Death isn’t something many of us like to think about. However, it can sometimes be important to confront in order to protect those we leave behind.
This can be particularly the case when it comes to money. Financially planning for your death can help to decide where your money will go. It can also allow you to reduce the costs associated with death such as funeral costs and estate tax so that your loved ones have less to worry about. Here are just some of the major considerations you should make when financially planning for death.
Writing a will
A will dictates who your estate goes to when you die. Without a will, this decision is made for you – your money and possessions are distributed to the people closest to you according to the laws of intestacy. This could mean certain people receiving more or less of your estate than you would have liked. Hence, by writing a will, you can ensure the right people get what they deserve.
You can write a will at any point in your life. Some people choose to write their own will, which can be the cheapest option. However, there can be benefits to hiring a professional will writer – you can be sure that your will is legally tight and that the terms cannot be misconstrued.
A will can be part of an estate plan that could also involve setting up trusts and advance directives. Updating an estate plan can be done at any subsequent point if you feel amendments are necessary. When it comes to updating wills, it can sometimes be easier to write an entirely new will rather than amending a current one.
Funding your funeral
Funeral costs are on the rise. Many people are now taking the decision to fund their own funeral. This can save your loved ones from being left with the financial burden.
There are lots of ways to fund your own funeral. One way is to opt for a funeral pre-payment scheme. This involves paying a funeral company upfront for all the funeral costs either as a lump sum or in instalments. One advantage of this is that it allows you to also plan out and secure all the elements of your funeral from the location of the ceremony to the way in which your remains will be handled. A disadvantage of this method is that your funds are locked away (fortunately, most funeral payments are secured, so that even if the funeral home goes bust you can be compensated).
Putting money into a savings account for your funeral could be another option. This gives you the flexibility to contribute money as you wish and could also allow you to take out this money if you feel you need to access it for other things. The only issue with this is that you may not be able to beat rising funeral costs, whereas paying for your funeral upfront through a funeral company can allow you to do this.
Considering life insurance
Life insurance can be another means of financially preparing for death. This involves paying a monthly fee to an insurer – if you die, the insurer will then pay out a lump sum to your loved ones. This can be a useful form of insurance to have if you do not have much estate to give away, allowing your loved ones to have some financial compensation to put towards funeral costs and everyday expenses.
Life insurance rates can vary depending on your age, your general record of health, the dangers of your job and other lifestyle factors. Once you reach a certain age, you may find it difficult to find companies that insure you and those that do may charge a lot of money. As a result, it’s not always the best option.
It’s worth comparing multiple life insurance schemes to get the best rates. Sometimes you can save money on life insurance by combining it with other schemes such as car insurance, health insurance or home insurance.
Reducing estate tax
Even after death, we all have to still pay tax. An estate tax of 40% is charged to those that receive your estate. This can be a lot of money in some cases – however, there are ways to reduce this tax.
One popular method is to start putting money into a trust to leave behind for loved ones. Once money is put into a trust, it is legally not yours but owned by the trustee instead, which means that it is not liable for tax.
You may also be able to pass legal ownership of property and possessions whilst you’re still alive. This can be another legitimate way of getting around estate tax, although there may still be other applicable taxes.
There are estate tax advisors out there who you can talk to for more information on the matter.