How to protect your family finances in later life

Death and taxes are the two certainties in life. But while many are willing to spend lots of time gnawing over tax, we often avoid discussing the financial implications of dying.

We are even notoriously bad at putting in place some of the essentials of later-life planning.

More than half of 50 to 64-year-olds haven’t written a will, according to the Money and Pensions Service. 

Many mistakenly believe their property, savings and other assets will end up with the people they wish to have them after they die – but without a will that may not be the case.

Meanwhile, an estimated 85 per cent of people do not have Lasting Power of Attorney (LPA) set up – leaving their loved ones unable to manage their finances if they are incapacitated or suffer dementia. Life insurance can make a big difference to a family’s situation if a breadwinner dies but, again, many families aren’t protected.

Later-life planning also involves thinking about funeral wishes, bequests and inheritance, and discussing things with your family. You may find it hard to talk about, but doing so can ease the burden on family when you die. 

Here we explain what you need to consider to help loved ones after you’re gone.

Remember to write your will 

Writing a will is vital – but you also need to do your best to ensure your wishes will be followed. This requires making sure your will is legally valid, signed and can be located after you die.

You can write one yourself but getting a professional to help is wise. To be valid, a will must be witnessed while you are present by two people over 18, of sound mind, who have no personal interest in the will and are not related to you.

If you have children, it is especially important to make a will to put arrangements in place in case you die unexpectedly. You will want to name guardians for under-18s.

In your will, you need to name your executors. They will administer your estate, which involves obtaining probate that gives them access to your money – closing bank accounts, settling bills and arranging the sale of a family home.

People often choose family members or a trusted friend as executors, and they can also be a beneficiary of the will. You should ask their permission as the job can be challenging and time-consuming, and then tell them where all your financial details can be found.

You can appoint a solicitor or other professional as an executor but be aware they will charge – and watch out especially for any fees that are a percentage of your estate.

If you die without a will your assets will be distributed according to the rules of intestacy – broadly speaking, spouses and civil partners get priority, followed by children, then other relatives. Rules differ across the UK, and the government-backed MoneyHelper site has a useful rundown of intestacy.

Many people get a lawyer to draw up their will to be certain their intentions for their property and other assets are set down properly.

Will-writing services are a cheap and popular alternative to high street solicitors, but check they belong to a professional organisation and adhere to a code of conduct.

Online will-writing services can offer a convenient option if you have relatively simple circumstances, but check reviews.

Farewill, Make A Will Online and Co-op Legal services offer this, while charities will also help with wills in the hope you will leave a bequest. 

Lawyers recommend reviewing your will every five years. And store your will carefully and give close family members a copy, or let them know where it is. If you prefer not to do that, tell someone you trust where it is kept.

Set up Lasting Power of Attorney

Lasting Power of Attorney (LPA) involves appointing someone you trust, usually a family member or friend, to take control of your affairs if you fall ill.

There are two types of LPA, covering money and health, and you can get one or both if you are 18 or over and have the mental capacity to do so. It is straightforward but too many people fail to put this crucial measure in place to protect their families.

Many make the mistake of thinking of LPA as an ‘elderly need’ when anyone who has children or dependants should make it a priority. Not having an LPA in place can cause far greater problems for young families than pensioners.

Without an LPA, families can find themselves locked out of an ailing loved one’s finances and forced to apply for deputyship. This involves a complicated court process and potentially fees running into many thousands of pounds.

Registering an LPA does not mean it automatically comes into effect. That will only happen if you lose capacity to act on your own behalf.

You can appoint a lawyer as an attorney, but they will charge for their services and bills might rack up if you are ill for a long time or have complicated affairs. The LPA system is run by the Office of the Public Guardian. You must submit forms and pay a fee of £92.

Think about the cost of being in care

No one knows if they will need care in later life, or to what extent or for how long. That makes it one of the hardest potential later life costs to plan for, as you have no certainty there will even be a bill to pay – but if there is one, it could be so catastrophically high it drains virtually all your assets.

