6 ways to protect your family and loved ones
Many of us will go to extraordinary lengths to keep our loved ones safe and secure from the everyday perils of life, and our children’s safety and security are a constant worry.
But if you’re the breadwinner and have dependants and/or a partner who relies on your income, have you put measures in place to protect them should the worst happen and they can no longer rely on your income?
Putting plans in place to ensure financial security for your family now and in the future is essential, to protect them and to have your own peace of mind.
Below, we highlight the six key areas you should address when planning for your family’s financially secure future:
- Write a will
- Funeral plans
- Lasting Power of Attorney (LPA)
- Life insurance
- Income protection
- Personal finance
1. Make a will
Protect family and loved ones by making a will to ensure that your estate is shared out in accordance with your wishes when you die. To leave a legacy for your loved ones, you need to write a will otherwise you will die intestate and your family could lose out.
Writing a will is not as expensive as it used to be and can easily be done online for as little as £30. However, more complex wills that necessitate in-depth estate planning will cost more and so you should always shop around for quotes and consider using an online will service to save costs.
It’s also a very good idea to tell your family (or executors) where a copy of your will is kept and if you used a firm of solicitors, the name of the solicitors’ firm and their contact details, ready for when the time comes.
Does making a will protect my home from care fees?
No, a standard will does not stop your home from being used to fund care costs. However, if you instruct a solicitor to ‘gift’ your home to your loved ones well before the time comes where you need to pay care fees, you can potentially avoid all your money being gobbled up by care costs.
Time is of the essence if you wish to gift your property to avoid paying care fees as if you require help with care fees not long after ‘gifting’ your property, a local authority could deem this as a premeditated ‘deprivation of assets’ and refuse a claim for help with care costs. There is no set time period that allows you to gift a property without the Council thinking you did this to purposely avoid paying care fees, so it’s a risky strategy to say the very least.
Also, if a Council considers you have deliberately gifted your property to avoid paying for care fees, they can then seek payment from whoever you gifted the property to. If you have been diagnosed with an illness that leads you to believe you will need care in the future, then gifting a property is not a good idea as the Council will find this out from your medical records.
We strongly recommend you take legal advice and seriously consider all of the implications of gifting your property before making a final decision about this tactic.
Note: If the total value of your assets (property, savings, etc) are worth more than £23,250 (in England and Northern Ireland), then you will usually be responsible for paying your own care fees.
Does making a will protect your money from inheritance tax?
A straightforward, simple will does not stop you from paying inheritance tax if your estate is worth more than £325,000.
However to protect estate funds, you can put a property in a trust at least seven years prior to your death to avoid your estate having to pay 40% IHT.
You can also take out life insurance to help pay off any IHT liabilities.
For more detailed information, see our related guide: A Complete Guide to Inheritance Tax.
Does making a will protect my assets?
Whilst making a Will will usually ensure the majority of your assets (personal savings, possessions, etc) are protected by being specifically bequeathed to your loved ones, a simple will does not ensure that any property you own is protected. To protect your property, you would need to instruct a solicitor to prepare a legally binding trust deed.
This is because if you’re recorded as owning a property as ‘joint tenants’ at the Land Registry, your half share in a property automatically transfers to the surviving joint owner on your death, regardless of what is stated in your will and your family could lose out as a result.
For more detailed information about property ownership and how this can affect the terms of your will, check out our related guide: Joint tenants vs tenants in common.
2. Funeral plans
Another upsetting task for your loved ones could be paying for and arranging your funeral when the time comes.
The average cost of a funeral in the UK is now £4,417 and is anticipated to increase to around £5,285 within the next few years.
To help ease this financial and stressful burden, you could:
Specifically set out your funeral wishes in your will and state how it will be paid for
Pay for your funeral before you die with a pre-paid funeral plan
Take out life insurance to cover the cost of your funeral
3. Lasting Power of Attorney
A Lasting Power of Attorney (LPA) gives legal authority to another person (usually a close friend, relative or solicitor) to make decisions on your behalf, should you lack the mental capacity to make responsible decisions yourself at some point in the future (regarding your welfare and finances).
According to the NHS, dementia affects one in every 14 people over the age of 65, and one in 6 people over the age of 80 and it’s estimated that more than 1 million of us will have dementia by 2025.
For more in-depth information about LPAs, take a look at our guide: Do I need a Lasting Power of Attorney?
4. Life insurance
Life insurance gives your family financial security and should you die unexpectedly, a policy can help cover the cost of:
Paying your mortgage or rent
Anything at all (if all the compensation isn’t used up paying any of the above)
There are two main types of life insurance: term life insurance and whole of life insurance (sometimes referred to as life assurance).
Term life insurance means the life insurance is fixed for a term (a set number of years) and once that term has expired, the policy is no longer valid and you do not get any return on the premiums you have paid. However, you do get peace of mind that should you die suddenly during that term, your dependants will not have to worry about how they’re going to pay the bills or keep a roof over their head.
Whole of life insurance (or life assurance) means the policy is valid for your entire life, regardless of what age you die. This is typically more expensive than term life insurance. Also, unlike term life insurance, you have an option to withdraw cash from this policy and use it as collateral to borrow money.
For more detailed information about life insurance and the different types, take a look at our guide on the Types of Life Insurance.
5. Income protection insurance
Income protection insurance helps protect your income/salary by paying monthly instalments to help pay expenses like household bills, should you unexpectedly lose your income through illness or injury.
Unless you have a job that provides a decent sick pay package (and not just the government’s standard statutory sick pay), then income protection insurance is essential insurance cover you and your family need in place.
Essentially, this type of insurance can help protect homes from being repossessed or you and your family from being evicted from a rental property.
This insurance is crucial if you’re self-employed as you’re not entitled to any government-funded statutory sick pay whatsoever. So if you’re too sick or injured to work, you’ll have no money coming in to pay the bills at all.
If you’re the main breadwinner of the family responsible for paying the mortgage or rent and most of the household bills, this could leave you and your dependants in a scary financial position where you could all lose your home.
6. Personal finance
To fully protect your family from financial hardship, keeping your personal finances in order for everyday life is also key.
Ideally, you should try to pay off debt as quickly as possible (and ideally avoid having any debts as you get older) and have at least some savings put aside for a rainy day (an emergency fund).
You should take a long, hard look at your finances and if you have debts as well as savings, consider using your savings to settle your debt as, of course, the interest rate on loans or credit cards is a lot higher than any interest you’ll currently earn on any savings. Saving money when you’re in debt is fairly pointless and you would be much better off with a clean slate (i.e. debt-free and ready to start saving again) then to continue simultaneously saving and borrowing.
For more info about managing your personal finances, check out our blog: How to get your finances in order for 2021.