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Losing a partner often plunges the surviving spouse into financial disarray, but a simple financial plan can head off further strain at an already difficult time, explains Simon Reynolds, Director, Wealth Planning at Arbuthnot Latham & Co., Limited.

The sad truth is that most of us will lose a partner and statistically it will be the husband that will predecease their wife.  Often we find that the surviving spouse is also the least used to dealing with the household finances and so at a very difficult time they also have the burden of dealing with their spouse’s estate.  So, what happens next and what can we do now to put our house in order?

The process

Firstly, let’s look at the action that needs to be taken and then we will look at the advance financial planning that is needed to make the estate and future financial situation easier to deal with. There are three things we must do in the first few days after someone dies:

  1. Get a medical certificate from a GP or hospital doctor – this allows the death to be registered.
  2. Register the death by taking the certificate to a register office – this office will provide the documents required for the funeral.
  3. Arrange the funeral – many people will use the services of a funeral director.

It is important that we all have a will which is kept updated as circumstances change, that we have named executors who have agreed to act and they know where the will and other important documents are stored.

The executors are then responsible for collating all the information about the deceased’s assets, paying any inheritance tax (IHT) due and distributing the estate to the beneficiaries.  In our will we would usually name two or three individuals plus possibly a professional adviser such as a solicitor, accountant or financial planner to act as executors.

Before the estate can be distributed, the executors need to apply for a Grant of Probate by completing an application form and sending this to their local Probate Office.  The executors can do this themselves or they could use the services of a professional adviser.  Once the Grant is provided the executors then have the authority to distribute the estate.  Typically, it can take three months to obtain a Grant and a year to wind up an estate.

If there is no will then an individual has died “intestate” and there are a different set of rules to be followed and a prescribed way of dividing the estate, which might not be in line with what the deceased would have wanted.

Planning ahead – Wills and documents

Advance estate planning not only makes the process after death less onerous and stressful but also can have a significant positive impact on reducing the IHT due.

It makes good sense to consider what we would like to happen to our wealth when we are not here.  Who do we want to benefit?  How would we like our assets to be divided?  Are there children or grandchildren, for instance, whom we would like to benefit but we have concerns they are not able to handle receiving a significant lump sum at the current time.  What if a beneficiary subsequently divorces?  There are lots of questions to consider before speaking to a legal adviser and setting out our wishes in a will and then keeping this up to date.

We need to let our executors know where we are going to store the will and all the other documents that they will need.  It would be helpful to have a file with details of all the investments, pensions and policies we have.

Pensions in payment might continue to a surviving spouse at the same level or at a reduced rate or might cease. Claims would need to be made on any life insurance policies.

Reducing the tax

Currently IHT is charged against the value of all the assets in our estate above the nil rate band of £325,000 per person, although importantly, assets transferred between spouses or civil partners is not subject to IHT.  So often it is on the death of the survivor that there is the main IHT liability to pay.

Many of us feel as we get older that we want to take action to reduce IHT but at the same time might have reservations about making significant gifts of capital in case we might need that capital or the income it could generate at some point in the future.

How we can help?

We encourage our clients to take a measured approach to estate planning and to take action over time to reduce the IHT liability without depriving them of the assets and income they might need going forward.

There are a range of options that we discuss with clients to keep IHT to a minimum or extinguish it entirely.  These options can be very simple, such as making a gift to a beneficiary or trust during our lifetime and surviving the required seven years for the gift to be considered outside of our estate.  There are also a range of investments whose value is deemed to be outside of our estate after ownership for two years and as pension funds are outside of our estate, these monies can be used to pass on wealth.  We suggest ensuring that any life insurance policies or death-in-service benefits are subject to trusts so that the sum assured can be paid straight away rather than being paid into the estate which will both potentially increase the IHT due and cause a delay in payment.

We work closely with a client’s legal and tax advisers to ensure that all of our advice dovetails and meets all of our client’s needs and if a client doesn’t have a legal or tax adviser, we are happy to introduce one.

If you’d like to start a conversation with Arbuthnot Latham & Co., Limited please contact the team HERE.