Dostadning is a Swedish word that means decluttering that begins as people age. Death is inevitable and many families fail to prepare for this eventuality which could lead to financial and emotional implications due to the loss of the breadwinner. Organizing our financial lives serves as protection for the survivors. The purpose of this article is to highlight some steps to take to tidy up your finances:
- Power of attorney:
This is the process of appointing an individual, which could be a lawyer or family member to make decisions on your behalf if you are incapacitated. It is often advised to appoint two different individuals, one to make financial decisions and another to make healthcare decisions on your behalf. It is also often advised to also appoint backups.
According to the UK National Consumer Council, nearly two-thirds of people do not have a will. A will is a legal arrangement of deciding who will inherit an estate after death and its use according to their intentions. Will takes effect upon death. A will must be signed and witnessed. Wills can also include instructions to create a trust to hold the assets on behalf of the beneficiaries. Wills are public records. A will should be reviewed every three to five years. The assets in a will are subject to tax.
In most countries, when an individual dies without a will or trust, the government decides the beneficiaries. Hence, it is important to have a will written to avoid assets in the hands of unintended beneficiaries. Placing assets in a trust or writing a will is one of the surest ways of avoiding inheritance tax.
Trusts provide for the legal transfer of assets from the owner to the trustee who must handle the assets following the wishes of the trust document. Trusts can be created to be revocable or irrevocable by the owner. An irrevocable trust means that the grantor has given up all control and the income from the trust is not included in the grantor’s estate and so it is not taxable under estate tax and offers creditor protection. However, a revocable trust is taxable and offers no creditor protection. Trusts can be used during the lifetime or after the death of the initiators. A trust is a private record.
An estate is everything owned by the deceased at the time of death which does not include joint or transferred assets. An estate is temporary as it exists solely for the one-time distribution of the assets and such, ceases to exist after the distribution. However, this depends on how long the distribution of assets takes. After death, creditors have the first claim on an estate. An estate is also subject to estate tax as well as other costs, fines, and fees. An estate can be distributed by will or by the government.
- Life insurance:
This is one of the most popular ways of ensuring continued financial responsibility in the case of death to loved ones. It protects these individuals from any financial obligations that may arise after the death of their breadwinner. This is a contract between an individual and an insurance company that in exchange for periodic premium payments, the company will pay a lump or installment payment as a benefit to the beneficiaries as decided by the individual upon their death. The beneficiaries can use this benefit as they wish. Life insurance proceeds are usually tax-free.
Some insurance policies also offer benefits while the individual is still living such as if the individual is terminally ill and needs funds for the payment. Life insurance could also be term life insurance or permanent life insurance. Term life insurance is set to for a particular time i.e., 20 or 30 years after which payouts by the insurance company are made. They are often cheaper than permanent life insurance whose benefit is not paid until after death.
- In case of emergency or the event of my death file:
This is a file that includes all information, financial or otherwise that would be needed by the survivors in case an emergency occurs. This file includes a will, testament, trust, powers of attorney, personal property memorandum and deeds, ownership documents, insurance policies, financial accounts and debit or credit cards, certificates and licenses, POLST, diminishing capacity letters, and other special directives. This file can be kept in a safe deposit box.
- Funeral panning:
There are now funeral plans which include everything, financial to otherwise which relieves the family of financial burdens for the funeral. These plans are highly customizable.
- Consolidation of financial accounts:
It is much easier to control and monitor financial activities and prevent overlapping when all transactions are consolidated under one account.
- Set up automatic payments:
Missed payments may lead to late fees and this could increase interest rates and borrowing costs if it is to be paid by the survivors who may not have the information about such an event at the time of death.
Other steps include: scanning important documents and keeping an encrypted copy in the cloud in case the originals are lost, consolidating financial accounts to control and monitor financial activities and prevent overlapping transactions, and setting up automatic payments where missed payments may lead to late fees and this could increase interest rates and borrowing costs if it is to be paid by the survivors who may not have the information of such an event at the time of death.
The type of plans depends on the individual choice, assets, or family type. It is important to contact the services of a solicitor who are often referred to as a trust and estate practitioner. Many people also often wait till they reach their 50s before making their plans, however, death is no respecter of persons or time.
Weston, L. U. T. (2017, December 29). Estate planning: How to ‘death clean’ your finances. Nerdwallet. Retrieved August 24, 2022, from https://eu.usatoday.com/story/money/personalfinance/2017/12/29/how-to-death-clean-your-finances/108826534/
Grant, K. U. B. T. (2017, November 18). Got a will? Here are 11 more end-of-life documents you may need. CNBC. Retrieved August 24, 2022, from https://eu.usatoday.com/story/money/personalfinance/2017/11/18/got-will-here-11-more-end-of-life-documents-you-may-need/869799001/
POLST: Portable medical orders for seriously ill or frail individuals. (2022, March 23). POLST. Retrieved August 24, 2022, from https://polst.org/
Reed, E. (2022, July 6). Estate vs. Trust: What’s the Difference? SmartAsset. Retrieved August 24, 2022, from https://smartasset.com/estate-planning/estate-vs-trust
Consumer Council Northern Ireland. (n.d.). Policy & Research. Consumer Council. Retrieved August 24, 2022, from https://www.consumercouncil.org.uk/policy-research