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'I've got something unpleasant to tell you'
Protect yourself and loved ones from the 3Ds - Death, Divorce & Dementia by Martin Lewis (Money Saving Expert)
Money Saving Expert Martin Lewis’ latest emailer talks about the unmentionable … death! His full email can be found here, but we’ve taken some extracts below. The upshot is that by ignoring the issues you can actually be harming your family in the long-run.
Live together but not married? Get a will, a contract or tie the knot - your relationship means nowt in law. I don't care if you've been together 37 years and have 6 children, if you're not married or in a civil partnership, your relationship usually has no status under inheritance law. So if your partner dies, the other one may not get the house.
Dads, if you're not married, don't assume custody of the kids. Some unmarried fathers don't automatically have parental responsibility, which means if the mother dies, custody of the children may go elsewhere. To check and for help, see Who has parental responsibility? (Wayman & Long’s guide to parental responsibility can be found here and the guide to legal guardianship is here)
One in three over-65s will develop dementia - a Power of Attorney is just as important as a will. I'm 44 - thankfully I can't foresee losing mental capacity, but I do have a Lasting Power of Attorney set up, in case. Without a Power of Attorney, if you lose your faculties through dementia, a stroke or accident, sorting your finances is less clear-cut than if you'd died. Don't assume relatives can walk into the bank & access your money - not even to pay for your care, or the mortgage.
With a Power of Attorney, you nominate a trusted friend or relative to look after your affairs if needed. This DOESN'T mean giving up control now - you can opt for it only to come into effect if you're no longer capable. Full help & costs in Lasting Power of Attorney. (Wayman & Long’s guide to Lasting Power of Attorney can be found here).
Are you hurting your partner by looking after the finances? Over 60% of couples say one person deals with all the home's money issues. If you're reading this, you may be that one. Yet, as I explained in the intro, if you were hit by one of the three Ds (death, divorce or dementia), it can be a disaster.
So why not create a financial factsheet naming all product providers - from roadside recovery to investments, boiler cover to bank accounts. Keep it somewhere safe, but don't put too many security details in, just in case. Then have a kitchen table briefing every few months to update and discuss. I'd love to know how you do it, via this financial couples tips forum discussion.
Is your house your only real asset? Don't leave it too late. Those in their 60s living in large homes with kids who've long since left the nest often plan to downsize "one day" to release money as they're asset rich, cash poor. But as time ticks on, I often hear "it's still a few years away" and then finally "we're too old to move".
It's usually far better just to bite the bullet early. If not, the main option is an equity release product - a way to borrow from your home's value while living there. However, interest rates of c.5.5% are far higher than many mortgages.
And more significantly, as it's usually paid from your estate or the sale of your house on death, you often don't make any repayments, which means that, unlike with a mortgage, you're subject to vicious interest compounding.
While I've never been a great fan, if you don't have dependants who need the money, equity release can work, but be careful. See equity release quick tips.
One in 29 children lose a parent before they grow up - are yours financially protected? It's a sobering statistic. I was one of them. It's why whenever friends who have children ask me "where should I save for their future?", I first check if they've got life insurance. It gets me a few funny looks, but it's worth it. Families already in dire unexpected grief can risk losing their income, standard of living or even their home if unprepared.
For most people wanting a fixed payout, the cheap and easy way is level term life insurance, which pays out a fixed sum if you die within a set term. Yet how you pay for it can make a huge difference.
Take a £200,000 level term policy to cover your kids until they leave full-time education, so 21 years. Buy direct and a 40-year-old smoker would pay £35/mth, but an often identical policy bought via an 'execution-only broker' can be as little as £23/mth, saving over £3,000 over the life of the policy.
And as the payout is fixed, and there's little argument over whether you've died, as long as the firm's legit, cheaper is better. Full help and best deals in our Cheapest Level Term Life Insurance guide.
NB. Beware over-50s' life insurance plans (eg, Axa's, famously advertised by Michael Parkinson) - they work in a very different way. For many these are a waste of cash. See my Beware Over-50s' Plans guide.
Want to pay for your funeral now? Even the most basic funeral can cost over £5,000 all-in. And if you want a more lavish send off, the costs can soar. So if you're worried about what kind of funeral you'll have once you pass, one option is to buy a funeral plan. Our brand-new Funeral Plans quick guide will take you through it.
