Funeral plans: the basics

Nobody likes to think of their own death and the effect it will have on those they leave behind. But planning for your funeral in advance can be a way of reducing the pressure on your family and friends when you die.

A formal funeral plan allows you to plan and save for your funeral in advance. This means that when you die your grieving loved ones won’t have the pressure of having to organise the funeral. Nor will they have to shoulder the cost or deal with money worries. Basic plans can start from under £3,000, and it’s always worth shopping around the find one that suits you.

Why do you need a funeral plan?

Funerals are stressful and complicated for grieving friends and family, and can be overwhelming to deal with for those already suffering emotionally and, perhaps, financially. Last year (2016) the average cost for a typical funeral was £3,987. It looks like this is set to rise to £4,779 by 2021, based on current figures.

Taking out a funeral plan will help you offset some of these costs, if not all. The amount that you will have covered will depend on the kind of plan you choose, and which provider you go with. Most plans will guarantee to cover the services of a Funeral Director at a locked in price – the sooner you agree a plan then the more money you will save. The locked in price will be whatever their costs are on the day you take it out, meaning that you could save a decent amount of money.

Other costs to think about

The Funeral Director is just one cost you will have to cover. Others that will need to be considered include cremation or burial fees. Different funeral plan providers deal with these kinds of costs in different ways.

Some will only offer a certain amount to contribute to the third-party costs of a cremation or burial, others will guarantee to cover these kinds of costs and still others will exclude them entirely. You need to carefully consider what kind of funeral plan you want, and which aspects you want completely covered.

Helping your family and friends

Buying a funeral plan and planning ahead in this way will certainly save a great deal of stress and upset for your friends and family following your death. Funerals are expensive, and could represent a huge amount of money to those you leave behind. A prepaid funeral plan takes away this worry, and allows you to relax knowing that you’re not leaving behind this kind of stress.

Further than the monetary aspect, it also relieves your friends and family of having to make difficult decisions, such as whether you want to be buried or cremated. You can be clear about your last wishes and how much they should spend, or not spend. It removes ambiguity which is extremely helpful to those left behind.

Different kinds of funeral plans

There are various funeral plans available, and they don’t all cover the same thing. There are other ways to plan for funeral costs, including a straightforward savings account or some kind of life insurance policy. However, funeral plans generally offer better guarantees and different kinds of protection for this specific function. You need to check exactly what the plan or policy offers, in order to make an informed choice and avoid leaving an unexpected bill for your loved ones after you die.

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The implications for inheritance tax of the new ‘main residence nil-rate band’

With all the political upheaval going on recently you might be forgiven for having missed a big change to the rules around inheritance tax back in April. And while the introduction of the ‘main residence nil-rate band’ – or the ‘family home allowance’ as it is sometimes known – was low-key, the changes it makes could have a serious impact on you and those who might inherit from you.

So, here’s a quick guide to what changes have been made and what they might mean for you and your family.

An increased allowance

In a nutshell, April was the beginning of a new allowance that should ultimately allow couples to pass on a £1 million inheritance tax-free to their descendants. The normal £325,000 per person allowance on a main residence remains, but there is now an additional £100,000 per person – the so-called ‘main residence nil-rate band’, or the ‘family home allowance’ allowed on top of this.

So what does this mean for individuals looking to pass something on to their descendants? Well, each individual can now pass on £425,000 without paying any inheritance tax – however this must includes the family home must pass directly to children or grandchildren (it doesn’t count if you use a discretionary trust).

Who this will impact

So will you be affected? According to Gov.uk, changes will apply to anyone who has direct descendants who has an estate (including a main home) with assets that are worth more than the Inheritance Tax (IHT) threshold (or nil-rate band) of £325,000. And what about the tax-free £1 million for your descendants that we mentioned earlier? Well, the government is planning to phase the new allowance in, increasing it by £25,000 a year until it reaches £175,000 in April 2020.

So, by 2020 each individual will have a £500,000 allowance – meaning that between them a couple would be able to pass on £1 million tax free to their kids or grandchildren. It’s also worth mentioning that after the first death, any unused allowance will be passed on to the surviving partner.

If you have any more questions about these changes to inheritance tax and how they might apply to you, then please just get in touch to find out how we can help.

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