What if something happened to me tomorrow?

  • Leanne Lancaster, Personal Finance Writer
  • 27 September 2023
  • 10 mins

Illness, death and finances tend to be topics people avoid discussing around the dinner table. Whilst it’s understandable that having these conversations with loved ones could be difficult, planning for the unexpected may be able to provide a sense of control and peace of mind.

Five things you could do now to help with your family's financial future

We understand that no amount of financial planning can magic away the grief, shock or pain when we’re presented with bad news. However, an awful situation can become even worse if your loved ones face additional problems such as financial insecurity or issues with legal arrangements.

Thankfully, there is plenty you could do to protect against this to help with your family's financial future.

1. Where there’s a will…

Creating a will is an important step to ensure your wishes are carried out after your passing. In essence, a will allows you to specify how you want your assets, such as your property investments or personal belongings, to be distributed among your loved ones. It provides clarity and could minimise potential conflicts.

A will also enables you to appoint an executor. This is a trusted individual who is responsible for carrying out the instructions in your will and ensuring that your estate is managed properly and your intentions are honoured.

If you pass away without a will in place your assets will be distributed according to intestacy laws. This may not align with your wishes and can lead to delays, legal complexities and potential disputes among family members.

But a will can be so much more than a legal document. Making a will could also give you peace of mind knowing that you have made your wishes known and taken steps to protect your loved ones. It provides a clear plan for the future and can relieve some of the burdens and uncertainties during an already difficult time for your family.

It's advisable to consult with a legal professional who can guide you through the process and ensure your will is valid and comprehensive.

2. Establish a Power of Attorney

A Power of Attorney (PoA) is another defence against the unexpected. It’s a legal document that lets someone (or more than one person) act on your behalf if you are incapacitated, it can cover:

  • health and welfare decisions

  • finance related and property decisions

  • or both

PoAs suffer from the perception that they are only needed for the very old or infirm. But unfortunately the young, fit and healthy can also be incapacitated by illness (or accident). Without a PoA in place, their families may be unable to perform the simplest financial tasks like accessing their bank account, paying bills or keeping a business running. Instead, they have to make a court application for a ‘deputy’ (or ‘guardianship’ in Scotland).

It’s a laborious process, often involving extensive paperwork, medical or social services assessments and possible delays of weeks or months. Investing time in the short-term to arrange a PoA can help make life easier for your family in the long-term.

3. Consider a living will

There is also the question of what care or level of medical intervention people want. Or don’t want. This is a tough conversation to have and so it’s not surprising that people often avoid having this discussion with their loved ones.

Despite it being a taboo subject, a ‘living will’ could help you and your family during the most difficult of times. A living will is an umbrella term for different documents (advance decisions, advance statements, advance directives), telling healthcare providers and family members your preferences for medical treatment and care if you cannot verbally express your desires. Some are legally binding and some are not, so advice may be worthwhile.

With living wills and care plans, it’s important to bear in mind that you can’t always get what you want especially when healthcare services are stretched. But a comprehensive living will offers useful clarity to loved ones, easing challenging decisions about your medical treatment.

4. Protect yourself

Protection is a term used to describe a range of insurance policies that are intended to protect the intangible aspects of your life. Life insurance, income protection and critical illness cover are all types of protection insurance.

These policies are designed to provide you or your loved ones with a lump sum pay out or regular income payments in the unfortunate event of illness, accident or death. By purchasing financial protection insurance products, you are helping to safeguard yourself and those you care about most from potential financial hardships during challenging times. These products aim to provide a safety net, ensuring that you have the necessary funds to maintain your lifestyle, focus on recovery and support your family when they need it the most.

5. Review your pension(s)

As pensions sit outside of your estate, your beneficiaries can access your retirement savings without having to pay inheritance tax when you pass away. The rules for pensions on death depend on the type of pension you hold, whether you have taken any money from it and how old you are when you die.

For defined contribution pensions, the age you die determines how much your beneficiaries can claim. If you die before you reach the age of 75 and you haven’t started drawing from your pension, it can be passed to your beneficiaries free from inheritance and income tax if they claim within two years. After this time, tax may be charged.

If you have already withdrawn a lump sum from your pension pot, any money left in your bank account will become part of you estate and therefore liable to inheritance tax.

It’s important to let your pension provider know who your nominated beneficiaries are and remember to review these regularly, updating if necessary. Please note that your pension provider will also determine who can benefit from your pension after you pass away depending on scheme rules.

Defined benefit pensions work differently.  There is no pension pot that can be passed on but what is known as a ‘survivor’s pension’ would be paid upon your death.  The amount paid and to whom would qualify for the survivor’s pension would be dependent on scheme rules.

Defined contribution vs defined benefit pensions

A defined contribution pension is based on money contributed into the pension scheme. The contributions are invested by the pension provider and so the size of the pension pot you'll get can go down as well as up depending on how the underlying investments perform.

A defined benefit pension, also known as a final salary pension, is based on your salary and offers you a guaranteed income for life after retirement, usually indexed to keep up with inflation. They are arranged by your employer, and you can't contribute to one of these on your own.

These are never going to be easy topics to tackle, but a good financial adviser could help – putting everything in context, addressing issues like protection and inheritance planning, and tailoring everything to your own family situations.

They may not be able to protect you from grief or loss, but they can offer you some control over the future.

Important information

Any views expressed are our in-house views as at the time of publishing.

This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.

Protection policies have no cash-in value at any time. If you don't pay your premiums on time your cover will stop, your benefits will end, and you'll get nothing back. If the benefit amount has not been paid out by the end of the selected term, the policy will end and you'll get nothing back.

Pensions are a long-term investment. The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits, which isn’t guaranteed, and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.

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