Archive: MoneySavingExpert's Money Tips Email

Martin: Time for a difficult conversation...
Financially secure yourself & loved ones against the 3Ds - death, divorce & dementia...

- Free solicitor-drafted wills schemes on now
- DIY Power of Attorney (more important than a will)
- What everyone needs to know about Inheritance Tax
- Funeral planning & how to plan for death

No one wants to talk about the three Ds, but while everyone should hope for the best, they should plan for the worst. The knock-on financial and emotional costs of not engaging are worse (though often you won't realise till it's too late)...

... this is for anyone with dependants, not just those with grey hair

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 makes it easier. Be as candid as possible... the odd tear in the eye just means you love each other. I'm going to try and help you through some key issues here, especially for death & dementia (for the 3rd D, watch my ITVX divorce show).

Sorting a will is vital if you've got a house, savings, a business, or people you'd like to look after when you're gone. It means you get to decide who gets what. Without one, the rigid intestacy rules dictate who gets what of yours. Plus, solicitors say dying will-less may complicate dealing with the estate.

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 a couple of charity schemes which cut the costs, and some are on right now...

• New. FREE WILLS MONTH (for age 55+). Free Wills Month happens in March and October. This month covers London, Cardiff, Edinburgh, Bristol, Birmingham & far more (see March free wills list). If it's not on in your area now, then it should be on in October, including Manchester, Nottinghamshire, N. Ireland and Cornwall. With the scheme...
  
  - A solicitor will draft the will for free.
  - 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+ (provided your circumstances are relatively simple).
  - As long as it's booked in March, the appointment can be after.
  - It's organised for Age UK, Alzheimer's Research UK, British Heart Foundation, Marie Curie, Mind, Help for Heroes and more, in the hope you'll leave them a bequest (money in your will) of typically £300 to £1,000, or a percentage of your estate. It's not compulsory, but it is a charity scheme, so do what you can. The scheme's in its 20th year and raises £30m for good causes annually.
  
  PS: If you've a lot of assets, it's worth knowing if you leave 10% or more of your estate to charity, this reduces any Inheritance Tax rate your estate pays from 40% to 36%.
  
  
• New. Octopus Legacy 'free' wills (age 18+). Octopus Legacy (the wills sister firm to Octopus Energy) is running its own March 'free will' month for adults across the UK. Wills can be done online, via phone/video, or during a home visit. Yet 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 100 charities supporting the scheme, but it's not compulsory. Charities include ActionAid, St Christopher's Hospice, National Deaf Children's Society and more. See Octopus Legacy.
  
  
• A bigger charity scheme is Will Aid, which is open to every age. It's UK-wide, open to all adults and operates in November. There you get a will for a suggested charity donation of £100.
  
  
• Other ways to get free wills. 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.

If you were to lose your faculties, don't assume relatives can walk into the bank and access your money - not even to pay for your care, or the mortgage. That's what a Lasting Power of Attorney (PoA) is there to fix. And this isn't a trivial thing.

Lose your faculties and financial issues are often urgent, it leaves big questions... Who'll look after you? Who can access your funds to pay for necessities? Who'll ensure your money's still working for you if you're no longer capable?

Without a PoA, it's often hellish for your loved ones. They'd need to apply to take care of your finances via the Court of Protection (Sheriff Court in Scot; Office of Care and Protection in N. Ireland). It's often difficult, costly, and usually takes many, many months, leaving you in limbo in the meantime.

As Stephanie told us on Facebook last month: "I can't stress enough how important a PoA is. My mother had made a will but not a PoA. Sadly, she suffered a stroke which led to vascular dementia. She could not make decisions regarding her finances. I had to apply for a deputyship order via the courts, which took 8mths to come through and cost £4,000! Plus I had to make annual reports to the Office of the Public Guardian (which cost £300/yr) as to how my mum's funds were being used. All in all, a very costly exercise!"

