MoneySavingExpert's Money Tips Email

Wills matter! Power of Attorney arguably matters more! Whatever your age, are you financially protecting yourself & loved ones from death, dementia & illness?

Free wills. Cheap PoA. Inheritance Tax. Funerals.

Time for a deep breath. Each year in this email, I aim to encourage you to have an unpleasant but necessary conversation. I'm doing it this week, as two free will schemes are now open, though it's about far more than that. While we should all hope for the best, it's also crucial to plan for the worst, as the knock-on financial and emotional costs of not engaging with these issues are more painful.

This ISN'T only for those with greying hair - if you have dependents, do consider all this.

I know many struggle to start this conversation with loved ones, but whether it's with parents, a partner or adult children, do try. Blunt, warm and practical is oft easiest (or show them this). Be as candid as possible... the odd tear in the eye just means you love each other. I'm going to try to help you through some key issues here...

1. Free solicitor-drafted wills | 2. Crucial Power of Attorney | 3. Inheritance Tax need-to-knows | 4. Funeral planning

If you don't have a will, then the rigid intestacy rules dictate who gets what of yours. Risks include the wrong people getting your assets, increasing Inheritance Tax costs, and making it more complex for your loved ones to deal with your estate.

Sorting a will is crucial if you own a home, have savings or investments, a business, or people you'd like to look after when you're gone. The gold standard way to draw up a will is to get a solicitor to draft it, which normally costs many £100s. Yet there are charity schemes which cut the costs, and crucially some are on now... 

• FREE WILLS MONTH (for age 55+). Free Wills Month happens in March and October, where a solicitor will draft the will for free, covering different places each time...
  
  - March is London, Cardiff, Edinburgh, Bristol, Birmingham & far more (see March free wills list). If it's not on in your area now (eg, N. Ireland, Cornwall) it should be in Oct.
  - It covers a single will for anyone aged 55+, or a 'mirror will' for couples where the wills are near-identical, as long as one is 55+ (simple circumstances only).
  - As long as it's booked in March, the appointment can be after.
  - It's organised in the hope you'll leave a bequest (money in your will) of £300 to £1,000 or a percentage of your estate to charity. It's not compulsory, but it is a charity scheme, so do what you can. Charities include Age UK, Alzheimer's Research UK, Breast Cancer Now, Help for Heroes, Mind, Stroke Association and more. It's been running for 20+ years and raises £30m for good causes annually.
  
  PS: Leave 10%+ of your estate to charity and it reduces your Inheritance Tax rate on the taxable estate from 40% to 36% (best for larger estates).
  
  
• OCTOPUS LEGACY 'FREE' WILLS (for age 18+). Octopus Legacy (sister company of Octopus Energy) runs its 'free will' scheme in Feb and March in Eng & Wales. Wills can be done online, via video, or during a home visit. They're NOT solicitor-drafted, they're drafted by its team and then overseen by a solicitor (unless it's complex, when there can be a fee and a solicitor does it all).
  
  It hopes you'll leave a bequest to one of 150+ charities supporting the scheme, but it's not compulsory. Charities include ActionAid, Macmillan, RSPB and more.
  
  
• More free or cheap will schemes. The biggest is Will Aid which is each November, where you get a will for a suggested charity donation of £120. You may also currently be able to get a free or cheap solicitor-drafted will via individual charity schemes (such as Cancer Research), your trade union, and via your employer. Far more info in our Cheap & free wills guide.

Being blunt, a will is a document that dictates what happens to your assets when you die. A Lasting Power of Attorney is there for if you are alive but no longer have the faculties to make decisions for yourself.

Don't assume that if you lose mental capacity relatives can just access your bank account, insurer or mortgage firm to sort things out, not even to pay for your care, or the mortgage itself. That's what a Lasting Power of Attorney (PoA) is there to fix. And this isn't a trivial thing as financial issues are often urgent if you lose faculties... 

...Who'll look after you? Who can access your funds to pay for necessities? Who ensures your money still works for you if you're no longer capable?

And it doesn't just happen to the elderly - accidents, strokes, early onset dementia and more may hit anyone. And younger people's finances tend to be more separate, making it even tougher. I'm 53 (surely not, I hear you say, surely not!) and have no reason to foresee losing capacity, yet I've had a PoA since my 30s just in case.

