By Hannah Mainstone, Independent Financial Adviser, Milsted Langdon Financial Services
For those wanting to take a break from the usual rounds of ‘virtual quiz nights’ or ‘stay-at-home movies’, this extended period at home may offer the perfect opportunity to conduct a worthwhile exercise to put your wealth planning “house in order”.
To help with this, here’s our 10-point action plan of things you may want to consider.
1. Write a Will
Starting with the fundamentals, it is important that you have a valid and up-to-date Will in place to ensure that your estate is distributed as you would have wished on your death.
A Will is also important if you have children (under the age of 18), as it appoints guardians for their care, should anything happen to you.
2. Establish a Power of Attorney
This should be considered by everyone, not just those approaching their twilight years.
Nowadays, many of us run our financial affairs quite separately, even following marriage.
Putting a Power of Attorney in place ensures that your partner can easily act on your behalf should you no longer be able to do so, for example as a result of spending a period of time in hospital.
3. Review old insurance policies
Every month, do you see that direct debit leave your bank account and go off to an insurance provider for that protection policy you took out many years ago? Or do you have that prehistoric mortgage endowment policy which you keep receiving annual statements for?
Do you know what you are actually covered for and whether this is sufficient for your needs?
Right now might be the time to review your protection policies to ensure you are adequately covered in the event that you need to make a claim on your insurance policies.
If you cannot locate your original policy documents, you should contact your insurance provider to find out what exactly you are covered for.
As you review these policies, you should also check if your life assurance policies are held in trust. Ensuring these policies are written under trust will mean that if the funds are paid out, they do not automatically form part of your estate on your death and incur a tax bill.
4. Consider new insurance policies
If you do not have any insurance currently in place, then this is something that you may wish to consider.
Putting in place a basic level of protection is probably more affordable than you think and you could buy certain life insurance for just a few pounds a month.
Given the recent COVID-19 pandemic and the increasing levels of staff being furloughed, or made redundant, now could be the time to consider your ongoing protection needs for you and your family.
5. Collate lost pension arrangements
Are you aware of all of your existing pension arrangements? Even from that short-term employment you took up 10 years ago?
Any pension funds which you have accumulated in your working life could make a real difference to your overall pension savings when you reach retirement.
If you suspect that you have an old pension pot from a previous job, you are now able to track down the pension scheme’s contact details by using the ‘Pension Tracing Service’. This is a free official service that can be found here.
6. Update pension beneficiary forms (expression of wishes)
You have reviewed your Will; now do you know who will inherit your pension benefits?
Pensions normally do not form part of your estate for Inheritance Tax purposes and are therefore not covered by your Will.
In order to specify who you want to inherit your pension after your death, you need to have an Expression of Wishes in place, and if any of your pensions pre-date your current relationship then you may want to review this to ensure they are up to date.
The best way of ensuring your beneficiaries are able to retain the tax advantageous pension wrapper in the form of a beneficiaries’ pension is to list them specifically on your Expression of Wish form and check the death benefit options of your existing arrangement.
You should contact your pension providers to find out your current nomination and to obtain the relevant forms as soon as possible. Pension beneficiary forms are commonly forgotten about when it comes to wealth planning and I’ve helped many people get their house-keeping in order so do get in touch if I can help.
7. State Pension
In 2016, the UK Government introduced the new single-tier State Pension. Under the previous system, it was difficult to understand exactly what you may have been entitled to until you reached your state retirement age, however, the new system is designed to make this far simpler.
The majority of individuals are unaware of how much they may be eligible to receive as their State Pension or at what age they will qualify for it.
The State Pension could form a valuable part of your retirement income, so understanding your entitlement is essential. Click here for further information on how much you could stand to receive and at what date it could become payable.
8. Organise your cash deposits
Everyone should have some money in the bank as an emergency fund but with interest rates so low, there is a risk of holding too much on deposit and the real value quickly becoming eroded due to inflation.
For most people, it is advised to hold between three and six months of your normal expenditure requirements as an emergency fund.
In any event, you should avoid holding more than the amount covered by the Financial Services Compensation Scheme (FSCS) with any one institution. The FSCS limit for deposits is currently £85,000 per person.
Remember that this limit applies to each institution but you need to be careful about ownership – for example, Halifax is owned by Lloyds, so you should avoid holding more than £85,000 in total across a group of companies.
National Savings and Investments (NS&I) are Government-backed and can be considered for higher deposits and to avoid spreading across numerous accounts.
With interest rates at historically low levels, it is difficult to obtain an attractive return on cash deposits.
Only hold what is entirely necessary and where a higher level of cash is being retained, consider using a cash management system to easily hold deposits across a larger number of institutions to reduce institutional risk and gain a better return.
9. Invest excess cash
Having organised your cash deposits and decided what would be an appropriate amount for emergency fund purposes, you can then turn to investment of any excess amount.
You may be able to top up your pension or use your ISA allowance to take advantage of the most tax-efficient wrappers.
However, there are a wide number of options available, ranging from products and funds designed with the most cautious investor in mind, to those only suitable for the most speculative.
For most investors, proportioning wealth appropriately across a range of wrappers, products and funds is an attractive solution to diversify and reduce risk.
Following recent market falls, prices look attractive and now could be a good time to take advantage of those prices and invest.
It should, of course, be remembered that if you are investing outside of cash, it is likely that the value of your investment can fall as well as rise and therefore you should look to invest for a minimum of five years to maximise the chances of ‘riding out’ any volatility.
10. Consider Estate planning
Inheritance Tax is now increasingly becoming a problem for many – mainly due to frozen rates and ever-increasing house prices. If this is a concern, there are steps you can take to improve your position.
One of the simplest things you can do is make an outright gift. Making an outright gift from capital is usually classed as a Potentially Exempt Transfer for Inheritance Tax purposes.
This means that if you were to pass away within seven years of making the gift, it would form part of your estate for IHT purposes unless the gift qualifies for an exemption.
There are various exemptions of which you should be aware and can use as far as possible, where affordable.
Outside of gifting, other measures you could consider include the use of trusts and investments that are nil-rated for inheritance tax purposes. These can be particularly useful if you want to retain control of your capital or to have ongoing access to capital or income during your lifetime.
For any remaining liability, you could consider taking out whole of life assurance, written in trust.
Here to Help
If you would like further information about any of the points discussed above, please get in touch with our Financial Services team. As a reminder, an initial meeting (albeit virtual for the time being), is offered without cost or obligation.
Hannah is an independent financial adviser at Milsted Langdon Financial Services and specialises in a broad range of financial planning, including protection on death or ill health, investments, retirement planning or ideas to minimise inheritance tax. An initial meeting is offered to all our accountancy clients without fee or obligation. At the current time, we are providing these services using various virtual conferencing systems and with time at home, this may represent a really good opportunity for you to take advantage of this service.