We’ve arrived at session number 25 , and we’re going to be talking about Wills and Powers of Attorney. Two-thirds of people in the UK don’t have a will. Far fewer than that have a Power of Attorney in place. We’re going to be talking about what these important documents are, and the steps you need to take to get this important part of your financial planning in place.

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This week’s reviews

Lovely review this week from ovo4fev:

“This podcast is simply fantastic. It should be turned into a curriculum and taught to everyone in secondary school. Pete has such a structured way of delivering very valuable information which I know will help improve my financial future.”

Thanks Ovo! I might have to mix it up a bit if I’m ever going to get 14 year olds to listen, but you’re right, we do need better financial education in schools. One of the best gifts we can give our kids is to teach them the value of money and how to use it wisely. And you've prompted me to make that the topic for next week's session!

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Introduction

If there’s one taboo in modern western society, it’s death. This is a reversal of how things were 150 years ago in Victorian times when they never talked about sex, but death was a common topic of conversation. We rarely talk about it, as if we believe that by doing so we will somehow hasten its arrival – hardly a scientific view! But what happens on death – and I don’t mean about the afterlife – is an important part of your financial planning. Even though you won’t be around to see the results of your planning, those you love or the causes you care about will be, and making their lives more straightforward is definitely a responsible thing to do.

For similar reasons we often put off planning around the possibility of our one day being unable to make decisions for ourselves. Mental deterioration like Alzheimer’s and other forms of dementia, are just as terrifying a prospect, if not more so, than death, and so we put off planning for them so that we don’t have to think about them for too long.

But, dare I say it, this is a childish approach to these very important planning points. Adults take responsibility and so must we when it comes to thinking about and planning around these complex areas.

Everything you need to KNOW

1 – What is a will?

A will is a formal, written legal document that sets out your wishes for the distribution of your estate and arranging of your affairs after you have died. In order for it to be legally binding, a will should be in written form, signed and dated by the testator (the person whose will it is) and by two or more ‘disinterested witnesses’.

Let’s unpack that a bit:

The document should be written down. It may be possible to create an oral will, that is one which is spoken and heard by two or three witnesses, but this usually only applies to military personnel and merchant seamen on duty. Usually a will is drafted by a solicitor to make sure that it is written in a way which is absolutely clear when it comes to being interpreted by the executors. When you or I read a will it might seem anything but absolutely clear because legal language is impenetrable for us laymen.

The will should lay out what you want to happen to your possessions, property and money when you die. If you have children under age 18, the will should make clear what is to happen to them, who they should be looked after etc.

The will should be signed and dated by the person creating it. This must be done in the presence of two or more witnesses who do not stand to benefit from the terms of the will. If they do benefit, they cannot claim to have independently witnessed the testator’s signature – they have a vested interest in him or her signing it.

The people who will benefit from the money and possessions after the death of the testator are called the beneficiaries.

When the testator dies, the executors are those people named in the will whom the testator wanted to deal with his or her affairs after their death. The executors must usually apply for a Grant of Probate from the probate registry. This involves totalling up the value of the entire estate, calculating and paying any Inheritance Tax due (see session 19 for more detail in this), and swearing an oath that you have applied for probate truthfully and not hidden anything etc.

Once probate is granted, the executors can go ahead and divvy up the estate as the testator wanted.

You can add to a will without re-writing it completely by signing a codicil document. The same rules apply regarding witnesses. Worth mentioning that wills are automatically voided if the testator gets married, but not if they get divorced. Though bequests to the ex-spouse are usually automatically removed should the testator subsequently die.

2 – What happens if you don’t have a will? The Rules of Intestacy

Most people think that is you die without a will, everything just gets left to ‘next of kin’. It really is not as simple as that. If someone dies without a will, the money is divvied up according to the rules of Intestacy. Someone who dies without a will in place is said to have died ‘intestate’ – Doesn’t mean that they were a eunuch!

Put simply, it depends on which relatives you have, are you married or in a civil partnership, are their children, grandchildren or great-grandchildren who survive you?

Firstly, jointly held property can be held in two ways: joint tenants or tenants in common. Joint tenants is more usual, and means that you both own all the property. When one person dies, the other automatically inherits their partner’s share of the property. Tenants in common means you own half the property each, and in this case the deceased person’s half falls into their estate and would be distributed according to the rules of intestacy. In other words, the surviving partner may not inherit it.

Rather than lay out all the rules of intestacy here, here’s a link to a good summary on the Citizen’s Advice Bureau website When you read it, you’ll understand why I didn’t expand too much here. It’s fairly complex and there are quite a few variables. Suffice it to say that the only way to ensure that your wishes are carried out after you die is to make a will.

3 – All about Powers of Attorney

But what if you’re not dead? What if you are just incapable of managing your own affairs? It might be dementia, or an accident which renders you incapable – what happens then?

Again, let’s be clear. You wife of 50 years has no right to access your sole-name bank account. If all the bills are paid from that account and she can’t access it, there’s trouble ahead.

I had a client case recently where the wife suffered rapid onset and totally debilitating vascular dementia. I saw her one week and everything was fine, two weeks later she could barely communicate. I had repeatedly recommended to this couple that they should put in place powers of attorney, but like so many people they had put it off. To make matters more complex, they were both on their second marriage, there was an estranged son just arriving back on the scene, it was a mess.

A power of attorney is a little bit like a living will. It makes clear what you want to happen should there come a time when you can’t decide that for yourself.

The proper name for this document is a Lasting Power of Attorney, or LPA. There used to be just Powers of Attorney, and Enduring Powers of Attorney, but now we just have LPAs, but we do have two types of those. They are a Health and Welfare LPA and a Property and Financial Affairs LPA.

