In our recent post 7 Things You Need to Know About Planning for Care Costs we shared Money Box's advice regarding buying financial products from organisations that market them in terms of 'avoiding care home fees.'
Since then The Daily Mail has published a campaigning piece How Low Can They Go? revealing how cash strapped councils are pursing elderly people by claiming that money they've given to family years ago should have been used to pay care bills.
In this post we share five ways to legally protect your family, your wealth and your wishes against the unexpected costs of Inheritance Tax, probate and care.
1. Write a Will (or revisit and update an existing one every 3 years or after any significant life event)
Making a Will makes sense. As the saying goes, 'where there's a Will there's a way' and the only way to ensure that your wishes regarding your estate (everything you own including property, investments, insurance, pension schemes and personal possessions including cars, jewellery, furniture and art) are honoured is to write a Will.
The only way to ensure that your family get what is due to them as quickly as possible it to write a Will too, because a Will gives your chosen Executors immediate legal authority from the date of your death to start to administer your estate. Without this authority they can not, e.g., put your house on the market or even arrange your funeral.
Why? Because, if you die without a Will, nobody has the legal authority to administer your estate until the courts have decided who such authority belongs with (using intestacy rules) and issue a Letter of Administration. Courts usually appoint the next of kin (those that are entitled to share in the estate) who make the application. This sometimes causes unnecessary delays, especially in cases where siblings don't get on and fight over who should do what and every little decision along the way.
Having a Will speeds things up and saves money in the long run. It enables the court and others to identify the person responsible for the estate quickly and, although they will generally have to continue to obtain a Grant of Probate for any estate over £50k, your Will reinforces their entitlement as evidence for others, such as banks and the Land Registry.
Writing a Will can also protect your intended benefactors from claims on your estate from others who may be considered to have a right to it by the courts — but to be sure — you need to write a Letter of Wishes (aka Letter of Intent), as explained by Garry Bushell in his article How to Ensure Your Will Rules Supreme. It also ensures the amount of Inheritance Tax you have to pay is fair and allows you and your family to plan for the future, ensuring that your property and financial affairs are managed as you'd intended after you die.
What happens if you die without a Will?
If you die without a Will, the courts use intestacy rules to decide who has the legal right to inherit your estate. These rules are archaic and do not allow for the type of family setups that are common today. Step children and unmarried partners, for example, will not inherit anything at all if you die without a Will. Even if your family is of a more traditional shape, should you want an uneven distribution of your estate (because, e.g., you have already gifted an amount to one child to buy a house, fund a divorce, or something, and want to ensure all children are treated fairly), this will not be possible. Indeed, anything other than a straight forward split between your married partner and children will not be possible without a Will.
Tax planning is not possible without a Will ...
It is also important to understand that tax planning is simply not possible without a Will and that pre-election uncertainty around planned Inheritance Tax changes and the Inheritance Tax threshold is not an excuse to postpone writing a Will. In fact, it makes doing so, or reviewing any existing Will you may have, even more urgent. Revisiting your Will every three years and after any significant life event (or change in law) is important. With research showing that the number of people dying without a Will has doubled over the last five years, it's probably wise to advise friends and family to write a Will too.
Writing a Will can be quick, easy and affordable ...
Whilst there is a skill to Will writing, writing Wills online, using trusted templates developed and backed by solicitors experienced in this area of law, provides a proven framework, makes it quick (some claim ten minutes) and is affordable.
2. Write a Lasting Power of Attorney
A Lasting Power of Attorney is a legal document giving someone you trust the authority to make decisions on your behalf if you lack mental capacity at some time in the future, or no longer wish to make decisions for yourself.
For any LPA to be legally binding, you must register it with the Office of the Public Guardian. If you do not, it is the Court of Protection that decides your fate. This could leave your family (and your business) with unimaginable financial and emotional problems, as reported by The One Show's Dominic Littlewood.
If you want your wishes about how you are cared for (should you lose the ability to communicate them) to be honoured, you need an LPA.
3. Consider setting up a Trust
The Money Box programme referred to earlier investigates an organisation that sold trusts as a way to avoid paying care home fees. It explained how local council means testers will immediately include any money that has been invested in products sold by organisations making 'care home fee avoidance claims' in their means test, since it considers this as 'deliberate deprivation'.
It is important to understand that the takeout message here is not 'don't buy trusts'. Rather it is, 'be mindful of why you are buying the trust and who you are buying trusts from.' After all, most large organisations, and indeed Governments, use trusts to manage their assets (a trust is simply a legal agreement that spells out the rules of how assets are to be managed). Trusts are there to protect organisations, Governments and you. They are an important part of the estate planning toolkit. Use them with the correct intention — that's all.
So, what are the correct intentions for setting up a trust?
The Government states that reasons to set up a trust include:
- To control and protect family assets (a Family Asset Trust)
- When someone's too young to handle their affairs
- When someone can't handle their affairs because they're incapacitated
- To pass on assets while you're still alive
- To pass on assets when you die (a 'Will trust', such as a Protective Will Property Trust)
- Under the rules of inheritance if someone dies without a will (in England and Wales)
There are many types of trust and the Government's web site provides a good overview.
4. Write a funeral plan
Funeral costs in the UK are rising every year. While the average cost of a funeral in 2004 was £1,920, today it's £3,897. That's an increase of 103% -- well above inflation. If this trend continues, in another 10 years the average cost of a funeral could be more than £7,000.
A funeral plan protects your family from unnecessary anxiety during a time of grief. Not only does it ensure that the costs for your funeral have been -- or can be -- met. It also details your wishes, from the type of service and coffin you want, to the readings, music and finer details of the day.
With funeral costs rising every year, a funeral plan offers an easy way to pay for your funeral at a cost that's fixed at current prices.
The Daily Telegraph recently identified five considerations when choosing a funeral plan.
Here's a summary:
- Security: Is the provider registered with the Funeral Planning Authority?
- Protection against inflation and additional costs: Funeral Plans are a better bet than guaranteed over 50s insurance plans that people assume to include funerals but actually only provide a lump sum that does not cover funeral director's costs.
- Budget: How much can you afford and how often? Many plans allow monthly instalments.
- Inclusions and exclusions: Compare what each plan includes before deciding
- Your funeral requirements: Consider the type of funeral you want and be sure to share the relevant details in your plan.
5. Let your family know
Having achieved any or all of the above is not enough to ensure your family is protected. You need to let them know what you have done and where they can find your estate plan documents when the time comes...