Terminal illness: what financial steps to take and help available

Sarah Coles of Hargreaves Lansdown explains the steps you need to take to organise a loved one’s benefits, pension, insurance and inheritance in the case of bad news.

Planning for now

After a diagnosis, you’re unlikely to be considering anything beyond your parent’s comfort and the emotional impact of such terrible news.

Financial issues are likely to be way off the radar at a time like this. However, you can’t afford to neglect them entirely, because someone needs to plan for his or her day-to-day finances while they’re ill, and someone needs to consider the future too.

One of the difficulties with this situation is that the rules often relate to how long they have left to live, which is a horrible thing to have to ask about, and a horrible thing to read, but in financial terms, unfortunately, it’s best to know.

In the short term, the best approach is to look at his or her current outgoings and how his or her income from pensions, savings and investments meet these.

Think about how these outgoings might change, and how you can plan for them. By looking at this in advance, it gives you an opportunity to see whether you might be able to cut back or whether you might need extra help.

Benefits

You’ll need to look into benefits too. Under the age of 65, this could include the Personal Independence Payment, and over this age it could include the Attendance Allowance.

In both cases, special rules apply for those with terminal illnesses which should mean they won’t have to wait for payments.

Your parent may also be entitled to this or other benefits, depending on his or her circumstances.

This can include help with anything from adapting his or her home to transport. They may also qualify for NHS Continuing Healthcare – which helps pay for nursing care outside of hospital.

If you or another member of the family care for your parent, you may also be able to claim Carer’s Allowance. If you have to give up work to care for your parent, you may qualify for Income Support if you are on a low income.

You should also apply for the Carer’s Credit, which adds to your National Insurance record. If you receive any this or other benefits you may also get the Carer’s Premium.

The complexity of the system may mean you need help from someone like Citizen’s Advice. If your parent is suffering from cancer, you can get help from the specialist benefits advisers at Macmillan Cancer Care.

Carer's Allowance: what it pays, who's eligible and how to claim

Pension

When it comes to income, your parent might be able to get more help than you think from his or her pensions.

If they’re under the age of 55 and not expected to live more than 12 months, they may be able to get early access to his or her pension, so talk to his or her pension providers and see what they can offer.

With a terminal diagnosis, at any time under the age of 75, they may be able to take any defined contribution (DC) pension – one that they have not already started drawing from - as a single tax-free lump sum.

They may also be able to do the same with a workplace defined benefit (DB) pension, but it will depend on the specific rules of the scheme.

Before taking a lump sum, you’ll need to consider it carefully. With a workplace scheme, check whether you are giving up any valuable benefits – like a spouse’s pension after his or her death.

With a DC scheme, it’s also worth considering tax: any money taken out of the pension and not spent will be put into his or her estate and assessed for Inheritance Tax. If you leave funds in the pension, meanwhile, if they die before the age of 75, it can pass tax-free to his or her dependents.

If they are over the age of 75, taking the whole pension as a tax-free lump sum isn’t an option. However, under pension freedoms they may be able to dip into his or her pension pot to cover their costs – although they may be subject to tax on at least some of it. Any money left in the DC pension will be passed on and subject to Income Tax.

In any event, it’s worth contacting everyone they hold pensions with and checking the rules of the scheme, and your parent’s options.

Pension withdrawals: four tax-free ways to access your retirement savings

Insurance

They may also have valuable insurances. Some life insurance policies offer a payout on a terminal illness (assuming the prognosis is for no longer than 12 months) – either as a lump sum or as monthly payments.

Critical illness cover, meanwhile, will pay out on diagnoses of specific illnesses – which will usually include terminal diagnoses as well.

Cheap life insurance: how to get the best policy

Grants

Finally, this or here may be grants available from charities, to help with anything from boosting your monthly income to one-off payments for pieces of equipment. Turn2us.org.uk has a useful link to charitable grants in the UK.

Getting the legalities sorted

It’s worth sorting a Lasting Power of Attorney. This has to be drawn up when your parent is mentally competent.

It means that if she deteriorates in the months to come and needs someone to make decisions on his or her behalf, it allows his or her ‘attorney’ (usually a close family member) to make those decisions for his or her.

This or here are two versions: one for welfare and one for finances. It’s worth having both – you can find out how to draw one up his or here.

If your parent doesn’t already have a will, they should draw one up as soon as possible.

If they were to die without one, nobody will have any say over how his or her estate is divided and no opportunity to consider the tax implications, because the strict rules will dictate how it is left.

Even if they have a will, you should make sure it is up to date and still reflects his or her wishes.

How to make a cheap or even free will

Get the finances organised

It may not be how you ideally wanted to spend your time together, but the more you can do now, the better and it will make life easier for those your parent leaves behind.

Ideally, you should ask your parent to show you where all the documents are for all his or her accounts, savings, investments and pensions.

If possible, it’s worth consolidating these, so that you don’t have to keep track of or deal with an enormous number of accounts. You can then make a list of his or her assets, along with any account numbers and passwords – kept securely.

You should also list every company they have dealings with from his or her home insurance to his or her gas supplier, which will help you ensure nothing is overlooked.

Read more in our guide to putting your affairs in order: wills, power of attorney and paperwork explained

Inheritance Tax

Your parent’s IHT position will depend on a number of things. If they are married and his or her husband or wife is still alive, they can leave everything to their partner tax-free.

They will also leave that partner his or her Inheritance tax allowance.

If his or her partner has died, the following limits apply:

• £650,000 of his or her estate can be left tax-free
• £125,000 can be to a child or grandchild
• £3,000 can be given as gifts per year (this can be backdated a year if not used last year)

If his or her partner died before the rules changed, or they aren’t married, they can leave £325,000 plus £125,000 in property. Everything above these sums may be taxed at up to 40%.

With gifts beyond the £3,000 limit, unless you live for seven years after making the gift, it will be subject to tax.

The gifting rules are set up to prevent what’s known as death-bed planning. It means, for example, you cannot give your home away in the last few weeks of your life in an effort to avoid paying tax on it.

You might think you could put money into your pension in the last weeks too – to avoid paying Inheritance Tax on it – but the taxman takes a dim view of this, and is likely to decide this should form part of your estate for Inheritance Tax purposes.

Sarah Coles is a personal finance analyst at Hargreaves Lansdown. The views expressed in this article do not necessarily represent those of loveMONEY.