Getting your financial affairs in shape post-lockdown

Christopher Bartlett, financial planning director, Rathbones

For some, lockdown has been about juggling work and childcare, while for others it has been an opportunity to catch up on tasks they have been putting off. At the start of lockdown we saw significant numbers of people looking to make a will [1], for example. This was welcome news given that reportedly more than half of UK adults don’t have a will in place, and six in 10 parents don’t have a valid will [2].

If you’re wondering how to get your financial affairs in order, wills are a good place to start. However, there are also other steps to take in order to make sure that your financial affairs are in the best shape possible as restrictions continue to ease.

Put in place and update ‘expression of wish’ letters 

If you already have an up-to-date will, remember that your pension provider needs to know who is to be the beneficiary of your pension on your death. This is done through a simple expression of wish letter or completion of an online form.

This is particularly relevant as savings in pensions are not subject to inheritance tax (IHT). This means many people could prioritise using other savings first, with the intention of leaving as much money as possible in their pension pot for children or grandchildren to inherit. If that’s the plan, you want the money to go to the right people and without the deduction of tax.

Put in place powers of attorney

Lasting powers of attorney (LPAs) give legal authority to those you wish to make decisions on your behalf if you ever become mentally or physically incapacitated. In England and Wales there are two main types — a health and welfare LPA and a property and financial affairs LPA.

The first gives an attorney (named family members, for instance) power to make decisions about your medical care, moving into a care home or delivery of life-sustaining treatment. The second gives them power to make decisions about your financial affairs. This latter type can also be used to make decisions about any company you may own but it is possible to set up separate business LPAs if you would want to nominate a different attorney.

Review your insurance

Life insurance is designed to pay out a lump sum (or sometimes an income) on your death. It can be set up to protect a mortgage debt, to support family members on the death of a breadwinner or to insure against IHT liabilities.

If you have not done so already, consider writing the policies in trust. This can help ensure beneficiaries receive the proceeds more efficiently and can reduce IHT liability. It is neither expensive nor complicated, but advice is crucial. Think about other insurances while you are at it, like critical illness cover.

Review your IHT position

The number of people paying IHT has doubled in the past nine years. The tax generated £5.4 billion for HMRC in 2018/19 [3]. Each of us has a nil-rate band (the amount of assets that are exempt from IHT) of £325,000. This rises to £500,000 if you own your home (or a share in it) and plan to leave it to your children or grandchildren and your personal estate is worth less than £2 million. It means a couple may have a combined IHT exemption of £1 million.

The IHT rules are complex, and a financial adviser can help you navigate them. With smart planning, you can seriously reduce the amount of tax paid from your estate.

Tidy up

It is worth considering what it would be like for your loved ones to manage your affairs if you were to die suddenly.

For example, is everything in one place? Do you have any piles of obsolete documentation that should be shredded rather than left to confuse a family member, who might spend hours chasing a with-profits policy you cashed in years ago or a pension you transferred elsewhere?

You should also think of your digital life. Now most things are online, it’s more important than ever to leave a summary of where your assets are and subsequently how your online life could be accessed.

Make the most of what you have

This is a good time to think about whether you are making the most of your money. A financial plan built on a good cashflow modelling can liberate you to enjoy spending capital you know you can afford to spend. Taking the time to review your financial affairs now and make sure everything is in order will give you peace of mind that your loved ones will be protected if the worst happens.

Christopher Bartlett