The first of these gives instructions about things like moving into a care home, what your daily routine is, and whether or not you would like to refuse medical intervention in some circumstances.

The second gives instructions about selling your home, paying bills, collecting benefits and operating your bank account.

An LPA is a standard form which can be downloaded here. A solicitor can oversee this for you, but as the forms are standard you may avoid this extra cost. A solicitor can offer impartial advice about your choice of attorney and will act as your attorney for a fee of course. Having a professional attorney can be a very good idea as they should know what they are doing, and what the limits of the LPA are.

The LPA must be registered at the Office of the Public Guardian before it can be used. The person granting the power must be able to make that decision, i.e. be of sound mind and aware of their actions.

The government site about LPAs is fantastic and gives loads more detail.

What happens if you lose capacity and you haven’t put an LPA in place? Your carers would need to apply to the Court of Protection who will appoint a deputy to manage your affairs. This may not be the person you would want your deputy to be. It is also a more costly approach because there are more court fees and ongoing supervision fees for deputies. Again, it is well worth getting this sorted in advance of the need.

So we’ve covered what a will is and why it is important, what happens if you don’t have a will and what Powers of Attorney are intended to achieve. Let's now deal with everything you need to DO

Everything you need to DO

1 – Make a will

It won’t surprise you that my first advice is for you to make a will. Two thirds of people in the UK haven’t done so, and I totally understand why. I spent years parroting the standard advice to make a will but hadn’t made one myself – for shame!

Thinking about what happens when you die isn’t a fun way to spend the evening. “Hey guys, let’s crack open a bottle of red and think about death for a bit!” That will kill any party!

But anything worth doing takes a bit of effort. You will need to give some thought to three main points:

• Who will be your executors? Choose wisely and it’s courtesy to ask someone if they mind being an executor before you name them as such in your will. Should you choose a professional executor? If so, make sure the solicitor agrees to do this for you at a fixed fee, not a percentage of the estate.
• Who will be your beneficiaries? You’ll need to decide who gets what. Take time over this and get it right. Remember, it’s your money/property/priceless family heirloom. You can do with it what you want. That’s why you’re making a will.
• Who will be guardians to your children? This is arguably the trickiest decision of all. If you have kids, their future is in your hands, even after you have gone. Choosing their guardians is huge, needless to say. Again, talk to the chosen guardians to get their opinion. You should also consider provision of finance or property to enable the chosen guardians to pay for the extra expense or bringing up your kids. Term life insurance is perfect for this, see session 7

Once you have your intentions clear, write them down, and take them to see a solicitor. Again, don’t do this yourself or get a kit from Smiths, do the job properly and see a local solicitor. They will draft a will for you based on your notes which you can then amend if necessary before signing the final version in front of witnesses. Depending on where you live in the country, making a will will cost you between £300 and £750.

If you take nothing else away from this session – please do this. You’ll be dead and gone, but your loved ones will thank you.

2 – Make a living will: a Lasting Power of Attorney

I could just say ditto here! Making an LPA takes just as much thought as making a will. Put yourself in the position of not being able to manage your own affairs. Who would you trust to help you? Approach these people (more than one is a good idea) and ask them if they would be willing. Talk to them about your wishes and write everything down.

Then do the paperwork, use a solicitor if you wish, and get the thing registered. That doesn’t mean that you hand over control at that point. The LPA is there, ready for when it is needed. Leave the registration until after you lose capacity and it is too late.

Should you do an LPA when you’re 30-something, fit and well? The stock answer is yes, but I know that it won’t happen in most cases. I’ll admit that I don’t have an LPA in place, though I’m challenging myself again to do it while I have been researching this session. I could get hit by a bus tomorrow and be disabled for the rest of my life. If there’s no session next week, you’ll know why!

If you are over 65 though, you should definitely get an LPA in place as soon as you can. One in three people over age 65 will develop dementia. Those are rubbish odds to bet your financial future on.

3 – Keep the documents safe

It is a good idea to discuss all of this with family members and include them as part of the decision-making process. Families can be tricky environments though. At the very least, your family should know where your will and power of attorney are kept for when the time comes that they are needed. You should have more than one copy in more than one location. Let your executors and attorneys have a copy of the documents relevant to their role.

You can pay a solicitor to keep your will safe. If you have appointed a solicitor to be an executor or attorney, they will doubtless keep a copy for you.

One quick thought: with so much of our lives being online these days, what will happen to your online accounts, not just bank accounts, but Facebook, Twitter, GMail accounts and the like. I keep all my password for these sites and hundreds more in a superb program called 1Password. My master Password for this is the key to so much of my digital life. I should probably add it to my will and, in due course, my LPA – what do you think?

4 – Review your arrangements

Finally, you should review your arrangements regularly. How regularly is up to you, but if you have a relationship with a financial planner it should form part of the review agenda each year.

Any significant changes in your circumstances should trigger a review. Does the will still reflect your wishes? Have family circumstances changed? Have your chosen executors or attorneys died before you?

Life will throw changes at you; it just does. Any plans you make now will probably change beyond recognition within a few years. Roll with these changes by keeping your plans fluid.

Quite an intense session this, with lots to think about and some clear steps to take. This stuff is important, as I believe I may have already said!

Outro

That's it for this session of the MM podcast, I hope it was helpful. Did I miss anything? Do you have any questions or comments? If so, please leave them comments or questions below in the comments.

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I hope you enjoyed this session. Next time we'll be talking about teaching your kids about money

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Thanks for listening – I'll talk to you next time