate to be dealt with after your death? So ultimately, who do you want to benefit from your estate? That's going to involve putting a will in place. Plus, a letter of wishes goes alongside the will and really goes into more detail.
If you had a particular painting that you wanted to go to a particular person, you can stipulate that in your letter of wishes. However, it’s really important to revisit these documents. The obvious one is a relationship breakdown. If you divorce somebody, your will isn't revoked, it stays in place and it's valid, but your ex-spouse cannot benefit from the will.
If you get married, your will is actually revoked unless it's made in anticipation of that marriage. So for couples who are getting married, it's really important that they review their wills at that point because they may be revoked after marriage.
Having children is another important point. In a will, you will set out the guardian - someone you want to be responsible for children if they're under 18 when.
If you're an unmarried couple, and you're buying a first home together, quite often you, it will be done on a tenant’s and common basis. So it may be 50-50, but it may be a different proportion depending on how much money each party puts into the property.
The will checklist
Take stock of your assets. If you have quite simple assets - perhaps a really simple will is all you need. Ultimately, you want to make sure that you have somebody that you trust as a guardian in that will.
It may be that if you have some slightly complex assets, such as a business, in which case you might need a more complex will.
You may want to consider the use of a discretionary trust, for example, in your will for business assets due to the tax relief available.
Don’t forget to have small, open discussions because older clients, sometimes, don't want to talk about their own money or estate with their children. It’s all about approaching it in the right manner.
Often it's about getting the children used to the family finances and ultimately the money they're going to inherit. Being respectful of that and being used to taking professional guidance and advice. Involving them as early as possible is, is really helpful because it starts a financial education piece for them.
TYPES OF TRUSTS
Trusts are really complex and there are many different types of trusts. This is why it can be worth to seek legal advice if you are considering a trust arrangement.
You can also set up a trust during your lifetime by making gifts into them. The tax treatment differs depending on the type of trust.
Broadly, there are two types of trust. There is what we call an absolute trust and this is where you name the beneficiary so they have an absolute right to their capital or income, and they can usually access that capital at 18.
Some say they don't really trust their child to have a lump sum at 18 because don't want to go and spend on something like a car and want it to be used sensibly. For this purpose there's another type of trust called the discretionary trust, and this is where there's a class of beneficiaries.
This means that if you would like your children or grandchildren to benefit from the trust, but because there isn't a named beneficiary, so you have much more flexibility and control of the assets in a discretionary trust.
Yo you just need to be mindful of the various things when choosing the right option for you. y
You can also set, set up a trust in a will.
Overall, Abigail recommends being as prepared as you can and having all the discussions and structures in place, which will make the process much easier in what is already a very difficult time. Start those conversations and start trying to get prepared.
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RESOURCES
Abigail Banks (LinkedIn) is a Senior Chartered Financial Planner at The Private Office and has been working in the industry for seven years. She provides advice to private clients across a range of financial planning areas including investment advice, retirement planning and inter-generational planning. Abigail is passionate about inclusivity in financial services and particularly enjoys working alongside women to ensure they have the confidence to take control of their finances.
How Inheritance Tax works: thresholds, rules and allowances: https://www.gov.uk/inheritance-tax
Death and bereavement: https://www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement