Protect yourself and loved ones from the 3Ds - Death, Divorce & Dementia by Martin Lewis (Money Saving Expert)
Money Saving Expert Martin Lewis’ latest emailer talks about the unmentionable … death! His full email can be found here, but we’ve taken some extracts below. The upshot is that by ignoring the issues you can actually be harming your family in the long-run.
Live together but not married? Get a will, a contract or tie the knot - your relationship means nowt in law. I don't care if you've been together 37 years and have 6 children, if you're not married or in a civil partnership, your relationship usually has no status under inheritance law. So if your partner dies, the other one may not get the house.
Dads, if you're not married, don't assume custody of the kids. Some unmarried fathers don't automatically have parental responsibility, which means if the mother dies, custody of the children may go elsewhere. To check and for help, see Who has parental responsibility? (Wayman & Long’s guide to parental responsibility can be found here and the guide to legal guardianship is here)
One in three over-65s will develop dementia - a Power of Attorney is just as important as a will. I'm 44 - thankfully I can't foresee losing mental capacity, but I do have a Lasting Power of Attorney set up, in case. Without a Power of Attorney, if you lose your faculties through dementia, a stroke or accident, sorting your finances is less clear-cut than if you'd died. Don't assume relatives can walk into the bank & access your money - not even to pay for your care, or the mortgage.
With a Power of Attorney, you nominate a trusted friend or relative to look after your affairs if needed. This DOESN'T mean giving up control now - you can opt for it only to come into effect if you're no longer capable. Full help & costs in Lasting Power of Attorney. (Wayman & Long’s guide to Lasting Power of Attorney can be found here).
Are you hurting your partner by looking after the finances? Over 60% of couples say one person deals with all the home's money issues. If you're reading this, you may be that one. Yet, as I explained in the intro, if you were hit by one of the three Ds (death, divorce or dementia), it can be a disaster.
So why not create a financial factsheet naming all product providers - from roadside recovery to investments, boiler cover to bank accounts. Keep it somewhere safe, but don't put too many security details in, just in case. Then have a kitchen table briefing every few months to update and discuss. I'd love to know how you do it, via this financial couples tips forum discussion.
Is your house your only real asset? Don't leave it too late. Those in their 60s living in large homes with kids who've long since left the nest often plan to downsize "one day" to release money as they're asset rich, cash poor. But as time ticks on, I often hear "it's still a few years away" and then finally "we're too old to move".
It's usually far better just to bite the bullet early. If not, the main option is an equity release product - a way to borrow from your home's value while living there. However, interest rates of c.5.5% are far higher than many mortgages.
And more significantly, as it's usually paid from your estate or the sale of your house on death, you often don't make any repayments, which means that, unlike with a mortgage, you're subject to vicious interest compounding.
While I've never been a great fan, if you don't have dependants who need the money, equity release can work, but be careful. See equity release quick tips.
One in 29 children lose a parent before they grow up - are yours financially protected? It's a sobering statistic. I was one of them. It's why whenever friends who have children ask me "where should I save for their future?", I first check if they've got life insurance. It gets me a few funny looks, but it's worth it. Families already in dire unexpected grief can risk losing their income, standard of living or even their home if unprepared.
For most people wanting a fixed payout, the cheap and easy way is level term life insurance, which pays out a fixed sum if you die within a set term. Yet how you pay for it can make a huge difference.
Take a £200,000 level term policy to cover your kids until they leave full-time education, so 21 years. Buy direct and a 40-year-old smoker would pay £35/mth, but an often identical policy bought via an 'execution-only broker' can be as little as £23/mth, saving over £3,000 over the life of the policy.
And as the payout is fixed, and there's little argument over whether you've died, as long as the firm's legit, cheaper is better. Full help and best deals in our Cheapest Level Term Life Insurance guide.
NB. Beware over-50s' life insurance plans (eg, Axa's, famously advertised by Michael Parkinson) - they work in a very different way. For many these are a waste of cash. See my Beware Over-50s' Plans guide.
Want to pay for your funeral now? Even the most basic funeral can cost over £5,000 all-in. And if you want a more lavish send off, the costs can soar. So if you're worried about what kind of funeral you'll have once you pass, one option is to buy a funeral plan. Our brand-new Funeral Plans quick guide will take you through it.
Do debts REALLY die with you? It's often said that "when you die, your debts die with you". But it's a little more tricky than that.
If you owe more than your assets are worth, your debts do die with you (your beneficiaries will get nowt, but they won't be asked to pay the rest of the debt). But if you owe less than your assets are worth, anything you owe has to be paid first before any assets can go to your beneficiaries.
Even worse, if your inheritors are JOINTLY responsible for a debt (eg, a joint mortgage), they'll have to make up the shortfall and become responsible for the WHOLE amount. If you're concerned about the impact this may have, contact Citizens Advice or consult a lawyer.
Just to let you know, if someone close dies, we've help. If someone you know passes away, even if it was expected, it can be a very difficult time. To take the stress away, it's worth you knowing that we've a What to do when someone dies checklist, which helps you through the practicalities step by step, from how to register a death and check for a will to how to cancel someone's outstanding mobile contract or stop mail going to them.
Don't forget - in October we have FREE consultations with estate planning lawyers - where you can discuss wills, powers of attorney and legal guardianship! Contact us to make an appointment.