Losing faculties isn't just something that happens to the elderly - accidents, strokes, early onset dementia and more may hit anyone. And younger people tend to have more separate finances - so it can be even tougher. I'm only 52 (surely not, I hear you say, surely 42?) and have no reason to foresee losing mental capacity, yet...

... I've had a PoA set up since my 30s, just in case.

Though, sadly, I'm in the minority. I polled on this last year, and only around half of respondents had a will, and that was double the number who had a PoA, so I'd urge more of you to look at this...

• How a Lasting Power of Attorney works. A 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. This DOESN'T mean giving up control now - 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 if the PoA is enacted, 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, but it varies a little across the UK nations, eg, in Eng & Wales it's £82 per PoA (there are two - one for finance & property, one for health & welfare). So do both & it's £164 - see PoA costs across the UK.
  
  
• Feel unsure of what to do? Pay for help. If you've more complex financial affairs, or are uncertain (or have substantial assets), the gold standard is to get a solicitor to set a PoA up for you, though it isn't cheap, usually £400 to £750. See getting PoA help.
  
  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 £70 for you.

• 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, 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 much-discussed, much-feared and much-misunderstood. Our Inheritance Tax guide goes through in proper detail, but I wanted to briefly run through the key points...

1. Most people SHOULDN'T worry about Inheritance Tax (IHT), as only a little over one in 20 estates pay it. While many fear it, only about 6% of estates pay it, usually those at the higher end of the wealth scale. Even if the planned April 2027 changes - whereby pensions would fall within the IHT net - happen, the vast majority of estates still won't pay it. You'll see why below...

2. Anything left to a spouse is EXEMPT. So you can leave whatever you want to them and there's no tax on it. This is ONLY if you're married or in a civil partnership, and doesn't apply to those who are cohabiting, no matter how long you've been together.

This is so big. I've had people who got married after hearing me talk about this - let us know if you're one. Yet while many love the idea of marriage, many don't too (some I know consider it paternalistic, or religious baggage etc). If so, that's what a civil partnership is for - it confers exactly the same rights, but without the baggage.

3. 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.

4. This is boosted by £175,000 if you pass on your main residence to your direct descendants. You can get an additional £175,000 for your primary residence (or as much as it's worth if less than that). Direct descendants include (biological / foster / step / adopted) children or grandchildren. So if your house and other assets are under £500,000, then IHT isn't an issue.

Estate over £2m? You start to lose this extra £175,000 allowance (by 50p for every £1 over £2m - so if it's over £2.35m, you lose it entirely).

5. All your unused allowance is passed to your spouse. So leave them everything and they can leave up to £1m (including a house) 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.

6. IHT is charged at 40% of everything above the total allowance. So if your estate is £1.5m including the house, and it is all passed to one spouse, then on to dependants (so there's £1m exempt), you'd pay 40% of the £500,000 above that, ie, £200,000.

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 normal income are exempt from IHT (though proving it can be tricky).

Plus there are a range of allowances, even if giving away from your capital (wealth). Give anything away and live 3+ years, and the IHT is reduced. After seven years, there's none to pay. For a full explanation, see gifting rules and/or listen to my IHT podcast.

And to finish, now let's make the impact of your passing easier on those left behind - to avoid adding financial difficulty and admin to the grief. While I've covered a decent chunk of it above, our 22 death-planning checks is a good one-stop checklist of some of the things to look at.

There's also our What to do when someone dies guide, which helps you through the practicalities, as well as details of where to find support as you go through the grieving process. And there's our Probate DIY guide if you're the executor of someone's will.

• Funeral planning. Funerals are expensive, from a direct cremation at c. £1,500, to a bells and whistles burial service at £3,500+. So prepaying for a funeral plan (which beats 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 have been safer since July 2022, when the sector became regulated, which helps protect your money and means you can take a complaint to the Financial Ombudsman. Our Prepaid funeral plans guide takes you through it, including plan providers.
  
  Yet do 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. So it's important to know exactly what's included before you're paying for it.
  
  
• Think you / a loved one had a funeral plan but can't find it? Details can get lost or misplaced as the years go by. 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.