Preparing for illness, old age and death
It’s essential to plan for how your money should be handled in the event of an illness or death. Good planning will help make sure you or your family are ready to meet any of the costs that might arise. It will also allow you to provide for your loved ones and ease the burden on them.
- Put your financial affairs in order
- Handing over control of your finances
- What happens to your money when you die?
- Preparing for long-term care and funeral expenses
Put your financial affairs in order
Being well organised about your finances is a good idea at all times.
But it can be particularly important in old age, when there’s an increased risk of illnesses that might make managing your money difficult or impossible.
This doesn’t have to require anything very elaborate. Keeping all your financial documents in one place is a simple but effective first step.
Another is to keep a clear list of all your finances: your sources of income, your spending, any outstanding debts and what savings, investments or other property you might have.
This kind of information will make things much easier for anyone you subsequently ask to help manage your affairs.
Handing over control of your finances
It makes sense to have plans in place in case you become too ill to manage your money.
Assistance from a friend, relative or professional adviser can be invaluable, but if you find yourself unable to take decisions about your finances, then a legal arrangement is needed to allow them to take decisions on your behalf.
This arrangement is a power of attorney.
There are two different kinds, suitable for different circumstances:
- Ordinary power of attorney - you use this to give someone a temporary right to handle your financial affairs, for example, if you’re in hospital for a period of time. You might need a solicitor to set this up and it will cost around £150.
- Lasting power of attorney - you would use these to give a chosen individual the right to manage your affairs for you on an ongoing, indefinite basis. (This term applies in England and Wales. The equivalent in Scotland is a continuing power of attorney, and in Northern Ireland an enduring power of attorney).
Unlike an ordinary power of attorney, a lasting power of attorney remains effective even if you become mentally incapacitated.
A lasting power of attorney must be registered with the Court of Protection and is more expensive than an ordinary power of attorney.
You should set up a power of attorney in advance of when you might need it.
You can only validly set one up when you have ‘sufficient mental capacity’, which means the ability to make decisions for yourself.
For somebody else to handle your affairs without a power of attorney can be costly and complicated.
What happens to your money when you die?
Make a will
If you die without having made a will – referred to as dying ‘intestate’ – the law specifies how your money will be divided.
This means that your assets won’t necessarily be passed on in the way that you’d prefer.
If you want to decide who gets what, you need to draw up a will.
It’s possible to write one yourself, but even small technical mistakes can make a will invalid so it’s generally a good idea to get help from a solicitor or professional will writer.
It’s important to note that if you have married since making a will, then your marriage is likely to have invalidated the will.
Planning your estate
In addition to using a will to determine who should inherit your money, there are steps you can take to minimise the amount of Inheritance Tax that must be paid on your estate.
Preparing for long-term care and funeral expenses
Arranging and financing long-term care can be a daunting and complicated process.
Funerals can be expensive, but there’s a range of ways you can prevent these costs burdening your family:
- You can save regularly into a savings account earmarked for funeral expenses.
- If you have life insurance, check if there are extra benefits if the proceeds are used to cover funeral costs and make sure the proceeds are written in trust so they are easily available after your death and don’t form part of your estate.
- With a funeral plan you pay a lump sum or instalments to a provider who invests the cash and then uses it to cover the costs of a funeral you have chosen. Check the terms and costs of funeral plans carefully – often they’re poor value compared with a straightforward savings account.