Financial checklist of 10 things to do before you die to stop the taxman snatching your bequests

This is a topic that no one likes to think about, or even talk about with their loved ones. But even spending just a few hours planning your finances for when you’re gone can save you some terrible heartache.

When no financial plan is in place at the time of death, families are often left with an administrative nightmare.

Savings can be lost, properties can fall into the wrong hands, and tax bills can swallow up a large portion of your estate.

Most of us know that we should write a will and set up a durable power of attorney when we need help, but there are many other easy but important steps to get your affairs in order.

Ashley Jordan of One Stop Organizers says if you sort out your finances before you die, it will be a final farewell ‘gift’ to your family.

1. Get all your pensions regularly

Pensions are not included in probate in the same way as other assets because they are not considered part of your estate. This means you’ll need to decide separately who you want to receive your remaining retirement savings. You will need to nominate your beneficiaries on what is known as an expression of wishes form.

If you have a modern workplace pension, where a sum of money is invested, called a ‘defined contribution’ pension, any savings you have will be transferred to your beneficiary at the time of your death. But if you used your retirement pot to buy an annuity, your regular income will usually stop when you die and your loved ones are unlikely to receive any money.

This will depend on the type of annuity you purchase; Income continues to be paid to a spouse under joint living income.

If you have an old ‘defined benefit’ scheme such as a final salary pension, your beneficiaries may receive a death benefit instead.

This is usually a dependent’s pension for children up to age 23, or a lump sum in case of death in service if you are still working when you die.

Make a list of all the places you’ve worked and find out which retirement companies they use. You can do this by contacting your previous employers or checking old paperwork. Then contact the provider so they can find your pension.

You’ll need your National Insurance (NI) number, previous names and addresses and details of when you worked for the company.

Ask for a declaration of wishes form from all your pension providers. If you have an online account, you should be able to access the form by logging in.

From April next year, retirement savings will be included in an inheritance inheritance tax purposes. However, since the people who will benefit from retirement cannot be determined by will, it is understood that you still need to fill out the wish form.

2. Create a folder to store your vital documents

You should create a legacy folder so that your retirement assets can be easily found. Print out the details of your pension pots, including type, provider and contact details, account number and whether the account is managed by a financial advisor, and copies of your statement of wishes.

This folder will contain all the important documents your loved ones and managers will need.

Andrew Zanelli, a financial planner at wealth manager Aberdeen, says: ‘A clear plan and good record-keeping can make a significant difference to how simple things will be for family members after someone dies. This isn’t just about transferring wealth. ‘This is about reducing uncertainty, delays and stress during an already difficult time.’

You should also include details of your state pension on file. Payments usually cannot be inherited, but your family will need to contact the Department for Work and Pensions to cancel this.

3. Keep a list of savings and investments

Create a comprehensive list of your accounts.

You must include documentation for each type of financial account; This includes current accounts, savings accounts, Premium Bondsinvestment portfolios and individual savings accounts (Isas).

For savings and current accounts, note important details such as the name of the bank or building society, sort code, account number and whether the account is jointly owned, says Zanelli.

For investments, list the type, provider, account number, whether jointly owned, and whether the asset is managed by an advisor.

Sam Grice, founder of Octopus Legacy, says: ‘If you don’t document what you have, your manager will have to find out on his own.’ There is a risk that an account may be lost or overlooked in this process.

4. Always keep an eye on your inheritance tax bill

You should weigh up whether your inheritance will trigger inheritance tax (IHT) and be aware that there are steps you can take to alleviate a potentially hefty bill.

Everyone has an allowance of £325,000, called the nil rate band, which can be transferred free of IHT. But any wealth above that, including the value of your home, is subject to a 40 percent rate.

However, there is an additional tax-free allowance of £175,000 if the family home is left to ‘direct descendants’, such as children or grandchildren.

There is no tax payable on assets transferred to your spouse or civil partner.

5. Make good use of your gift allowance

If you think your inheritance will exceed the tax-free IHT allowance and will not go to your spouse, you can cut the final tax bill by making gifts during your lifetime.

You can donate up to £3,000 tax-free each year. Fast forward a year and this means a couple can donate up to £12,000 a year free of IHT.