Not having a PoA can cause real difficulties...

Without a PoA, it may be hellish for your loved ones. They'd need to apply to become a 'Deputy' (or similar) to take care of your finances via the Court of Protection (Sheriff Court in Scot; Office of Care and Protection in N. Ireland). 

And while some think 'it's fine there's an option' that's exactly what I want to try and help you avoid. I receive many nightmare stories about the Court of Protection - it's often difficult, costly, and usually takes many, many months, leaving you in limbo in the meantime.

As Jane wrote on X: "@MartinSLewis I had to apply for Court of Protection for my dad. An expensive, stressful process that takes far too long. I wish we'd sorted out PoA while he still had capacity. We now have PoA for my mum and arranged for our daughter to have PoA for us. It's reassuring to know it's in place."

• How a Lasting Power of Attorney works. A 'Property & Financial' PoA makes it easier for someone to take over your finances & financial decisions if you can't. You nominate a trusted friend or relative to look after your affairs if needed (if you're older, it's best to include at least one person a generation younger). 
  
  This DOESN'T mean giving up control now (though you can choose to while you still have capacity) - you can opt for it only to be in effect if you're no longer capable. And included within it, as a safety net, you can nominate other separate people to be notified of the PoA, so they can object to it if necessary (eg, if they thought you were still compos mentis).
  
  
• How much does a Power of Attorney cost? There's a fixed cost to register a PoA. In Eng & Wales it's £92 per PoA (there are two - one for finance & property, one for health & welfare) so total for both is £184. See PoA costs across the rest of the UK.
  
  
• Feel unsure? Pay for help. If you've more complex financial affairs, or are uncertain (or have substantial assets), the gold standard is to getting a solicitor's PoA help, though it isn't cheap, usually £400 to £750. 
  
  Alternatively, Which? Wills* has a decent halfway house, where you fill in a questionnaire that it populates for you, then it is checked by a specialist paralegal within two weeks. This normally costs £99, but via this link, we've blagged it for £69 for you. (Not available in Scotland).

• Don't ignore the health Power of Attorney. While my focus is of course financial, there's also a Health & Welfare Power of Attorney for medical and daily care routine decisions, should you be unable to make them - this is an extremely important document and you should consider it.
  
  Another option to consider is a living will (officially 'an advance decision'), where you can refuse certain medical treatments if you lose capacity.

PS: Enduring vs Lasting Power of Attorney? In 2007 in Eng & Wales, Lasting Power of Attorney replaced the older Enduring Power of Attorney (EPA) system. If you've an EPA, it's still valid (though there are some differences).

Inheritance Tax is a much-discussed and much-misunderstood topic. And things are likely to get even more complex as the government plan is to bring most unused pension funds into scope for IHT in just 13 months' time. I'd start by watching this how IHT really works video - while directed at marriage, it gives a good overview...

Now on to the key need-to-knows... 

1. Far more worry about Inheritance Tax than pay it. While many fear it, only about 5% to 6% of estates pay it, usually those at the higher end of the wealth scale. In reality it does likely eventually affect a higher portion of families than that, as with some estates everything is going to the spouse and that's not taxable (see below), but it is still only the minority who pay it and likely to remain so even after the pension changes. 
   
   
2. If your estate is under £325,000, no IHT is paid. You don't pay IHT on the first £325,000 of your estate (all your assets, including property, added up). So if that's you, IHT is not an issue. This allowance has been frozen since 2009/10 and is expected to stay frozen until at least 2031.
   
   
3. This is boosted by £175,000 if you pass on your main residence to your direct descendants. You can leave an additional £175,000 tax-free specifically on your primary residence (or as much as it's worth if less than that). Direct descendants include (biological / step / adopted / some foster) children or grandchildren. 
   
   So if your house is using that allowance up then - if passed to descendants, and your total of it and other assets are under £500,000 - IHT isn't an issue. See more details on this in our Inheritance Tax guide.
   
   Estate over £2m? You start to lose this extra £175,000 allowance (by 50p per £1 over £2m). Once it's £2.35m, you lose it entirely.
   
