Five things to do before you die

Check out these five crucial things you must do... before it's too late.

Death has never been a particularly comfortable subject for obvious reasons. It's not something we enjoy discussing, even here at lovemoney.com, where we know it's vital to do so.

Because the fact is, when it comes to your finances, death isn't something you should ignore. If there's anyone out there that you care about who depends on you financially, you must take a few precautions now to make sure he or she will be well provided for if the worst happens to you. After all - it will be too late to make plans when you're dead.

So, let's take a look at the five things you need to do now before it's too late:

1) Buy life insurance

Anyone with a family or other financial dependants needs life insurance. I can't stress enough the terrible consequences of failing to protect your life. Without it, can you guarantee your partner could keep up with the repayments on your mortgage, pay household bills and somehow look after the children in your absence? Thought not.

With life insurance, that dire situation can be avoided. Luckily, premiums are cheaper now than they have been for the past seven years, so you should be able to pick up a good value policy (as long as you're in good health). All you need to do is compare quotes using the lovemoney.com life insurance search engine.

Next, have a read of Eleven reasons why you need life insurance, which explains how to adapt your policy at each key stage in your life so that you're always fully protected.

Even if you aren't the main breadwinner in your home, you should still have some life cover if you're a full-time parent. Take a look at Why stay-at-home mums and dads need life insurance to find out more.

And, don't forget to put your life insurance policy in trust to reduce your inheritance tax bill. Read Escape this inheritance tax trap to find out how.

2) Write a will

Writing a will is the one and only way of guaranteeing your wishes will be carried out after you're gone. Thousands of people die intestate (without a will) which can cause huge problems for the family they leave behind when the time comes to divide up the estate.

If you have a partner but you're not married or in a registered civil partnership, they aren't necessarily legally entitled to your estate. So it's vital you have a will in place to ensure your partner isn't left with nothing.

If your financial affairs are uncomplicated, you can write a will easily and cheaply using an online will writing service. Find out more about that in Make a will for £10. However, if your circumstances are more complex I strongly suggest you consult a solicitor for advice as soon as possible.

As well as dealing with your finances, a will can also do the crucial job of appointing guardians for your children. If you don't, the courts will decide who raises your children. Do you really want to leave this decision in their hands?

3) Cut your inheritance tax bill

Inheritance tax or IHT is one of the most hated taxes -  I can easily understand why. After all, why should the government take a greedy slice of your estate before it's passed onto to your family?

Under the current rules, IHT is only payable if your estate - and any assets held in trust or gifts made within seven years of death - are worth more than £325,000. This is known as the nil rate band which increases each tax year.

But if your estate is worth more than £325,000 you could be hit with a massive 40% tax charge on the amount above the nil rate band.

Thankfully, there are ways of cutting your IHT liability. For example, you can gift money which effectively removes it from your estate. Each year you have an annual allowance of £3,000 which can be given away without triggering a tax charge. (Any unused allowance from the previous tax year is also available to you). You may also also give money to your dependants in a tax efficient way by setting up a trust.

In fact, there's plenty you can do to lessen the IHT blow. Take a look at How to cut your inheritance tax bill for more advice. IHT planning is very complex, so I'd recommend you seek advice from a good independent financial adviser who specialises in this area.  

4) Assign your pension benefits

Your personal pension can be a very valuable asset, particularly if it has been running for many years. You can appoint beneficiaries who will be entitled to your pension pot (including your contributions, employer contributions if any, tax relief and capital growth) if you pass away before you have started taking an income from it yourself. All you need to do is complete an 'expression of wish' form to nominate who you would like the money to go to.  

Expression of wish isn't all that different from writing a will in that it formally states who you would like to benefit from your pension assets in the event of death.

Note that the rules for final salary pension schemes are different and depend on the scheme itself, and whether it relates to a current or previous source of employment.

5) Assign your 'death in service' benefits

You may be offered death in service as part of your employment package. This usually provides a lump sum payment of three or four times your salary on death. Just like your pension you should nominate beneficiaries who you want to be entitled to this money.

Remember you'll lose your death in service benefits when you change your job, so don't think of it as a decent alternative to life insurance.

Once you've done these five things, you can rest assured your family won't be left with a financial nightmare after you've gone. But there's one final task: as time goes on things do change and you'll need to adapt accordingly. For example, if you have more children or you get divorced your wishes will almost certainly alter. So make sure you always keep your financial affairs up to date!

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