In most relationships there is usually one person who is more dominant when it comes to handling the family’s finances.
If that person is NOT you and your partner dies, being left with the financial burden of responsibility can be very hard and distressing.
Even if you have a good understanding of your family wealth there are still a number of decisions to be made that have a long lasting impact on your future lifestyle.
Even though losing your partner is a very difficult time, there are steps you can take to ensure you maintain a level of income you need and your future is protected.
How NOT to deal with your finances after your partner’s death
There is one client from the company I used to work for that always sticks in my mind. She’s a lovely lady and for the purpose of this article I’ll call her Annabel.
Annabel and Terry were clients of another adviser and had been clients with my previous employer for over 20 years. They always enjoyed coming into the office for their annual review meetings and were always praising the team for the work we had done transitioning them to retirement.
I loved hearing about how joyful their retirement was. Always on holiday and spending lots of time with their grandchildren.
Sadly a few years back Terry was diagnosed with cancer and died very suddenly. It was a real shock for everyone and especially for his wife Annabel.
Annabel became very stressed about their money all of a sudden.
As a company we had done all the right things to ensure both Annabel and Terry would be OK if one of them died. Over the years we had helped them build significant wealth. She knew all she had to do was turn to us.
The problem was this was the first time Annabel had been in charge of their money. Before, Terry had always dealt with it and made the decisions.
Annabel panicked as she didn’t feel she had enough money to pay for Terry’s funeral even though her pensions and investments were worth over £1 million! She was right in some ways as it can take a few weeks to sell down from investments, it’s not as quick as taking money out of a bank account.
Annabel became so stressed with it all that she resigned as a client out of the blue and we heard no more from her. A really sad end to a great relationship.
Having the responsibility of dealing with your life’s wealth after the death of your partner can be hard. Especially if you have not traditionally been the one who has managed your joint finances in the past.
Your income can dramatically change as you lose your partner’s share.
As hard as it is, this is not a time to bury your head in the sand. This is a time where you need to get to grips with your finances and understand what you have and what you need to do to ensure you will be OK, and continue to live the lifestyle you want in retirement.
5 steps in how to deal with your finances after your partner’s death
#1 – Apply for probate
Hopefully you both had Wills set up before your partner died.
In order to carry out the wishes of your partner you need to apply for probate (also known as a ‘grant of representation’), which basically gives you the rights to do this.
You won’t be able to access or use any of the money in your partners name until you have completed probate.
If your partner’s finances were fairly simple, you may want to carry out the probate process yourself and save yourself a lot of money in fees. If however your partner’s affairs were complex then you might want to consider using the services of a solicitor.
#2 – Look at pensions
Pensions are not dealt with via a Will. So if your partner had pensions that you are now entitled to receive you can begin the process of accessing these at the same time or before you apply for probate.
Whilst alive, you will normally tell the pension provider who you want to receive your pension on death by way of a Nomination of Beneficiaries form (also known as an ‘Expression of Wish’ form).
The pension provider should have a copy of this form so all they should need from you is a copy of the death certificate.
#3 – Work out your new pension entitlement
Depending on the type of pension/s your partner leaves behind you may now have a number of options. Some of these options will depend on whether your partner died before or after retirement and before or after age 75.
For defined benefit pensions you will likely be entitled to a reduced ongoing income and possibly a lump sum payout.
For defined contribution pensions you may have a lot more choice. You may be able to leave the pension where it is for another day or for your children. You may receive the whole lot as a lump sum or you may be able to take money out as and when you want to on a flexible basis.
It’s vitally important to get professional advice at this stage. There will be a number of questions to ask your financial adviser as the decisions you make could be irreversible and will have a major impact on your future wealth and that of your family’s.
#4 – Don’t put everything in cash
As tempting as it may be to disinvest everything and put all your money in cash to keep things simple, this could be very damaging to your future wealth.
Returns from cash are generally very low when compared to long term returns from investments.
You may also suffer large tax penalties by taking money out of a tax friendly investment and placing it into a cash savings account.
Having the right investment strategy, using an appropriate level of risk, can ensure you receive the income you want which can lead to the lifestyle you desire.
If you are unsure about investing then professional advice is recommended. As a starting point you can find out more in this Simply Investing guide.
#5 – Update your own will and Lasting Powers of Attorney
It’s likely your own Will needs to be changed once your partner has died. Especially if they were the major beneficiary of your wealth.
Whilst there is no Inheritance Tax (IHT) paid on money received from a spouse, now could be the time to think about the IHT your children could pay on your death. If you can afford it, you may want to think about gifting money to your children now so that if you survive 7 years it could be IHT free!
Finally don’t forget to update or set up your Lasting Power of Attorney as this will ensure you and your money will be well looked after if you suffer an accident or illness and lose your mental capacity.
During a very sad and emotional time, thinking about money is probably one of the last things you want to do but getting on top of things early can make a massive difference to your lifestyle going forward.
Remember, you don’t have to do this alone, help is on hand and many professional Financial Advisers are experienced in dealing with the same situation you may be going through. Most will offer a free initial meeting so you can get any questions off your chest and feel in a better place.
QUESTION: Do you know of someone who has recently lost a partner? Why not share this article with them so they have a useful resource to guide their next steps.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.