   
4. Anything left to a spouse is EXEMPT. If you are married or in a Civil Partnership, and your spouse is usually UK domiciled, whatever you leave to your spouse isn't taxed. Even Bruce Wayne leaving £100bn wouldn't be taxed if he left it to Mrs (or Mr) Batman. Yet if you are cohabiting, no matter how long you've been together, you don't get this. 
   
   This is big, but when combined with the next point, it's huge!
   
   PS: Remember, if you don't have a will and die intestate, then all your assets may not go to your spouse, which could add substantially to the IHT paid.
   
   
5. All your unused allowance is passed to your spouse. So leave them everything and they can leave up to £1m with no IHT. Again, this only applies to those who are married or Civil Partners, not cohabiting. It works because they then effectively get your £500,000 allowance added to their £500,000.
   
   
   So, as I explain my IHT video, if 'Hal' and 'Lou' are married, and have combined assets worth £1m (half each for ease), and Hal passes first and leaves all his assets and home to Lou, then organised right Lou can leave all their assets to their children without any Inheritance Tax. 
   
   If they weren't married and Hal leaves everything to Lou, then he'd use up his allowance on that, and would pay tax on passing his house across (as it's not left to a child). Then, when Lou passes, if it all goes to their children, in total they'd have paid £242,000 in Inheritance Tax.
   
   That shows you why I wrote the 9 financial benefits of marriage blog as this is huge money, so much so I'm racking up quite serious numbers of long term couples, who've got married or Civil Partnerships after hearing this, let us know if you're one.
   
   
6. IHT is usually charged at 40% of everything above the total allowance. The IHT tax rate is a straight 40% if you have no exemptions. So for every £1 above the allowance you pay 40% (as noted above there are exemptions, eg this rate is reduced to 36% if you leave 10%+ of your estate to charity).
   
   
7. If it's likely your estate will pay IHT, giving assets or money away while alive can reduce or cancel it. Any regular gifts you can comfortably afford out of surplus income are exempt from IHT (though proving it can be tricky). Plus there are a range of other gifting allowances... 
   
   The most important one is: give anything away without reservation (eg, no conditions which look like it's being done as a loophole) and if you live 3+ years after that, the rate of IHT you'd need to pay on that gift (if it's above the exempt allowance) starts to be reduced, and it tapers away until by the time it's 7+ years, it is exempt from IHT. For a full explanation, see gifting rules and/or listen to my IHT podcast.

One way to make your passing easier on those left behind is by avoiding adding financial difficulty and admin to the grief. While some methods are covered above, our jollily named 22 death-planning checks guide is a good one-stop checklist of some of the things to look at. It's not the only resource though. Some won't be imminently useful but are worth remembering...

• What to do when someone dies. Our What to do when someone dies guide helps you through the practicalities, as well as details of where to find support, as you go through the grieving process.
  
  
• DIY Probate guide. The Probate DIY guide is there if you are the executor of someone's will, to give you a place to start.
  
  
• Funeral planning. Funerals are expensive, from a direct cremation at c.£2,000, to a traditional burial service at £4,000+. So prepaying for a funeral plan (which can beat inflation by paying for a future funeral at today's prices) saves your loved ones the stress of organising your funeral. Leaving them notes about your preferences helps too.
  
  Funeral plans are safer these days as the sector is FCA regulated, which helps protect your money and means you can take a complaint to the Financial Ombudsman. The team's Prepaid funeral plans guide takes you through it, including plan providers - many of which offer discounts to MSE readers.
  
  Yet be aware plans often exclude things such as burial plots, headstones, flowers, embalming and wake costs, so there can be £100s or £1,000s more to be paid by loved ones - and due to the way probate works, at that point they may well be unable to access any of the funds you've left them to pay for it. 
  
  So it's important to know exactly what's included in a plan before buying one.
  
  
• Had a funeral plan but can't find it? Details can get lost or misplaced over time. Helpfully, you can fill in a short form on the 'find my plan' tab of the National Association of Funeral Plan Providers (NAFPP) website. Almost all authorised firms are part of the NAFPP. 
  
  If that doesn't work, you'll have to individually contact the remaining authorised funeral plan providers listed on the Financial Conduct Authority register.
  
  
• Beware over-50s' life insurance plans. They work in a very different way and can be a waste of cash for many. See our Beware over-50s' plans guide.