Which would you rather do right now:
1. Stick pins in your eyes
2. Listen to that Baby Shark song on loop for 48 hours
3. Sort out your finances around what happens if you or a partner dies?
Yep, I bet you said either a or b. Or both a and b. Anything to avoid c. Right?
But here’s the big secret: planning for the worst really isn’t a horrible job. Plus, you’ll feel very grown up and virtuous when you’ve done it.
There’s no avoiding it. As the saying goes, the only certainties in life are death and taxes. We’ll keep this article light – not out of disrespect but because we want you to face facts and not get bogged down in sad thoughts.
So, come on – hold your nose and jump in!
1. Where there’s a will there’s a way
If you die without a will, all manner of default rules kick in – and who gets what can be very different from what you’d expect. If you want to be sure that it’s you, not the law, making the decisions, you need to make a will.
In a traditional family set up, you might assume that your entire estate will go to your partner. In fact, over a certain amount, money starts to go to the children or grandchildren. That’s not necessarily a problem but is it what you want? How would the family deal
with it?
And in a non-traditional family, perhaps with children by different partners, various exes still around, or partners who are not married to each other, things become even more difficult to control.
The simple solution: There are no downsides to making a will. Think about how you want to protect the different people you care about. Write a will with a solicitor. Update the solicitor if your circumstances change – for example, if your children reach 18 or leave home, or if someone significant dies.
2. Inheritance tax doesn’t have to be taxing
Again, there are a lot of rules and regulations around this but a lot of your estate can be taxed at a whopping 40%. If you’re happy to gift the tax man a big chunk of money when you die, carry on as you are.
But if you’d rather that inheritance went to people you care about, all it takes is a spot of planning and you can massively reduce inheritance tax altogether.
The simple solution: Find a tax specialist, not a general accountant (it’s something we can do here at Northern Tonic). You might find you don’t need to worry about inheritance tax, but for the sake of a conversation, it’s worth looking into. A specialist will advise you when and how to plan, using things like gifts and trusts to cut the cash that would slide straight into the government’s coffers.
3. Life reassurance
Most people use life assurance in a standard way: to protect a mortgage. In a common scenario, a couple has a mortgage and if one of them dies, the life assurance pays off
the mortgage.
Less often, people use it in a slightly broader sense – leaving a pot of money for the remaining spouse, to take the pressure off. And that’s a great idea too.
But if you’re in business, you should think about loan protection. It’s a type of life assurance that protects the business if a director was to die.
Let’s see what that could look like in practice.
Fred’s a single shareholder in his own business, Fred’s Sheds. Sadly, Fred goes out for a walk and gets run over by a bus. He’s made a will (good move, Fred), leaving everything to his
wife Doris.
Doris now owns Fred’s Sheds.
Unfortunately, Fred had taken out a big loan on Fred’s Sheds and that loan, as well as the business, is now in Doris’s lap. Doris has a right pig’s ear to sort out. She doesn’t want to run Fred’s Sheds. She wants to sell it, move to Shetland and farm sheep.
Having loan protection in place means the loan’s automatically paid off shortly after Fred’s unfortunate entanglement with the number 28 to the leisure centre. Fred’s Sheds is in great shape and Doris can sell the business quickly to Jack’s Shacks, skip off to Shetland and start thinking about the price of wool.
Or consider another scenario.
Taxi firm Star’s Cars is owned by Mildred and Roxanne. It’s doing pretty well and is worth a few bob. Sadly, Mildred dies in a hang-gliding accident in Lanzarote. Mildred has also made a will (nice one, Mildred), so her half of the business goes to her husband Carlo.
Roxanne is suddenly in business with Carlo. He doesn’t know the first thing about taxis and he doesn’t want to run a business. He’s got a perfectly good job as a wedding dress designer. But Roxanne can’t afford to buy Carlo’s share, so he has no choice but to offer it on the open market.
But if Mildred and Roxanne had planned ahead, they could have set up life assurance, with each other as beneficiaries. So, soon after poor Mildred was regretting her life choices in Lanzarote, Roxanne would at least have the consolation of knowing that the business was now hers.
The simple solution: What’s suitable depends on your individual circumstances. Find a good wealth manager and ask for advice. Get in touch with us and we’ll point you in the right direction.
4. More tales from the crypto
Last month, we gave you some advice about cryptocurrency, but we didn’t get into what happens to your digital wallet if you die.
As you know, any income must be included on your tax return and any gains made from your crypto increasing in value will be taxable as capital gains.
But if it’s you who owns the asset, as with anything else that’s valuable, you need to store it securely and to communicate your wishes to your loved ones.
It’s possible for you to leave crypto in an exchange but as these are connected to the internet, it’s less secure than other methods of storing it. If you have a local copy on a mini hard drive and a few people know your key (the equivalent of a password), it’s basically the same as keeping cash under the mattress. It makes it secure from cyber hacking but is it really safe?
You can add passwords and instructions to your will, but make sure your beneficiary knows what to do with it.
If you haven’t left a will, crypto could potentially pose a big problem. Getting access to conventional bank accounts through probate is tried and tested but we’re not there yet when it comes to crypto.
What’s more, if someone has your passwords, they can access your wallets, even if you haven’t bequeathed the crypto to them.
The simple solution: It’s all about communication. If you’ve got money in cryptocurrency, include it in your will and make sure the person who’s going to inherit knows how to access it and what to do
with it.
It’s as simple as that. None of us wants to think about gloomy things such as death and taxes – but we definitely want to protect the people we care about. Make the appointments, have the conversation – and don’t let your death be a big payday for the tax man.
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