In a great episode of US comedy series Frasier the main character, Dr Frasier Crane, is misreported in the press as having died. It means he gets to read his own obituaries. Disappointed, he suddenly wants to write a Pulitzer-Prize-winning novel and climb mountains.
Encouraging clients to start the year by imagining their own deaths might seem a gloomy suggestion. It need not leave you depressed or dispirited about unfulfilled dreams – ready to head to the foothills of Everest with ropes and crampons in your suitcase looking to hire a Sherpa. I think it can be a positive exercise. It helps you to think about your legacy. And there are several parts to that.
Often the person picking up the pieces is a close family member or friend; sometimes a professional, like an accountant or lawyer, charging by the hour. The first question you might ask is: are your executors still the right people for the role?
I have seen instances where the executor was fine in their prime – when the will was written. But 30 years later they are too frail and ill. I have also seen instances where the executor has already died.
An executor’s job is a miserable one. Make it easier. A good suggestion I heard recently was to try doing your own probate (or “confirmation” in Scotland) – there are lots of guides online to help. You discover what it would be like for someone else.
Is all the necessary documentation in one place – either on your computer or in your home? Do your executors have access to it? Do they have contact details for your advisers as well as your beneficiaries? Is the information up to date? An advantage of having an adviser or private banker at the hub of your financial world is that much of this information is already held in a professional data system. Regardless, you can still make things easier for your executors.
Picture them going through your filing cabinet. If you never throw paperwork out, what will they think when they find a savings plan that started with one company 30 years ago and several confusing rebrands and takeovers later is now looked after by a completely different business? Do you need all that documented history?
IHT legacy
Consider, too, inheritance tax (IHT). HMRC may drill down into your gift register to see if any large gifts have been made in the last seven years on which IHT might now be owed. If you have been making regular gifts out of income – an IHT-efficient form of giving – HMRC may want to see records to show this was truly out of income rather than capital. If you have not logged this information it could take you – and therefore your executors – hours to do so. This will encourage you to be more conscientious about logging gifts in future.
Liquidity
How will executors pay the IHT bill? Ordinarily it must be settled within six months of death but for some non-liquid assets like property, HMRC allows you to pay by instalments across 10 years. It does charge interest, though, and you must settle the full bill on disposal. All this makes winding up your estate even more complex. Most people just want the job done and that may mean taking a price cut on a property to sell quickly. Experience suggests that in today’s market this could mean knocking another 20 per cent off the reasonable asking price. Recognising this may encourage you to move into more liquid assets now or – as many of our clients do – to take out whole-of-life insurance that pays enough on death to cover at least this part of the IHT bill. This simplifies things for your executors and gives your beneficiaries more time to dispose of assets if and when ready.
Beneficiaries
Of course, you also need to review who your beneficiaries are. Since you last wrote a will and completed pension beneficiary forms your children may have divorced their partners. There may be more grandchildren. You may have become disillusioned by the charity that once mattered so much to you. You may have new concerns and passions.
This brings us to another important point – the amounts you are leaving to your beneficiaries and how these will be met. Around 20 years ago, a couple writing their will left £500,000 in cash and investments for family. For charity, they left a house in Muswell Hill in north London, worth a similar amount.
When they died recently, a friend who was trustee of the estate found their cash pot for family members had fallen to nearer £250,000. Meanwhile, the house sold for £2mn, all of which went to charity. Was that their intention? Probably not. Many charities rely on legacies and enforce gifts to the letter, so think carefully about how you frame your will. Fixed-figure legacies and bequests of assets with growth potential to a charity require regular review.
Living legacy
When all this is done, you might just want to think about the larger – perhaps more philosophical – legacy question. What difference will your gifts make? And could you be making that difference now?
One of the biggest reasons holding people back from giving before death is concern about their own needs. Here lies uncertainty. How long will we live? What might our needs be? Do our children need help? And grandchildren – might more be on the way?
A good financial plan can reassure you that your needs – and those of your family – are covered. From here you can address further questions. For example, are there other people you want to educate apart from your children?
Imagining your death every five years can encourage you to revisit the issue of your larger legacy. As each half-decade passes, it may become clearer how much you can give. Your own expenditure might have dropped as foreign travel becomes more exhausting than fun. There may be greater clarity on your children’s and grandchildren’s needs.
Giving before you die enables you to see the changes your wealth can make. Family may need it more when they are younger – you can enjoy helping them and reduce your IHT bill simultaneously.
Giving to charity while still alive also means you can have more control over projects you fund. You can give gradually, measure the benefits and recalibrate. Not possible when you die!
Many of my clients get enormous pleasure from unleashing their legacy early. In this season of resolutions consider setting some time aside to consider the impact of your death. It may change the way you practise living.
Important information
Tax laws are subject to change and taxation will vary depending on individual circumstances.
Nathan Valbonesi is Senior Financial Planner and Associate Director of Investment and Wealth Advice (IWA) at Weatherbys Private Bank.
*Featured on the Financial Times website on 3rd January 2024: Put your owner probate to the test.