Securing future finances
PLANNING your finances does not get any easier as you get older and mistakes can be more costly than ever in later life.
As part of Talk Money Week, wealth adviser Quilter is urging families to have some important conversations about three of the biggest issues older people face.
INHERITANCE TAX PLANS
You don’t have to be rich to pay inheritance tax anymore, as the £325,000 threshold has been frozen since 2009, but house prices and shares have risen.
Chancellor Jeremy Hunt may extend the freeze until 2028 in next week’s autumn statement, dragging even more into the net.
By planning ahead, you can still prevent the tax man from becoming your biggest beneficiary. Rachael Griffin, chartered financial planner at Quilter said.
“By making gifts, you can help loved ones survive the cost of living crisis and also shrink the size of your estate for IHT purposes.”
Every adult can gift a maximum £3,000 each year with no IHT to pay, so couples could gift £6,000 this tax year. You can mop up unused allowance from last year, potentially doubling these sums.
You can also make smaller IHTfree gifts of up to £250 per person, provided the beneficiary has not enjoyed the £3,000 exemption. If one of your children is getting married, you can gift them £5,000 free of IHT.You can also gift £2,500 to a grandchild or great-grandchild who is getting married, and £1,000 to another relative or friend.
An overlooked option is to make regular payments to help with a person’s living costs.
Further gifts are known as “potentially exempt transfers” and are only entirely IHT-free if you live seven more years.
APPOINT ATTORNEYS
Dementia and other serious health issues are a growing worry as you get older, and could rob you of your ability to make financial decisions.
Families can get round this by preparing a vital legal document called a Lasting Power of Attorney (LPA), which allows loved ones to make key financial and medical decisions on your behalf, if you lose mental capacity.
Griffin said some fear that setting up an LPA will leave them vulnerable, but this is not the case. “LPAs allow people to make important decisions to help support their loved ones and can provide you and your family with the peace of mind.”
Without an LPA, your family or friends may have to go to court to make decisions your behalf, a time consuming and costly process.
“You can only create an LPA while you still have mental capacity. So put this at the top of your to-do list today,” Griffin said.
PREPARING A WILL
An accurate will is the cornerstone of sound financial planning but too many people never write one or let theirs go out of date, so the wrong people benefit when they die.
Without a will, your estate will be divided up by the laws of intestacy, which may not reflect your wishes.
Cohabitees are particularly vulnerable without a will. “They may not inherit anything on the death of their partner, unless they jointly owned property,” Griffin said.
More than half of parents have not spoken to their adult children about their will, research from Scottish Widows shows.
Its protection director Rose St Louis said a will brings peace of mind and she also suggested putting a trust in place, to ensure your wealth and assets go to loved ones in the most tax-efficient way possible.
“Assets held within a trust do not usually form part of your estate upon death, provided that you live for another seven years after setting up the trust, escaping IHT.”