What To Do Before You Die

Death is the ultimate certainty, so here's how to take steps to reduce its financial impact.

"In this world nothing can be said to be certain, except death and taxes."

The above quotation comes from a letter written by Benjamin Franklin to Jean-Baptiste Leroy in 1789. Franklin was one of the greatest men of the modern age -- a leader of the Age of Enlightenment -- but he was humble enough to accept that, in the end, the Grim Reaper claims us all.

Of course, it's possible to extend your lifespan by living a healthy lifestyle, but good health is merely the slowest rate at which one can die. In the end, we must face facts and acknowledge that the grave awaits us all.

That's my gloomy introduction over with, so let's move on to discuss how we can make plans to lessen the financial consequences of death. Here are four ideas:

1. Insure your life

If you're young, free and single, or no-one relies on you for financial support, then you have no reason to insure your life. However, if you have a spouse, partner and/or dependent children, then taking out life insurance is usually a sound move.

The first step is to insure your mortgage (and any other major debts) so that you don't leave your dependants with an intolerable burden after you die. After this, you should work out how much cover would be required to replace your income after you've popped your clogs. My rough rule of thumb is to have £150,000 of life cover per child, which should cover most eventualities.

For sound advice on finding the right life insurance, read Oops, You Bought The Wrong Protection and More Buying Blunders To Beware Of.

2. Make a Will

About sixteen years ago, I worked in the legal department of an insurance firm. My time was divided between dealing with litigation and settling hefty life-insurance claims (riveting stuff, I know!). Let me tell you, my job was a whole lot easier when the deceased had the foresight to make a Will. Without a Will, your estate falls into the minefield that is the intestacy laws, and your wealth becomes hostage to the legal system. Trust me, you don't want this to happen, so be sure to make a Will.

Don't instruct any common-or-garden solicitor to draft your Will. Instead, use an expert in trust and estate planning. I can recommend a long-time friend of the Fool who wrote our Wills and Probate guide: Mark Goodson of Frederick W Goodson, a member of the Society of Trust and Estate Practitioners, STEP.

3. Avoid Inheritance Tax (IHT)

If you die leaving a sufficiently large estate, then some of your wealth may be liable to Inheritance Tax. Although each of us has a nil-rate band on which no IHT is payable (£300,000 for the 2007/08 tax year), any excess above this level attracts IHT at 40%. So, although you may never have paid higher-rate tax in your life, you could find your life savings being hit by this death tax. Hence, it pays to plan ahead -- here are ten ways to reduce your IHT bill.

4. Put some money aside for your funeral

One way to take the pressure off your family following your death is to set aside enough money to pay for your funeral expenses. Depending on how grand your plans are, you may have to squirrel away upwards of £3,000. Keeping this sum in a joint savings account will ensure that it passes to your partner or spouse without delay, helping to minimise the financial stress of dealing with bereavement.

For more advice on dealing with the issues surrounding death and bereavement, visit the comforting and informative If I Should Die website. Finally, always remember that money is simply a tool to help manage your life, so do treat yourself once in a while. There's no point in being the richest person in the cemetery, is there?