How to get your monetary affairs to ensure that household earlier than you die

‘Dad’s 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 that he had left for his family, writes Ian Dyall, head of estate planning at wealth manager Evelyn Partners.

As well as generating a smile from those who appreciated his dry humour, it was an exceptionally thoughtful and useful gift to his family.

As an ex-financial adviser, he was very aware of how stressful administering an estate can be, and that he wouldn’t be around to take care of the family’s financial affairs as he had always previously done.

The folder contained everything his family would need to make the administration process as simple and stress free as possible with contact numbers of people who could help.

It is an idea that I have adopted myself, and it’s something that everyone should consider, but what should the folder contain?

Savings, investments and assets (and debts)

Not too long ago every investment a person owned had a paper trail. Within 12 months of death at some point a statement would arrive in the post, alerting the executors to the existence of that investment.

These days that is not the case. Most people have moved to electronic statements, which would be inaccessible to their executors, and some investments, such as bitcoin, are entirely virtual.

The folder should contain an up-to-date list of what you own and where it is kept. If you have a financial adviser, providing a contact number for them can be valuable.

Your financial adviser should have a list of all your investments, debts, bank accounts and professional advisers.

In my colleague’s case he referred his family to his friend, who was also a financial adviser and had the latest details of his financial affairs.

Think about which past employers hold pension schemes which you belong to and ensure that there are contact details.

Whilst you are doing this, take the opportunity to ensure that things pass to the people you want smoothly on death.

You should nominate beneficiaries for any pension policies or death in service insurance from past employers.

You should also list any debts that you may have such as credit cards, mortgages and car loans as these will need to be repaid before the estate administration can be finalised.

If you have items that may be difficult to dispose of then you may want to give guidance on how to do that.

For example, I have a collection of guitars which would be difficult to value and sell, so I have a list of their approximate values and contact numbers of people I trust who would be able help when selling them.

Your will and important documents

Including a copy of your latest will, your lasting power of attorney (if you have one) and any trusts that you have created is a good idea.

Ensure that those trusts will have at least two trustees who are capable of acting following your death. If they haven’t, then take action now to appoint new trustees.

As advisers we frequently see cases where a client is sure that an investment is in trust and not part of their deceased parent’s estate, but the trust deed cannot be found, so it is not possible to prove it.

In some cases, if you are the beneficiary of certain types of trust, they will form part of your estate on death.

Copies of any trusts you are a beneficiary of, 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: Pension questions

Record of gifts 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 earliest of those gifts, in other words up to 14 years before death.

That is very difficult for an executor to answer unless you have kept a record of the gifts you have made.

If a gift is made on a regular basis from income (rather than capital) and doesn’t affect your standard of living then it is immediately exempt.

That is a very valuable exemption, particularly for those with lots of excess income. 

However, to claim it your executors will need to complete a table showing what your net income was in each of those years and what your expenditure was, broken down into expenditure on mortgage, household bills, holidays and so on.

Unless records are kept it is almost impossible for an executor to work out what your expenditure was seven years ago, so it may not be possible to claim the exemption. Again, it is vital to keep records.

The tables that need to be completed are in the form IHT403. The best approach is to make a copy of the tables required and fill out the form as you go so that there is a rolling record of the gifts made.

> How to avoid inheritance tax legally – and save your family money 

Banks, energy suppliers, contacts and a good sort out

Possibly the most stressful part of administering an estate after death is clearing the person’s home and preparing it for sale.

It is very difficult to let go of the personal items that remind you of the person you have lost. Whilst that is to some extent unavoidable there are some practical things that you can do.

Having a good clear out of the office and organising it so that everything can easily be found can help immensely.

My father asked me to help him sort out his own investments recently and we came across details of investments that had long since been encashed.

Fortunately, my father was able to tell me which investments were still current, but trying to do that after his death would be much more difficult.

I would have to contact each provider to work out what happened to those investments, and many of those providers have long since been bought by other providers, so their records aren’t always as good as they could be.

Details of all the utility suppliers, internet providers, car and house insurance, bank details and so on will make it easier to pay the final bills and stop the utilities.

Be aware that once the bank knows that the account holder has died then the account may be frozen, however many banks will still be prepared to pay the final utility bills, or even release money for the funeral, if they are given proof of the bills.

A plan to pay the inheritance tax bill

Whether mitigating inheritance tax is a priority for you or not, if there is likely to be an inheritance tax liability on your death then it is worth considering how your executors will pay it.

Inheritance tax needs to be paid before probate is granted, and probate is required before most companies will release any assets.

That is a problem as the executors may not have the funds required to pay the bill.

The liability on some illiquid assets, including property, can be paid in up to 10 instalments over 10 years, but many executors are forced to borrow money to pay the inheritance tax bill.

Some assets are accessible prior to probate to pay the bill. National Savings and most banks will pay money directly to HMRC to settle the bill.

Also any investments held in trust are controlled by the trustees and are not part of the estate. They too can often also be used to pay the liability.

Thinking in advance about which 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 focused above on practical steps to simplify the estate administration and whilst simplifying the stress of the administration can help emotionally, there is a limit to what it can achieve.

That is why discussing difficult topics such as your death with you children can be really beneficial.

My closest colleague lost her father last year. He was 90 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 lots of other issues.

She said she found it really helpful emotionally as she didn’t need to agonise over those issues when asked by the funeral directors. She knew she was doing exactly what her dad would have wanted.

I suppose the real message is that a folder can be very useful, but it shouldn’t replace having difficult conversations with your family before you die.