The coronavirus pandemic has demonstrated the speed with which the unexpected can occur, turning ordinary life on its head.
Protecting yourself and your family from the unexpected should be an integral part of your financial plan. Protection policies can protect against critical illness or loss of income, but what if the worst should happen?
A will and a Lasting Power of Attorney (LPA) could give you enormous peace of mind and financial security.
Here, we look at the importance of both, starting with a will.
The importance of an up-to-date will
An up-to-date will is the only way to make sure that your wishes are carried out when you die. And yet more than half of UK adults don’t have one.
If you do already have a will, when was it last updated? Remember that big life events such as marriage could revoke it. Other events might mean your wishes change. Are these changes reflected in your current will?
Here’s why need an up-to-date will.
1. You put yourself in control
If you die without having a will in place, your estate becomes subject to the laws of intestacy. The rules govern who can receive a deceased’s property, but there’s no guarantee they will align with your wishes.
Putting a valid will in place puts you in control. You can say how you want your estate to be distributed, and who should benefit.
2. It will reflect your wishes when circumstances change
Big life events – such as a change in relationship status or the arrival of children – are likely to affect how you want your estate to be distributed.
Marriage automatically revokes any will you previously held. If you don’t make a new will following your marriage, then the rules of intestacy will apply on your death. Your partner will usually inherit your estate, but any specific wishes detailed in your previous will won’t be taken into account.
Divorce, on the other hand, doesn’t revoke a will. A will held prior to a divorce will remain valid. Be sure to check in with your will after a divorce is finalised to ensure it is up to date and aligns with your wishes.
The birth of children or grandchildren might also mean alterations are needed. Be sure to add new arrivals to your will.
3. Outside factors might change your tax plans
Outside factors, such as regulatory change or a sudden inheritance, could affect how you want your estate allocated.
If your financial situation changes you might have more or less to leave behind than in the past. Does that alter how much you can leave to certain individuals? Can you add other people to your will? Or do certain aspects need to be removed?
You might find you want to give some money to a charity that has come to mean a lot to you. Giving money to charity can have tax benefits too. The donated amount is taken out of your estate for Inheritance Tax (IHT) calculation purposes. Donating a large amount could even lower the rate of IHT you pay.
If the value of your estate changes, your IHT liability could change. Tax regulations change too – a liability could arise without you being aware of it. We understand tax regulations and estate planning and can help to ensure your loved ones aren’t left with a large tax bill when you die.
The importance of an LPA
You might also consider putting an LPA in place.
You might think a Power of Attorney is something to worry about only in later life. But the unexpected can occur at any time. An LPA gives you confidence that you and your family are protected should something happen in the future.
1. An LPA puts you in control
What would happen to you and your family if you become incapacitated through accident or illness?
It’s not a pleasant thing to think about, but as with a will, having an LPA in place puts you in control. Make important decisions now and you’ll have the confidence that you and your family will be looked after in the future, should the unexpected happen.
There are two main types of LPA:
- A Health and Welfare LPA – used to appoint an attorney to make decisions about things like your daily routine, medical care, or moving into a care home
- A Property and Financial Affairs LPA – used to give an attorney the power to make decisions about managing financial accounts, paying your bills, or selling your home, for example.
You appoint a person you trust to look after your affairs if you are no longer able.
You decide the types of decisions they can make. And you can choose your attorney’s successors too, covering yourself and your family should something happen to your original attorney.
2. Speedy decisions
Put an LPA in place and, if the unexpected happens, your chosen attorney can start running your affairs straight away. As long as the LPA is registered, you and your family will be instantly looked after.
You’ll need to register your LPA with the Office of the Public Guardian (OPG) and that can take eight to ten weeks. Register it once, while you are capable of making your own decisions, and it will be there if you need it.
If you become incapacitated without an LPA in place, an application has to be made to the Court of Protection.
A deputy will be appointed but this can be time-consuming – up to three months from the point the application is received. This could be an uncertain time for your family, who might also be facing financial hardship.
3. Peace of mind
You must be of sound mind to put an LPA in place so there is no risk of coercion. You select trusted individuals to make decisions about specific elements of your life.
As long as the LPA is registered it will take effect should you become incapacitated.
You’ll have peace of mind that you and your family will be looked after.
Get in touch
Ensuring the financial security of you and your family, now and in the future, is an essential part of any long-term financial plan.
If you’d like to discuss putting a will or an LPA in place get in touch and we can direct you to trusted professionals who can help. Please email email@example.com or call 01242 514563.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.