Death is never a pleasant subject and one that we mostly try to avoid if we can - especially if it involves ourselves. The thought of no longer being around isn't something people want to dwell on so it's no wonder that most of us haven't really put any thought into the financial implications that arise after our passing. Yet death eventually comes for us all, sooner or later, and it sadly comes with a price tag. So what costs are involved when you die?
Typically when you die it's your loved ones who are left to try and figure things out, including picking up the bill in some cases. There are costs in arranging your funeral, dealing with your assets, inheritance tax, and settling debts. Wills, clear documentation, and a little bit of funding can go a long way in making the process smoother for those you leave behind. The last thing you want is your family to be left struggling financially in the aftermath of your own departure.
Are you financially prepared to die?
A couple of years ago my father passed away unexpectedly and left his "estate" in what could only be described as a "mess".
There wasn't a will nor any clarity on what he actually owned, owed, or was owed. The process of handling his estate was long and arduous, involved a number of court battles, and visits between two different countries.
Slowly but surely I eventually got through it all and from that I learned a lot about myself - but more importantly I learned that death itself has many financial implications.
Eventually I began to ask myself "What things should I put in place to prepare for my own death - should it come early or unexpectedly?"
The people you leave behind who could be dependent on you
For me, the very root of any concern is the fact that there would be people that remain after me, who I'm supposed to take care of long into the future. An aging mother, my fiancée, and ultimately my kids when I have them.
If you're still quite young - in your thirties or forties let's say - it's tempting to simply avoid the subject of your own death as though it will never happen; not in the near term at least. The journey towards financial independence is still going and there are many years ahead of you to save, invest and compound those returns.
You haven't even had the chance to enjoy early retirement yet so why think so far ahead to a topic that's so grim.
Unfortunately life can be fleeting and there aren't second chances to fix what you've not prepared for, so it's best to face up to our fears.
Dealing with my father's passing taught me and made me realise a lot.
With the people who are important to me at the front of my mind I have spent a little time putting the pieces in place and made reasonable preparations in order to ensure that I can rest a little easier at night knowing that I've done something to help them, should the worst come to pass.
Funerals aren't exactly cheap and the average burial in the UK costs just over £4,300 while a cremation costs just over £3,200.
It's unreasonable to assume that those you've left behind and will handle your estate are able to easily afford this, and you don't want them going into debt just to make sure you've got a proper final send off.
Even if your assets could cover things it might not be possible to liquidate them quickly enough and at a fair price. So at the very least you'll want to make sure that there's a bit of money left behind to help pay for this.
Fortunately (given the circumstances), setting aside some funds doesn't have to be a difficult thing and could in fact be well aligned to your financial independence goals. If you're following the movement you'd almost certainly be building an emergency fund, or planning to do so, so this is the money that could eventually be used to cover the costs of your own funeral.
The only thing you'd then need to take care of is making sure the emergency fund is always topped up and enough to cover the costs, or at least the majority of it.
The other thing you could do is make it known what type of funeral you'd prefer - or how elaborate it should be.
When people aren't sure on the wishes of the deceased they might be uncomfortable going for "cheaper" options. But if you yourself are fine with a simple ceremony, and would rather not place as much financial burden on your loved ones, then you could make it clear to them what your preferences are.
Throughout your life you may come to rely on certain professionals to handle certain parts of your affairs.
There may be a particular solicitor who handled your house purchase, writing of your will, or any other issue that required legal assistance. You may have had an accountant or financial advisor who helped you with your tax returns and investments. Or there might have been an estate agent that you worked with on your rental properties - if you had any.
The point is that these professionals could potentially be very familiar with your estate in their respective fields and could even hold information or knowledge that isn't easily obtainable by your executor of estate - the person(s) handling your affairs after you've gone.
It would therefore make sense for your executor of estate to work with them, instead of pouring time and money towards other people in the field who would effectively need to start their information gathering from scratch.
Experts are expensive but sometimes their services really do come in handy when things get complicated - they're the professionals after all.
Set aside some of your funds to pay for these types of people if you think they'll be needed, and make sure they're easily identifiable to your executor of estate.
Document (securely) your assets
When I was handling my father's estate one of the most time consuming things was sifting through years of paperwork and documents to find any hint of an account that might have been missed or forgotten.
There were bank statements reaching back before I was born and tattered bank books that looked like they still had money in the account, yet hadn't had any update in years. There were even insurance policies that looked active yet the insurance company was no longer around.
As I searched through these there was one question on my mind: "What if there's an account that exists but there's no trace of it here?"
Well, what's lost is lost in the case of my father's estate and I'll likely never find out - but the true concern is in the case for my own personal assets.
If I were to go tomorrow my sincere hope is that my loved ones would be able to gain access to my accounts as within them would be enough money to keep them going at least for a little while.
As such, I arrived at the solution of securely documenting what I have so that they can be made aware to those I leave behind should the need ever arise. If you're the same then some things you'll want to consider documenting are:
Anything you have kept abroad
It's important to note that you shouldn't keep all your information in a place where it could be found or stolen, and you definitely don't want to note down any passwords or access codes that make it easy for someone to get into your accounts while you're still around.