Do debts REALLY die with you? It's often said that "when you die, your debts die with you". But it's a little more tricky than that.
If you owe more than your assets are worth, your debts do die with you (your beneficiaries will get nowt, but they won't be asked to pay the rest of the debt). But if you owe less than your assets are worth, anything you owe has to be paid first before any assets can go to your beneficiaries.
Even worse, if your inheritors are JOINTLY responsible for a debt (eg, a joint mortgage), they'll have to make up the shortfall and become responsible for the WHOLE amount. If you're concerned about the impact this may have, contact Citizens Advice or consult a lawyer.
Just to let you know, if someone close dies, we've help. If someone you know passes away, even if it was expected, it can be a very difficult time. To take the stress away, it's worth you knowing that we've a What to do when someone dies checklist, which helps you through the practicalities step by step, from how to register a death and check for a will to how to cancel someone's outstanding mobile contract or stop mail going to them.
Don't forget - in October we have FREE consultations with estate planning lawyers - where you can discuss wills, powers of attorney and legal guardianship! Contact us to make an appointment.
Death planning guide: getting extra help
Money Savings Expert Martin Lewis has compiled a checklist of 20 things you need to consider when planning for the financial well-being of your family (it’s on his website). The check-list includes tips on wills, inheritance tax, funerals and setting up power of attorney. Our last post addressed releasing equity in your house. This one covers getting extra help and support.
If you're planning for the end of life, don't shoulder the worry alone - help is available and you make sure you seek it out.
The following places are a good place to start:
- It's a daunting task, so ask your family and friends for extra support if you need it.
- If you already have a solicitor, they should be able to help with big financial decisions. Otherwise, get help from a friend or relative in the know, or contact Citizens Advice.
- If you're struggling to cope, don't suffer in silence. There are several useful organisations that can help, including charities Samaritans and Age UK.
- Local religious leaders can also help plan ceremonies, last rites or prayers, and give spiritual support. They will have helped many through this process before, so should be able to give you the benefit of their experience.
Death planning guide: equity release – the pro’s and con’s
Money Savings Expert Martin Lewis has compiled a checklist of 20 things you need to consider when planning for the financial well-being of your family (it’s on his website). The check-list includes tips on wills, inheritance tax, funerals and setting up power of attorney. Our last post addressed the importance of telling your next of kin where your will is. This post covers releasing equity in your house.
Equity release is commonly marketed as a way to spend a home's value while still living in it, either by taking a loan or selling part. Do this and if you've dependants, less money will be left for after you've gone. But if you don't have any dependants, it isn't an issue.
While rates don't sound much higher than ordinary mortgages, they often cost much more. No repayments are made until you die, so the interest compounds rapidly.
For example: Borrow £20,000 aged 65 at 6.5% on a £120,000 home and live 25 years, and when you die £100,000 needs repaying. Though house price rises can offset this.
Make sure you read these key points first...
- It's less of an issue if you've no dependants. If you've no one to leave the property to, you lose nowt as the debt's repaid from your estate when you die.
- It can affect your benefits. Having cash rather than a property can hit those eligible for benefits such as pension credit.
- Explore downsizing instead. For many, a cheaper way to release equity is to downsize – sell and move to a smaller home. So explore this, but do it sooner – anecdotally, while many still feel up to moving in their sixties, as they get older the disinclination to move sets in so it's much tougher.
- You typically have to be at least 55 to do this. Plus, the younger you are, the less you can usually borrow.
- Ensure the company's a member of the Equity Release Council (formerly SHIP). This trade body's members all guarantee your estate will never owe more than your home is worth.
- Wait as long as you can. As a rule of thumb, at a rate of 7%, the amount you owe doubles every 10 years. Therefore the longer you wait, and the less you borrow, the lower the impact on your estate.
- Don't think "I may as well do it in one go". For example, if you think you may need £40,000 from your house to cover 10 years, see if it's possible to get £20,000 now and the rest in five years. It'll usually work out much cheaper, plus you may need more cash later for long-term care.
- Speak to an independent mortgage broker. If you're seriously considering this, speak to an independent mortgage broker or financial adviser with an equity release speciality to find the best deal. See the MSE Mortgage Broker finding guide.