Typical fees for a place in a residential care home are around £1,100 a week, and £1,450 a week for a nursing home, according to Age UK, and this can rise substantially depending on location and quality.

However, only those with assets worth less than £23,250 in England, £50,000 in Wales and £36,750 in Scotland, can get local authority funding to help with the cost.

Joint savings are generally considered to be split equally.

Your home’s value is disregarded from the financial assessment if your partner remains living in it. If another relative lives there, it may also be disregarded.

You can get the NHS to pay for care based on health needs, but the assessments and red tape when applying for what is known as ‘NHS continuing healthcare’ is challenging. Read our full guide to care costs and funding at thisismoney.co.uk/care-costs

Consider life insurance

You should consider life insurance if you’ve got children, other dependants or a joint mortgage. It provides a payout on your death, which could clear your mortgage and provide money to help your family survive without you.

You can get a policy to provide cover until death at any age or limited to a set length of time, such as until your mortgage is paid off or your children are adults. The cost each month depends on your health, level of cover and type of policy you choose. The main types are:

Level term insurance: Pays out an agreed lump sum if you die within a set time frame, for example your mortgage term or working life.

Decreasing term insurance: Pays out a lump sum, which declines over the length of the agreement, for example in line with a repayment mortgage.

Whole of life insurance: Pays out a set sum whenever you die. Policies can comprise both an insurance and an investment element. Whole of life insurance is expensive but has become increasingly popular to cover future inheritance tax bills. You can insure your life for the sum you think your beneficiaries will need to pay the taxman.

Some people may decide to just cover their mortgage with life insurance, others may want a lump sum to replace their income, so that their loved ones are not left short.

You should weigh up any other money that your family may get, for example inheriting your pension or death in service benefit.

Premiums are calculated depending on your history, health, age and type of cover, among other factors. The monthly cost potentially ranges from around £5 to £35 for non-smokers in good health, depending on age.

To stop a payout becoming part of your estate and incurring inheritance tax, you need to put life insurance into trust, which can be done simply when you take it out. Over-50s life insurance plans aim to provide a limited payout to help your family or cover funeral costs. Policies ask no medical questions, so might be suitable if you have health problems, but can turn out more expensive if you are healthy.

Talk to your family about funeral wishes

For some families, conversations about funerals are nothing unusual. There may be discussions of songs they want played, where they’d like to be buried or scattered, and even jokes about elaborate send-offs.

For others, dying and funerals are something to avoid talking about at all costs. Most of us will probably sit somewhere in the middle – and our family might have a vague idea of what we want but couldn’t say for sure.

But it’s important to discuss your funeral wishes, any bequests and anything else you’d like to happen after your death, because it will make it much easier for your family once you are gone.

Think about what you would like for your send-off, how you want to be remembered, the potential cost and what you would be happy for your family to spend.

Any wishes you can share on readings, speeches, music, flowers, charity donations and where you would like to be buried or have your ashes scattered will help your family.

Ideally, you will sit down and talk to them about this, but if you would prefer not to do that, leave a note with your will. They will be glad to read a message from you when you are gone that helps them remember you and your legacy.

Check up on your pension

A crucial part of later-life planning is considering your pension and whether it will provide enough for the retirement you want.

You will want to check your state pension and work out what workplace or other pensions you have, how much they are worth and what income they might generate to see you through retirement.

For workplace schemes, you need to ask whether the pension is in a defined benefit or defined contribution scheme.

If you have a defined benefit pension, the scheme has to pay you a guaranteed income through retirement based on your earnings, and usually death benefits to your spouse if you die first. 

Defined contribution pensions involve you and your employer investing to build a pot, which you must turn into retirement income. You need to know your current fund value and the income this could deliver.

Review your state pension forecast at gov.uk – the full payout will rise to just above £13,000 from April.

After checking up on your pensions, consider whether you can afford to save harder, especially if your employer matches higher contributions, or if you receive bonuses and pay rises.