70% of the UK’s personal wealth is retained by those aged over 55, however, the needs of the Baby Boomers are drastically changing as they get older and live for much longer. There has been a significant increase in clients querying if they have enough capital and income, not just to relish retirement but to cope with the escalating costs of later life care.
Due to so much uncertainty surrounding the topic of later life issues, it is only right to gain advice from specialists to ensure you are making the correct decisions in preparation for this. So here are our top five steps for planning later life care!
Step one – Inheritance Tax Planning
If you have a reasonably large estate, it is crucial to carry out inheritance tax planning while you are still able to and still have the mental capacity. You have a personal tax allowance of £325,000 and usually, your Inheritance Tax liability will be 40% of any amount of your estate which overreaches this amount.
There’s normally no Inheritance Tax to pay if either:
- Your estate is worth less than the £325,000 threshold
- Leave everything above the £325,000 threshold to your spouse, civil partner, community amateur sports club or a charity.
In addition to this, if you’re in a civil partnership or married and your estate is valued less than your threshold, any unused threshold can be adjoined to your parents’ threshold when they die.
Reducing your Inheritance Tax liability
If you’re still at risk of suffering an Inheritance Tax liability, there are numerous ways in which you can alleviate it:
Gifts. Giving away your money in order to diminish the value of your estate for Inheritance Tax purposes includes giving away up to £3000 away each year. However, the trick is to be certain that you don’t give away so much that you can’t fund a cost of living or your own care.
Charitable giving. Another possible way to reduce the rate at which Inheritance Tax is charged is by leaving 10% or more of your assets to a charity in your will.
Trust funds. Money that is put in a trust fund can be a tax-efficient procedure of leaving a legacy. A trust fund is also not included in the value of your estate for Inheritance Tax reasons.
Pension. Your pension assets won’t certainly form part of your estate for Inheritance Tax. Therefore you should contemplate whether it would be more suitable to use other assets or income during your life and save your pension to pass on to your legatee.
Life Insurance. This is one method to be put into consideration as a means of paying any Inheritance tax liability. But to avoid an insurance payout becoming greater in size of your estate you should set up a trust.
Inheritance tax planning is something we deal with on a regular basis. We use our professional knowledge on tax to advise our clients how they can plan ahead to help you reduce that overall payment.
Step two – Lasting Powers of Attorney
Not many people realise the importance of putting in place a lasting powers of Attorney (LPA) to safeguard their future. Lasting Powers of Attorney allow you to designate someone to make decisions for you. If you don’t have an LPA it may have considerable repercussions for your loved ones, one consequence would be the Court of Protection which your loved ones would have to apply for. The Court of Protection is there to appoint someone to make decisions on your behalf, however, you would have no input about how you are cared for or how your finances are superintended. The Court of Protection application process can be slow and expensive.
There are two types of LPA’s:
- Health and Welfare Lasting Power of Attorney (Health LPA)
- Property and Financial Affairs Lasting Power of Attorney (Financial LPA)
The Health LPA
This LPA allows your attorney to make decisions about any future medical treatment you receive and about where you live. This LPA has the addition of making decisions on your diet, day to daycare and your daily routine. Your attorney can only form decisions when you no longer have the mental capability with this LPA.
The Financial LPA
This LPA allows the attorney to manage your bank and savings. It also means they can claim, receive and use your benefits, pensions and allowances on your behalf.
You can set up an LPA yourself, but it is best to seek professional help. And most importantly, don’t wait until it is too late!
Step three – Creating a will
If you don’t have a will, when you pass away, all of your assets, property and money will be dealt with under the rules of Intestacy. You will have no say over how your assets and estate are dealt with and your family are at risk of not receiving anything. It will also mean that you will have no say over what happens to your children and who will act as their guardians.
No matter what your state of health is at the moment, it is crucial to set up an LPA, write a will and ensure that it is still valid, taking into account that marriage means any existing will is revoked. You can read more about the importance of making a will in our blog here.
Step four – Making financial provision for your future
You are never too young to start planning your later life care. Carrying out an assessment of your financial situation forces you to gather together all the information on your accounts and valuable assets in one place and keep track of your finances in their entirety. This will help you spot any imbalances and use as a measure to check that your financial plans for the future are on track. If you can keep track of your net wealth over time it will help you decide that is working for you and what isn’t, allowing you to make necessary adjustments. Understanding your monetary position is crucial at any stage in life and will highlight where you can save more and spend less to reach your goals of financial freedom.
Here at Sheards Financial Management, we use cash-flow modelling to help with this. You can find out more about the steps of this here.
Step five – Leaving a legacy
Finally, one potentially pleasant part of planning your future finance and affairs is considering the impact you leave when you go. A financial advisor can help you with this and will go through a questioning process with you to help work out how you want to be remembered. Thinking about this will allow you to plan for leaving a significant donation, or providing your family with something for their future, like a house purchase or education being funded.
Once you have thought about this you can add this into your overall financial plan to make sure that your future standard of living you want is met, but that you are also leaving the legacy that you have envisioned.
Speak to one of our advisors today about how we can help you with the above and plan for later life care. We will be with you through every stage of your life as it evolves and grows; providing you with the knowledge and the peace of mind that you are in control of your financial future.