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Final Matters: Creating a binder with important financial information and contact details can be an exceptionally useful and thoughtful gift for your loved ones.
‘Dad is dead, what happens next?’
A colleague of mine died last year after a long illness, and that was the title on the front of a folder he had left with his family, writes Ian Dyall, head of wealth planning at wealth manager Evelyn Partners.
In addition to bringing a smile to those who appreciated his dry humor, it was an exceptionally thoughtful and useful gift for his family.
As a former financial advisor, he was well aware of how stressful managing an estate can be and that he would not be there to take care of the family’s financial affairs as he had always done before.
The folder contained everything her family would need to make the administrative process as simple and stress-free as possible, with contact numbers for people who could help.
It’s an idea I’ve adopted myself and it’s something everyone should consider, but what should the folder contain?
Savings, investments and assets (and debts)
Not long ago, every investment a person owned had a paper trail. 12 months after the death, at some point a statement would arrive in the mail alerting the executors about the existence of that investment.
Today that is not the case. Most people have opted for electronic statements, which would be inaccessible to their executors, and some investments, such as bitcoin, are completely virtual.
The folder should contain an up-to-date list of what you own and where it is kept. If you have a financial advisor, providing them with a contact number can be valuable.
Ian Dyall: I have a collection of guitars, so I have a list of their approximate values and contact numbers of people I trust who could help me sell them.
Your financial advisor should have a list of all your investments, debts, bank accounts, and professional advisors.
In my colleague’s case, he referred his family to his friend, who was also a financial advisor and had the latest details of his financial affairs.
Think about what previous employers have pension schemes you belong to and make sure there are contact details.
While you’re doing this, take the opportunity to make sure things pass smoothly to the people you want when you die.
You must nominate beneficiaries for any pension or death-in-service insurance policies from previous employers.
You should also list any debts you may have, such as credit cards, mortgages, and car loans, as these will need to be repaid before the estate administration can be finalized.
If you have items that may be difficult to remove, you may want to provide guidance on how to do so.
For example, I have a collection of guitars that would be difficult to value and sell, so I have a list of their approximate values and contact numbers of people I trust who could help me sell them.
Your will and important documents
It’s a good idea to include a copy of your last will and testament, your durable power of attorney (if you have one), and any trusts you created.
Make sure those trusts have at least two trustees who are capable of acting after your death. If you have not done so, then take steps now to appoint new administrators.
As advisors, we frequently see cases where a client is certain that an investment is a trust and not part of their deceased parents’ estate, but the trust deed cannot be found, so it is not possible to prove this.
In some cases, if you are a beneficiary of certain types of trusts, they will form part of your estate upon your death.
Copies of any trusts of which you are a beneficiary, or details of the trustees, will be valuable as your executors will need to provide details of those trusts when completing the forms necessary to administer your estate.
Steve Webb: Questions about pensions
Record of donations made
Your executors will also need to know what gifts you made in the seven years before your death and potentially in the seven years before the first of those gifts – in other words, up to 14 years before your death.
This is very difficult for an executor to answer unless they have kept a record of the gifts they have made.
If a gift is made regularly with income (rather than capital) and does not affect your standard of living, then it is immediately exempt.
This is a very valuable exemption, especially for those with a lot of excess income.
However, to claim it your executors will need to fill out a table showing what your net income was in each of those years and what your expenses were, broken down into mortgage expenses, household bills, vacations, etc.
Unless records are kept, it is almost impossible for an executor to determine what your expenses were seven years ago, so it may not be possible to claim the exemption. Again, it is vital to keep records.
The tables that must be completed are found in the IHT403 form. The best approach is to make a copy of the required tables and fill out the form as you go so that there is a continuous record of donations made.
> How to legally avoid inheritance tax and save your family money
Banks, energy suppliers, contacts and a good solution.
Possibly the most stressful part of administering an estate after death is cleaning out the person’s home and preparing it for sale.
It is very difficult to let go of personal items that remind you of the person you have lost. While this is to some extent unavoidable, there are some practical things you can do.
Having a good cleaning of the office and organizing it so that everything can be found easily can be a great help.
My father recently asked me to help him sort out his own investments and we came across details of investments that had long since been cashed out.
Fortunately, my father was able to tell me which investments were still in effect, but trying to do so after his death would be much more difficult.
I would have to contact each vendor to find out what happened to those investments, and many of those vendors have long since been purchased by other vendors, so their records aren’t always as good as they could be.
Details of all utility providers, internet providers, car and home insurance, bank details, etc. will facilitate payment of final bills and stop utility services.
Please note that once the bank knows that the account holder has died, the account may be frozen; However, many banks will still be willing to pay final utility bills, or even release money for the funeral, if they are provided with proof of the bills. .
A plan to pay the inheritance tax bill
Whether mitigating inheritance tax is a priority for you or not, if you are likely to have to pay inheritance tax in the event of your death, then it is worth considering how your executors will pay it.
Inheritance tax must be paid before probate is granted, and probate is necessary before most companies will release any assets.
This is a problem since the executors may not have the funds necessary to pay the bill.
Liability on some illiquid assets, including property, can be paid in up to 10 installments over 10 years, but many executors are forced to borrow money to pay the inheritance tax bill.
Some assets are accessible before probate to pay the bill. National Savings and most banks will pay money directly to HMRC to settle the bill.
Additionally, any investments held in trust are controlled by the trustees and are not part of the estate. They can often also be used to pay liability.
Thinking ahead about what assets would be available and whether they would cover the liability can save a lot of administrative hassle and avoid the cost of borrowing to pay the bill.
> Inheritance Tax: An essential guide to what you need to know
Planning your funeral and remembering you
I have previously focused on practical steps to simplify wealth administration, and while simplifying the stress of administration can help emotionally, there is a limit to what can be achieved.
That’s why talking to your children about difficult topics like death can be really beneficial.
My closest colleague lost her father last year. He was 90 years old and had been ill for some time, so he had the opportunity to discuss these difficult topics with her.
Before his death they had discussed what songs he wanted at the funeral, whether he wanted to be buried or cremated and many other issues.
He said he found it very emotionally helpful as he did not need to agonize over such issues when asked by funeral directors. He knew he was doing exactly what his father would have wanted.
I guess the real message is that a binder can be very useful, but it shouldn’t replace difficult conversations with your family before you die.
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