Smoothing the way for
loved ones: Six practical steps

Published: 12 October 2018

An unprecedented transfer of wealth between generations is set to take place over the coming years as more baby boomers enter retirement.

The average person aged 55 to 64 – those who emerged from the spike in the birth rate that followed the Second World War – has accumulated wealth of almost £220,000, according to the Institute for Fiscal Studies1. The figure, which excludes pensions but includes property, was based on analysis of 15 years of saving and spending habits.

The research also found that the majority of baby boomers’ wealth is unlikely to be spent. Leaving their children in line to inherit around £100,000 each - based on each boomer household splitting the sum between two children - even if it will be many years before they receive it.

Taking control of what happens to your wealth when you pass away entails addressing the subject of death - not something people generally like talking about with their family. But the conversation and resulting outcome for your loved ones is likely to be simpler and less painful for everyone involved if you’re prepared to plan ahead.

Here are six practical steps you can take to smooth the way for your loved ones:

1. Make it clear who gets what.

Disputes about finances can be sadly common when family members die. This is particularly the case when there is no Will setting out how assets and wealth are to be passed on. Having an up-to-date Will is essential in providing clarity and speeding up the process at what is likely to be an upsetting time for family and friends. But don’t just leave it there; let those involved know now what your plans are, so there’s no surprises in store for them once you’ve gone.

2. Build a picture of your assets.

The key to drawing up an effective Will lies in knowing what you will be passing on. As part of the process make a list of all the savings and investments you have and what they are currently worth. They might change in value over time, but it’s an important step towards getting things organised.

It’s useful to understand what is dictated by rules around things such as pension plans and property. For instance, depending on how things are set up, if your home is owned jointly it may automatically pass to the surviving owner. Similarly, some pensions – such as final salary plans – will be set up to pay a pension to your spouse after you’ve gone. Money left in defined contribution (DC) pensions can be passed on to beneficiaries in the form of either income or lump sums. Complete an Expression of Wish form to tell your pension provider(s) who you’d like to benefit from this after you’re gone.

3. Check your tax allowances

The rules around inheritance tax will affect how much you can pass on to your beneficiaries. As it stands, IHT is charged at 40% on the amount of the estate above the nil rate band, currently set at £325,000. There’s also the ‘family home allowance’, an additional nil rate band that is valid only on a main residence and where the beneficiary is a direct descendant. This allowance is currently £125,000 (giving a total allowance, where applicable, of £450,000, or £900,000 for couples) and will increase to £175,000 by April 2020, after which it will rise each year in line with inflation.

4. Maximise the amount you can pass on.

There are steps you can take to mitigate IHT while you’re still alive. For example, up to £3,000 a year of assets or cash can be passed to a beneficiary without IHT being charged on it. Similarly you can give small gifts of up to £250 IHT-free during a tax year to any number of people (as long as they haven’t already gained from the annual exemption). Read our Six ways to manage Inheritance Tax to find out more.

5. Get your paperwork in order.

The last thing your family and friends will want to have to do after you’ve passed away is search high and low for the paperwork they need. If you can source all your important documents and store them in a safe place that you’ve told your family and friends about and they can easily access, the process of sorting out your finances will be much less stressful for them.

6. Make the funeral decisions for them

Funeral planning is not something we want to do, especially when it’s a loved one that’s passed on. You can make it easier though by setting out in your Will what you would like for your funeral or ‘celebration of life’. Deciding on the venue, the music, the food and so on might sound a bit depressing, but some find it therapeutic.

You might want to put aside a pot of money specifically to cover the cost too. The Money Advice Service currently reports the average cost of a UK funeral at over £4,000 – and potentially almost double that for a funeral in London2.

Important information

This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.

Laws and tax rules may change in the future without notice.

Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.

1 IFS, Retired people look set to bequeath rather than use most of their wealth, 11 June 2018
2 Money Advice Service, How much does a funeral cost?

Taking control

Our magazine Your Retirement is here to help you prepare for the retirement you want and deserve. From setting goals and keeping on track towards them, to talking to your loved ones about money. It’s all about taking control.

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