TRAGICALLY, the 75th anniversary of the UK’s National Health Service this week is less a cause for celebration and pride and more a grim reminder of the everyday reality of premature death.
Each week, almost 2,000 people below the age of 65 die in England and Wales. Put another way, you are 250 times more likely to suffer a premature demise than to win a million pounds ($1.27 million) in the National Lottery, and you don’t even have to buy a ticket.
Yet few of us are comfortable contemplating our own mortality, so much so that 60% of UK adults do not have a valid will. This can be a costly and distressing omission.
It’s true that a will is a pretty blunt instrument and a clunky means of imparting practical financial information to those you have suddenly left behind. So let me propose an additional way of talking to loved ones from beyond the grave: Write a letter of wishes, a document that is revealed after your death in which you can address personal and financial issues.
Unlike a will, a letter of wishes is not legally binding. Your executors are not obliged to act on its contents. Nevertheless, it can be used to set out the spirit of how you intend your dependents to be cared for and how your assets should be managed in a way that no legal document can.
The advantages are many. First and foremost, unlike the late Queen Elizabeth’s will, any will you write eventually becomes a public document, so it’s generally not the place to express strong feelings or air long-held grievances. A letter of wishes, however, remains private. As such, it is ideal for informing loved ones of pensions, bank accounts and, critically, any life insurance you may have.
Details of life insurance policies can be especially valuable at such times, because as long as they have been written in trust (as most are), they are exempt from the lengthy probate process (and inheritance tax). This generally means that the money can be accessed more readily, which is useful because most of your other assets will effectively be frozen until the legal processes surrounding your taxable estate have been completed.
An important point to note is that including explicit instructions for life insurance or pension proceeds in a will can make them legally binding, arguably removing the trustee discretion that is required for them to avoid becoming part of your taxable estate. It is safer to instead inform your policy provider of your wishes and to include this information in your letter.
Other subjects for such a letter include why certain investments have been made and whom to contact for advice. One surprisingly common issue is for loved ones to fail to appreciate the value of a particular item or work of art. Detailing this in a death letter can avoid them throwing away that Picasso that has hung for years in the smallest room. Such heavenly financial guidance can also be invaluable to avoid unnecessary tax or credit issues.
People with minor and/or disabled dependents frequently have trusts established upon their deaths for the benefit of their vulnerable charges. This is an area for expert legal advice, but a letter of wishes can provide trustees with valuable guidance regarding how to exercise their discretion. Many of the tax advantages of trusts have been legislated away over the years, but they are still useful for managing assets for those too young to do so themselves. Additionally, some tax advantages remain for disability trusts, which are well worth considering (and frequently overlooked).
On a more personal level, the letter can detail any funeral wishes you might have and who you would like to be informed (or not) of your death. This is often the time people disclose previously unknown offspring and even spouses. Less controversially, it can set out your intentions for any crypto wallets, social media or cloud storage accounts you might have. This is an especially sensitive area given that most personal photographs are stored electronically these days rather than in shoe boxes in the loft.
In practical terms, a letter of wishes can take any format you like, but should be dated and signed and include the details of any executors or trustees. The safest place for such a document is probably with your will, which tends to be lodged with the solicitor who wrote it. The key, though, is that those who survive you know where to find it.
Of course, we all hope that we’re not among the 100,000 people of working age who die prematurely each year, many leaving vulnerable dependents. Yet while death and taxes are sadly inevitable, being prepared might ease the pain of the former, while minimizing the latter.
BLOOMBERG OPINION
