| Death and Financial Planning — Key Facts | |
|---|---|
| Intestacy | Dying without a valid will means the Intestacy Rules distribute your estate — not your wishes |
| IHT threshold | £325,000 nil-rate band; +£175,000 residence nil-rate band if home passes to direct descendants |
| Pension on death | Defined contribution pensions normally pass outside your estate — nominate beneficiaries |
| Joint assets | Pass by survivorship to the surviving owner — outside your will and outside probate |
| LPA urgency | A Lasting Power of Attorney must be set up while you have mental capacity — not after |
| Digital assets | Passwords, crypto wallets and online accounts require a separate digital estate plan |
Most people engage with financial planning as a wealth-building exercise but give little thought to what happens to that wealth when they die. The consequences of failing to plan can be significant: assets going to unintended recipients under intestacy rules, unnecessary inheritance tax, pension death benefits lost because no beneficiary was nominated, and families left unable to access funds for months while probate is obtained. This guide covers the essential steps.
Step 1 — Make a Valid Will
A will is the foundation of death financial planning. Without a valid will, the Intestacy Rules (Administration of Estates Act 1925, as amended) distribute your estate in a fixed order that may not reflect your wishes. Common intestacy surprises: unmarried partners receive nothing regardless of the length of the relationship; children from a previous relationship may be entirely excluded in practice; stepchildren have no automatic entitlement. A simple will costs £100-£300 via a solicitor. Online will services (such as Make a Will Online) offer lower-cost options for straightforward estates.
| Relationship status | Who inherits under intestacy (England and Wales) | Problem if no will |
|---|---|---|
| Married, no children | Spouse inherits entire estate | No issue — but no flexibility |
| Married with children | Spouse gets personal chattels + £322,000; rest split 50/50 spouse/children | Children may inherit at 18 against your wishes |
| Unmarried partner, no children | Partner gets NOTHING — estate goes to blood relatives | Partner may be left without home or savings |
| Unmarried partner with children | Children inherit everything; partner gets nothing | Devastating for surviving partner |
| Single, no children | Parents; then siblings; then more distant relatives | May not match your intentions |
Step 2 — Nominate Pension Beneficiaries
Defined contribution pension funds are typically held in a discretionary trust by the pension provider. They do not form part of your estate and do not pass under your will. Instead, the trustees pay death benefits at their discretion guided by your Expression of Wishes (nomination form). If you have not completed a nomination form, the trustees must decide who receives the funds without your input — this can take months and the outcome may not match your wishes. Complete or update your nomination form immediately for every pension you hold. (Source: HMRC — pension death benefits)
Step 3 — Understand Joint Assets
Assets held in joint names as joint tenants pass automatically to the surviving owner by right of survivorship — outside your will and outside probate. The deceased's share does not form part of their estate for probate purposes (though it may for IHT). Joint tenancy is the standard for married couples' main homes and joint bank accounts. Tenants in common is different — each owner holds a defined share that passes under their will. Check the Land Registry title for your property to confirm which applies.
Step 4 — IHT Planning
Inheritance tax is charged at 40% on estates above the available nil-rate bands. The main planning levers available within HMRC rules:
| Planning tool | How it works | Annual/lifetime limit |
|---|---|---|
| Annual gift exemption | Give away up to £3,000/year IHT-free | £3,000/year; unused allowance carries forward one year |
| Small gifts exemption | Give up to £250 per person to any number of people | £250 per recipient per year |
| Wedding/civil partnership gifts | Parent: £5,000; grandparent: £2,500; other: £1,000 | Per ceremony |
| Potentially Exempt Transfers (PETs) | Gifts of any amount — IHT-free if you survive 7 years | No limit; taper relief applies 3-7 years |
| Spouse exemption | Transfers between spouses/civil partners are IHT-free | Unlimited |
| Charitable gifts | Gifts to UK registered charities are IHT-free; 10%+ to charity reduces IHT rate to 36% | No limit |
| Pension (DC) | Pension funds normally outside estate — not subject to IHT | Subject to future pension IHT consultation — check status |
| ⚠ Warning: From April 2027 the government intends to bring unspent pension pots within the scope of IHT. This change is subject to consultation and legislation. Check the current status at gov.uk before making pension-specific IHT planning decisions. |
Step 5 — Lasting Power of Attorney
An LPA gives someone you trust (your attorney) the legal authority to make decisions on your behalf if you lose mental capacity. There are two types: Property and Financial Affairs (manages your finances, bank accounts, property) and Health and Welfare (healthcare and living decisions). An LPA must be registered with the Office of the Public Guardian before it can be used — currently taking 20+ weeks. It can only be created while you have mental capacity. Without an LPA, your family must apply for a Deputyship Order through the Court of Protection — a lengthy, expensive process. (Source: gov.uk — Lasting Power of Attorney)
Step 6 — Digital Estate Planning
Digital assets require separate planning: cryptocurrency wallets (seed phrases and private keys must be stored securely and accessibly); online accounts (email, social media — nominated legacy contacts or closure instructions); financial accounts with online-only access; and subscription services generating recurring charges. A digital estate plan can be a separate sealed document stored with your will — not in a password manager your executors cannot access.
| Disclaimer: This article is for information only and does not constitute financial, legal or tax advice. Figures correct at date of publication but subject to change. Always verify with primary sources (gov.uk, HMRC, FCA register) and consult a qualified adviser before making financial decisions. |
Frequently Asked Questions
Does life insurance pay out as part of my estate?
Only if the policy is not written in trust. A life insurance policy written in trust pays directly to the trustees for the named beneficiaries — bypassing your estate, avoiding probate delay, and not being subject to IHT. Write every life policy in trust at outset — most insurers do this for free.
Can I disinherit my children?
You can exclude children from your will, but the Inheritance (Provision for Family and Dependants) Act 1975 allows certain family members and dependants to apply to the court for reasonable financial provision from your estate. Adult independent children are less likely to succeed than dependent children, former spouses or cohabitants of long standing.
| Sources |
