The unexpected death of a spouse can lead to considerable financial problems if the surviving partner is not fully aware of the state of the family's finances. All too often, couples do not fully discuss the implications of the death of a spouse or partner and this can create additional stress that could easily have been avoided. So it's worth taking some time out to consider the following areas of your family's finances.

Inheritance Tax (IHT)
If you own your home on a joint tenancy basis and are married, there will be no tax liability on the first death, because anything left to a spouse is not subject to IHT. The same applies when you each own half the home as tenants in common and each of you leaves your share in your will to the surviving spouse. However, a surviving spouse must be UK domiciled for an unlimited amount to be IHT free, otherwise a reduced amount is IHT free. But IHT could be a problem once the second spouse dies. Under the IHT rults for the 2005/06 tax year, once a chargeable estate is worth more than £275,000 the excess becomes subject to IHT at a flat rate of 40%. If an inheritance tax bill looks likely, it is more sensible to make some provision to meet it, otherwise your heirs may be forced to sell the family home or other assets simply to raise enough money to pay the tax bill. A popular solution is the purchase of a whole-of-life insurance policy written in trust and designed to pay out when the surviving spouse dies.

Pension Provision
You also need to consider what death benefits will apply if you die before drawing your pension benefits under your current and any earlier pension arrangements. Will a lump sum death benefit be payable? Will provision be made for a pension to be payable to a surviving spouse or dependant?

If a lump sum is payable to any one or more of a range of potential beneficiaries at the discretion of the trustees of your scheme, establish that your desired beneficiaries fall within the eligible group of beneficiaries and notify the trustees of whom you would like them to consider when making any lump sum payment. Most schemes will have e abenefit nomination form for this purpose.

Investments
Provided you say so in your will, investments such as unit trusts, investment trusts and shares can revert to your spouse when you die, although in some instances the tax advantages of certain investments may be lost. If you have a substantial investment portfolio, it may be advisable to bequeath some of the investments in your will directly to your children or grandchildren to make use of the IHT nil rate threshold, provided you leave enough for your surviving spouse to live on. If a discretionary trust is used with your surviving spouse named as a beneficiary, the trustees can pay capital or income or make interest-free loans to that spouse.

Wills
Don't assume everything will automatically go to your spouse or partner when you die. Ensure that you have a properly drawn up will. Ask someone else as well as your spouse or partner to be an executor and, finally, don't forget to tell your spouse or partner and other family members where they can find a copy.

The information provided is for general guidance only. However, if you leave any of these areas to chance, in the event of your premature death they will almost certainly cause further distress to your spouse and family. For a complete analysis of your current financial position, please e-mail us or co telephone us for an independent unbiased assessment.