But make sure that there is a way for your executor of estate to discover them, i.e. via your will, and at most provide a name for the account or account number (without any passwords), and instructions on what needs to be done after your death in order to gain access.
Usually there are details on the websites of the companies that handle your various accounts stating what proof and documentation is required to be granted access after your death.
Handling debts or ongoing income
When you die, your debts do not die with you and instead become a part of your estate - provided there is a legal contract or document proving there is a debt.
Any debt you owe to others, your estate will now be liable for, and any debts owed to you will now be owed to your estate.
It's important to make sure that your executor of estate will be able to find the details of any debts so that they're able to settle them appropriately before distributing your estate's assets. You'll want to have records of how much you owe and to whom, and how much remains to be paid.
On the other side you'll want your executor of estate to have the legal ability to chase down any money that's still owed to your estate. Last thing you want is someone thinking they got lucky and no longer need to pay their debt back to you.
Provide the legal contract that shows there is a debt and also any details on the payments that have occurred to date - with this information your executor of estate can determine how to handle the remaining balance that is owed.
Besides debts you'll also want any ongoing income - such as rental income or royalty payments - to be handled.
If you've documented your assets then this will probably be covered, but it's worth mentioning that any contracts that would enforce these payment terms, i.e. the rental contract, will be important for ensuring that your beneficiaries can continue to receive that income after you've gone.
When it comes to what you're leaving behind in terms of assets you may worry that it isn't enough to handle your affairs, or fund the things you would've funded had you still been around, after you've passed away.
What if some unexpected costs arise after my death - such as a large tax bill?
Will the kids have funds to pursue higher education or even further?
Will they have something to help them onto the property ladder?
Will my spouse or partner be able to continue supporting themselves and the family financially for the long term?
Will they be able to keep paying the mortgage?
Will my elderly parents have funding for healthcare in their later years - especially if they've reached retirement age?
To myself, these thoughts are more frightening than the idea of death itself because it represents unfinished business that I would no longer be around to handle.
By taking out a life insurance policy it just gives a little more peace of mind.
Regardless of what happens, i.e. all accounts are lost or there's a severe crash in the value of all investments, there'll definitely be a sum of money that can be provided to support your loved ones for a little while.
Handling Inheritance Tax
This section might be better suited for the people who are in their more advanced years as they start to plan how they will leave behind their estate - if that's what they've decided - without a large chunk of it going to the tax man.
But nevertheless there's still good reason for everyone to understand some of the tax liabilities that can arise from death.
First and foremost is to know that there is a threshold before inheritance tax kicks in, and that is £325,000 on the value of your entire estate (2021/22).
The threshold can be raised depending on how you're distributing your estate, for example to your spouse, children, or grandchildren, but besides these special situations you'll normally pay a tax rate of 40% on the eligible value of your estate - so it makes sense to want to try and avoid this (legally).
I'm not going to go into the in-depth details of the various methods in this article but some of the key things to know about are "taper relief" where you don't owe tax on anything you've gifted away more than 7 years ago, gift exemptions where you can give certain amounts away each tax year without them being added to the value of your estate, and writing your pensions or life insurance policies "in trust".
If the amount of inheritance tax your estate may need to pay is a matter of concern to you then you'll want to look into some of these methods and approaches and start putting the pieces in place early to reduce the final bill on your life.
Have a Will
If you're not too keen about sharing too much about your personal assets or accounts - which is very understandable and advised - you might consider having a will written up instead. This way, you can let people know that there is a will, but the contents within would never be revealed unless you actually died.
When you die without a will you're known as dying intestate, which means there are certain laws and rules to be followed in how your estate should be handled. But this can only be done for anything that is actually known to the people you've left behind.
All of the important information I've talked about in this article could be kept in the will, and would give you peace of mind knowing that certain accounts or items wouldn't be at risk of being lost or forgotten.
A will can also provide clarity - as your final words from beyond the grave - on how things should be handled. The type of funeral, who to contact, and who gets what.
Having a will at a younger age can sometimes be a hassle to update since your life is still developing and changing, but don't let that deter you. One way to handle this is to only update your will if something big changes, and as long as it contains accurate information on the bulk of your assets you can personally handle the smaller items
It took around two and a half years to fully handle everything involved in my father's estate - not because he had a lot of wealth but because he left things in such a mess.
The truth of it was that when I first met with a solicitor to discuss the state of the estate his advice was to "just walk away from it - it's likely not worth the hassle".
Admittedly the advice was tempting - my relationship with my father wasn't all that close at the end of the day - but ultimately I decided that walking away simply wasn't who I was.
Thus, over the period in which I handled the estate I learned and dealt with things that most people probably never will - even if the time comes for them to be an executor of an estate.
Yet through thick and thin I managed to come out the other side and I would say it has given me an insight into what one should really think about when it comes to preparing for the inevitable day that they leave this world.
From those experiences I have written this article, and have taken the steps myself to make sure I'm as prepared as can be. My hope is that it can help you be a little more prepared also, so that when the unfortunate day does arrive, those you leave behind will still have your support to get through it.
Death, at the end of the day, isn't free.