Moreover, as long as you survive for seven years after making this gift, you can transfer an unlimited amount of value (jewelry, property, cash or investments) to your loved ones without incurring a tax bill.

So if you suspect your estate will be subject to death tax and you have enough money in your savings or investment accounts to make a gift, consider doing so; But keep good records.

Ian Dyall, estate planning manager at Evelyn Partners, says: ‘Your executors will need to know what gifts you have made in the seven years before your death, and potentially in the seven years before the earliest of those gifts, i.e. up to 14 years before death.

‘This is very difficult for an executor to answer unless you keep records of the gifts you make.’

Add these IHT records to your old folder. They should include the date the gifts were made, their value and nature, the recipient’s name and their relationship to you.

The gift-from-ordinary-income rule allows you to donate as much as you want, exempt from death tax, as long as the gifts are regular, made from income, and do not restrict your standard of living. This means you won’t be eligible for the exemption if you give a cash gift from your existing capital, such as your savings.

If you use this gift allowance, records will need to be kept even tighter as your executors will need to complete a tax form called ‘IHT403’ containing details of the payments you have made.

Write down the date you started giving gifts, the frequency, the recipient’s name and address, the value, and the date gift-giving stopped, Zanelli says.

If you open or close a current, savings or investment account, you should make this update to your old folder.

Andrew Neligan of Neligan Financial says to note it in your journal and review it annually to make sure any changes haven’t been overlooked.

6. Create a clear plan for your property

Think about what you want to happen to your estate when you die and reflect this in your will.

Add proof of ownership to your old folder.

David Lunn, a partner at Surrey-based TMW Solicitors, says: ‘For the vast majority of land in England and Wales there is no longer formal title. Most land is now registered and so the Land Registry will produce copies of your title for a fee. If you own any of the remaining unregistered land in England and Wales, I would recommend that you keep the title documents in your solicitor’s safe deposit box.’

This is usually a fireproof safe and is free – as long as your attorney prepares the paperwork.

Minimizing the IHT bill is difficult if you live in the property, but is easier when it comes to rented properties or holiday homes.

To transfer your own home free of IHT, you must either move out or continue living in it but paying market rent to the new owners and surviving for seven years. These options are risky at best and undesirable at worst.

If you gift your home and continue to live in it rent-free, the taxman will rule that the property was not gifted at all because you still benefit from it.

Remember, if you do not pass your home on to your children or grandchildren, your estate will not benefit from the £175,000 allowance.

7. Consider writing a letter of wishes

You may consider a letter of wishes (a more personalized document) to be kept alongside your will. It may include funeral preferences (for example, whether you want a wake or cremation or songs you want), explanations behind your will, and advice on how to raise your children if they are young.

Unlike a will, it doesn’t have to be signed with a witness present, so you can change it as often as you like. This also means you can write in a more personal style.

The letter can advise your managers on how to divide your personal assets, such as photographs, books, family heirlooms, or anything of sentimental value.

In your will, you may decide to leave your personal belongings to your executors, and they can distribute them according to your wishes.

Any monetary gift must be specified in your will as it is legally binding; It is not a letter of wishes.

8. Start conversations with your family

It’s also a good idea to talk to your loved ones now to explain why you made the decisions you did.

You can mention this in your letter of wishes, but talking now can prevent disagreements after you’re gone.

You can facilitate this conversation by ‘talking about your family’s memories and turning it into more of a life conversation,’ says Grice.

She also suggests writing a note for your young children or grandchildren that you can leave in your legacy folder for an important day, such as a wedding day.

During this conversation, tell two trusted family members, perhaps your manager, where your folder is stored. And if you change this point, let them know.

9. Merge your online accounts

You’ll probably have several online accounts, such as government logins, social media sites, and service providers.

You can use a password manager like LastPass, which can list your login details and passwords and grant access to your emergency contact.

Other important documents to add to your old folder are details of any service accounts, insurance policies and ongoing subscriptions.

This makes it easier for your administrators to talk to providers and close these accounts.

10. Remember…

Zanelli says important contact information is often overlooked when compiling an old binder.

He adds: ‘People often overlook the value of enlisting key contacts such as advisors or lawyers.’

Also include copies of your birth and marriage certificates, passport details and NI number.