When measuring the effectiveness of any financial plan, it would be tempting to simply focus on factors such as investment performance, tax efficiency, and ease of administration. Failing to consider the wider implications of unforeseen scenarios, such as death or loss of mental capacity can, however, place the best laid financial plans at risk. We look at the importance of writing a will, making an expression of wish over existing personal pension death benefits, and preparing a Lasting Power of Attorney.
Writing a will ensures your wishes are carried out the way you intend. Leaving a will that states clearly who should receive your possessions and property when you die can prevent unnecessary distress for your loved ones.
Everyone should consider making a will; however, anyone who has children or other family members that depend on them financially should view this as a vital action to take. Likewise, if you would like to leave possessions to people who are not part of your immediate family, preparing a will is the only way to ensure your executors follow your wishes.
If you die without leaving a valid will – known as dying “intestate” – the law determines who inherits your assets. This may mean that loved ones are unprotected, and other family members excluded from benefitting from your estate. As more couples now co-habit, it is important to understand the laws of intestacy can leave partners who are not married or in a civil partnership financially vulnerable, as they will not be legally entitled to anything under the intestacy laws, irrespective of how long the relationship has lasted. Likewise, those living in blended families are particularly at risk, as the law may not divide assets fairly.
After making a will, it is important to review the wording of a will periodically, to make sure that the will reflects changes in family makeup or circumstances.
In conjunction with preparing a will, it is also important to ensure that an Expression of Wish for any existing pension arrangements has been prepared and is up to date. An Expression of Wish lets the individual set out who they would prefer the money to go to and in what proportions, in the event of their death.
It is a common misconception that a residual pension will pass in accordance with an individual’s will. This is not the case, as the pension trustees will decide who will receive the pension death benefits. The trustees are not obliged to follow the wish expressed by the pension holder; they will, however, take such wishes into account when reaching a decision.
According to Age UK, there are an estimated 982,000 people who are living with dementia in the UK, with this number expected to rise to 1.4 million by 2040. These sad statistics underline the importance of considering who would manage your affairs if you were no longer able to make decisions.
Preparing a Lasting Power of Attorney (LPA) can ensure your loved ones can make important decisions about your health and your financial assets on your behalf, should you become incapacitated through ill health or accident.
An LPA is a legal document that lets you appoint individuals you trust to make decisions on your behalf, should you become unable to make those decisions for yourself in the future. There are two LPAs that can be prepared, one covering Property & Affairs (e.g., your home and assets) and the other covering your Health & Welfare (such as care and medical treatment).
You can choose to set up one or both types of LPA, and you can nominate the same person or elect to have different attorneys for each. You do not instantly lose control of the decisions that affect you when preparing an LPA. For the Property & Affairs LPA, you can be specific about when the attorney can take control when preparing the LPA. In the case of the Health & Welfare LPA, this can only be used when an individual loses mental capacity. All LPAs must be registered at the Office of the Public Guardian, a government body, before they can be used.
If you lose mental capacity without an LPA in place, someone who wishes to act on your behalf may need to apply to the Court of Protection to be appointed as your ‘deputy’, who will have similar powers and responsibilities as someone appointed under an LPA.
The process of making a Court of Protection application is long-winded, with significant delays before an Order is made. Furthermore, the Court will decide on who is appointed as deputy, which may not be someone you would choose if you had capacity.
Failing to prepare an LPA can cause family members significant distress if you lose capacity to make decisions, and lead to financial vulnerability. Bank and investment accounts may be frozen, leading to difficulties in dealing with day-to-day financial matters, and those with complex financial affairs or business owners are at even greater financial risk should they lose mental capacity.
Take a moment to review your affairs and consider what would happen in the event of your death, or loss of mental capacity. Neither situation is something we wish to contemplate; however, failing to prepare a will and LPA could cause loved ones emotional and financial difficulties, and undermine financial planning decisions.
As part of our holistic planning service, we remind our clients to make a will, or review an existing will, refresh their Expression of Wish, and make an LPA at our regular financial reviews. Speak to one of the team to discuss whether your affairs are in order.
