How to prepare your finances in the event a partner dies
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The death of a partner can be a devastating event and, although it may be difficult to contemplate the person you love not being around one day, ensuring your finances are prepared in the event of a partner’s death can help to ease the stress if the worst does happen.
When preparing finances in the event of a partner’s death you will need to know where you stand legally. Those who are married or in a civil partnership may have more financial rights, especially when it comes to inheritance, than unmarried couples. For example, since April 2015 it has been possible to inherit the ISA savings of a spouse or civil partner on their death, retaining the tax-free benefit of the savings. Similarly, a spouse or civil partner can inherit their partner’s estate without having to pay inheritance tax.
Another important financial consideration is whether you will be able to inherit your partner’s pension, especially if you will depend on the pension for your income during retirement. Pensions can be inherited by partners, but inheritance is not usually automatic, so you should ensure you name your partner as a beneficiary when signing up to a pension, for example when joining a workplace pension. As well as this, it may be worthwhile naming your partner as the inheritor to your pension in your will. Along with inheriting a private pension you may also be able to inherit your partner’s state pension, depending on your age. Inheritance tax is not payable on pensions, but they may be liable for other taxes depending on the age of the deceased and whether they have started taking their pension.
For those with an outstanding mortgage and debts, keeping up with repayments can be a cause of stress when a partner dies. Whether the deceased partner’s debts will be passed on depends on whether the debt was taken out in their name alone or jointly. If the debt is solely in the deceased partner’s name then money from their estate will be used to repay the debt, if the money in the estate is not enough to cover the debts the remaining money owed will be written off. This can reduce the inheritance they leave behind, so you should factor in existing debts when making financial plans.
An exception to this is mortgage debt, which will not be written off. Where you stand legally with the ownership of the property you live in, and therefore your responsibility to keep up with mortgage repayments, will depend on whose name is on the mortgage and whether you are joint tenants or tenants in common.
For those with a mortgage in both names, ideally, when taking out a mortgage you should also have taken out life insurance so that the mortgage will be covered if your partner dies. This is particularly important if your partner is the breadwinner or if you depend on both incomes to cover mortgage repayments.
Few people want to contemplate no longer being around, but making financial preparations now, including making a will, can help to ease the stress in the event of a partner’s death.
Derin Clark is an Online Reporter at moneyfacts.co.uk, the money comparison experts, specialising in personal finance.
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