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family finances

It's good to talk!

None of us wants to consider our own premature death - it's an unwelcome thought. But imagine the additional stress it would bring to loved ones if you were to die and they were not fully aware of the family's financial arrangements. Not talking about money can lead to massive problems, especially if the breadwinner dies suddenly. Here are some of the key areas that you should take into consideration.

The family home Firstly, how is the house owned between you and your partner? In most cases, couples have a joint-tenants agreement which means that when one of you dies, this share in the property will automatically revert to the surviving party. If you are in a second marriage, is your ex-partner's name still on the deeds? If so, get it changed now, otherwise your existing spouse could lose all rights to stay in the family home.

Inheritance tax (IHT) If you own your home jointly and are married, there will be no tax liability on the first death, because anything left to a spouse isn't subject to IHT. A spouse must be UK domiciled, otherwise the first £55,000 is IHT free. But tax could be a problem if a second spouse dies. Under the tax rules for the 2001/02 tax year, once an estate is worth more than £242,000 the excess becomes subject to inheritance tax at a flat rate of 40%.

A solution might be to give away assets in your lifetime to keep the total estate value as close to the IHT threshold as possible. But don't let tax avoidance become an overriding concern. If an inheritance tax bill looks inevitable, it is more sensible to make some provision to meet the bill, otherwise your heirs may be forced to sell the home or other assets simply to raise enough money to pay the tax bill. A popular solution is a whole-of-life insurance policy written in trust and designed to pay out when the second spouse dies.

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Pensions You also need to consider what would happen to your current and previous pension arrangements if you were to die. If you have an occupational pension scheme, is it based on a percentage of your final salary, with provision for a widow or widower? Typically, the best final salary pension schemes can pay a lump sum of up to four times the member's final salary and an income for life, equivalent to two-thirds of what the member was receiving from the scheme and which rises each year in line with inflation. The widow or widower's benefits from money-purchase occupational schemes and personal pensions will depend on the annuity contract purchased on retirement. However, if you were to die suddenly after retirement that could be their whole pension fund gone for good. But there are two ways to make sure it will continue paying out to your spouse - by including a guarantee on the contract or by including a spouse's income.

If you die before retirement, most pensions will simply return the current value of the fund to whoever you nominated as beneficiary when the scheme was set up. Is your spouse's or partner's name on the benefit nomination form? If you have already been widowed, you could also contact the Pension Registry with your late partner's National Insurance number. Your partner might have been a member of a pension scheme that you weren't aware of - and there could be benefits you are entitled to.

Investments Provided you say so in your will, investments such as unit trusts, investment trusts and shares should revert to a partner when you die. Although in some instances the tax advantages of certain investments may be lost. If you have a substantial investment portfolio, it may be advisable to bequeath these in your will directly to children or grandchildren to make use of your inheritance tax-free allowance, providing you leave enough for the surviving spouse to live on.

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Of course, it isn't only on a person's death that investments can be handed over to a spouse. You might benefit from holding investments in both names, especially if one of you is in a lower income tax bracket and can, therefore, pay less tax on investment income. Dividing assets between you and your spouse will also allow both of you to make full use of your capital gains tax allowances, against which you can set your investment profits.

Bank accounts On a partner's death, a joint bank account should carry on as normal. However, watch out for money held in accounts in your partner's name only - these could be held up in probate, even if you are a named beneficiary to them in a will.

Loans and debts Partners cannot be held directly liable for credit card and personal loans in a spouse's name, but on death these will be deducted from the estate, thereby reducing what is left to the other person. Are you both clear where you each stand on loans secured on the family home? Do you have sufficient life cover to ensure that the family home is never at risk?

Life assurance Besides policies that you have each purchased yourself, gather together any paperwork relating to insurance provided through your employer and any additional life insurance provided through your pension. To avoid any hold-up after death, make sure all life cover is written in trust.

Wills Don't assume everything will automatically go to your spouse or partner when you die. Ask a solicitor to draw up a will; it isn't advisable to go down the DIY route. Ask someone else as well as your spouse to be an executor and, finally, don't forget to tell your spouse and other family members where they can find a copy. The information provided is for general guidance only. However, if you leave these areas to chance, in the event of your premature death they will almost certainly cause further distress to your spouse or partner. To review your current situation, please e-mail or contact us for further information.

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