FINANCE CHILD PROTECTION
as well as specifying the age at which children should receive those assets.
Are your life assurance arrangements adequate?
Life assurance can be used for many things, but when planning for the unexpected the questions to ask are: school fees and childcare?
One upsetting event that can occur when a family member dies is uncertainty about whether or not the family will need to move, perhaps because of the inability to keep up payments on a mortgage. Term life assurance is often
recommended when mortgages are taken out. Make sure the policy covers the borrowing secured on the property and the premiums are paid. Term life assurance can also be used to cover school fees or childcare costs in the event of an unexpected death and can be taken out quite inexpensively, provided the applicant is in good health. An independent financial adviser
will be able to advise you about the most suitable life assurance arrangement for your circumstances. As well as finding the right policy, consider writing it in trust to avoid being subject to inheritance tax.
What about inheritance tax (IHT)?
Inheritance tax is chargeable at 40 per cent on estates valued for IHT purposes at over £325,000. The first £325,000 is charged at 0 per cent. Assets passing to a spouse or civil partner are generally free from IHT. Assets passing to a non-married partner are chargeable to IHT, as are assets passing to children or grandchildren. Although there are ways of mitigating IHT by careful planning through wills, it is not always possible to eliminate the liability to IHT. In these circumstances, life assurance can be
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Term life assurance can be
used to cover school fees and can be taken out quite inexpensively
used to provide funds to pay IHT. In order to avoid those funds themselves being taxed, the policy should be written in trust. In other words, ownership of the policy is transferred to trustees and held by them for the beneficiaries of your estate.
Practical matters
When someone dies unexpectedly, the family often have little idea what to do or how to get hold of money to meet immediate expenses. Prevent this by ensuring family members all know where to find wills and other important personal papers. Sole bank accounts are frozen when
someone dies until probate is granted. This can take weeks or months. So, if you are in a relationship, it may be sensible to have least one joint account that can be drawn on in an emergency. Similarly, life assurance which has been written in trust can usually be claimed before probate is obtained. Also, if your partner is a second
signatory on your credit card account rather than having a card of his or her own, he or she will not be able to use the card after the account holder dies. The second signatory may also have problems getting a new card if their income is modest and they do not have a credit rating. It is therefore better for both parents to have their own credit cards rather than to share one.
Divorce
What about divorce or separation?
The departure of one spouse inevitably means a change in financial circumstances for the whole family. Now there are two households to support and possibly, if the separation is acrimonious, the threat of a very reduced household income. Divorce is not something you can plan for, but there are steps you can take to protect yourself and your children. Their financial security is intrinsically linked to that of the parent with whom they live and the legal system is there to help find an agreement on financial matters. If this is not possible, the court can order one party to make financial provision for the other.
The first steps
Get legal advice to give you an idea of the likely settlement you can expect, help in formulating proposals and negotiating with your spouse. If necessary, they can apply to the court on your behalf. Your solicitor will work out what you can expect based on the financial information you provide, so prepare thoroughly for your first visit and gather as much information as you can about: Your house Who owns it, what is its value and what is the mortgage ? ✒
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PHOTO: ISTOCKPHOTOS: JUDY BARRANCO/DNY59
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