Death planning guide: finding your will
Money Savings Expert Martin Lewis has compiled a checklist of 20 things you need to consider when planning for the financial well-being of your family (it’s on his website). The check-list includes tips on wills, inheritance tax, funerals and setting up power of attorney. Our last post addressed debts. This post looks at the importance of telling your next of kin where your will is.
Don't forget to let a close relative or friend know where your will's kept, so that they'll be able to find it without any additional hassle at a difficult time.
Once you've created a will, it's usually stored with a solicitor and you get a copy. If you'd rather store it yourself, you could keep it at home but this isn't really recommended. The Probate Service can also keep it for you for a fee of £20, and it's free to withdraw it. The HM Courts & Tribunal Service explains how to deposit a will and there's more information on Gov.uk.
Death planning guide: debts
Money Savings Expert Martin Lewis has compiled a checklist of 20 things you need to consider when planning for the financial well-being of your family (it’s on his website). The check-list includes tips on wills, inheritance tax, funerals and setting up power of attorney. Our last post addressed life insurance. This post looks at debts.
It's often said that "when you die, your debts die with you". But it's a little more complicated than that. When you die, anything you owe has to be paid first, before any assets can go to your beneficiaries.
So if you owe more than your assets are worth, your debts do die with you. Your beneficiaries will get nothing, but they won't be asked to pay the rest of the debt.
But if your inheritors are jointly responsible for the debts, your debts don't die with you as they'll have to make up the shortfall. If you're concerned about the impact this may have, contact Citizens Advice or consult a lawyer.
Consider taking out insurance if you've debt. The MSE Cheap Loan Insurance and Life Insurance guides are crammed with useful info that'll help you decide if you need cover to ensure debts are paid off on your death.
Death planning guide: life insurance
Money Savings Expert Martin Lewis has compiled a checklist of 20 things you need to consider when planning for the financial well-being of your family (it’s on his website). The check-list includes tips on wills, inheritance tax, funerals and setting up power of attorney. Our last post addressed planning care for your pets. This post looks at life insurance.
If you're older and reading this, life insurance is likely to be very expensive - plus your kids may be past the age of relying on you anyway. If you're younger, life insurance is well worth considering if you've got kids.
Level term life assurance is one of the cheapest ways to protect your family's income if you die, because it will pay a fixed amount to your dependants. The two key words are:
- Term: This means you only get a payout if you die within a fixed term, eg, 18 years.
- Level: This means the payout you get is always at a set amount. So level term assurance guarantees a lump sum payout upon death within a fixed time, for example, £150,000 if you die within the next 18 years.
Standard life insurance policies become more expensive the older you are, especially when you're over 60. They'll also take your medical history into account, so they can become prohibitive (though non-smokers in their 50s may still find them a good deal).
Of course, this is the one policy you hope won't pay out, but it's well worth looking into. See the MSE Life Insurance guide for full info and best buys.
Death planning guide: ensuring pets are provided for
Money Savings Expert Martin Lewis has compiled a checklist of 20 things you need to consider when planning for the financial well-being of your family (it’s on his website). The check-list includes tips on wills, inheritance tax, funerals and setting up power of attorney. Our last post addressed planning your care. This post looks at how you can plan to ensure your pets are provided for.
You can leave pets to others in your will (check they're happy to look after them first), but if you don't have a loved one who would be able to take them in, the RSPCA offers a free Home for Life service.
Sign up to it and it'll try to find a new home for your pets if you pass away. You'll need to amend your will, but there's no obligation to leave the RSPCA a donation to take part in the scheme.
Death planning guide: your care
Money Savings Expert Martin Lewis has compiled a checklist of 20 things you need to consider when planning for the financial well-being of your family (it’s on his website). The check-list includes tips on wills, inheritance tax, funerals and setting up power of attorney. Our last post addressed living wills. This post looks at how you can plan your care.
While advance decisions are legally binding and are only about treatments you want to refuse, if you want to ensure others know about how you want to be treated towards the end of life, you can make an 'advance statement'.
This document lets you state anything you think others should know to best care for you in future if you lose capacity to communicate them.
An advance statement could include dietary preferences, religious beliefs, who you'd like to look after pets if you're ill, or where you'd like to be cared for. They aren't legally binding, but should be taken into account by those looking after you.
To make an advance statement, write down your wishes, sign it and keep it somewhere safe. Again, ensure your loved ones know where it's kept, and you can also ask your doctor to keep a copy in your medical notes. See the NHS website for more info.