3 vital estate planning tips to get ahead of the “cost of dying” crisis

By now you have heard of the cost of living crisis, but according to recent research, there is a new phenomenon on the rise: the “cost of dying crisis”.

The transfer of wealth when a person dies has always been somewhat costly, so you might be wondering what has changed to bring about a cost of dying crisis in 2024.

According to the Sun Life Cost of Dying Report 2024, in line with the rising cost of living over the last two years, the price of a basic funeral combined with professional fees and other relevant send-off costs has reached a “record high”.

What’s more, the Inheritance Tax (IHT) nil-rate bands (which mark the amount you can normally pass down to the next generation as inheritance without paying IHT) are frozen until 2028. As a result, some families could see the taxable portion of their estate rise in the coming years.

As you can imagine, being faced with high costs and an increased tax burden in light of a loved one’s death can be stressful for everyone involved.

If you are searching for ways to both prepare for and mitigate the rising bills that can occur when someone passes away, keep reading to find out three tips for getting ahead of the cost of dying crisis.

1. Consider pre-paying your funeral

Paying for a funeral in advance may sound rather morbid, but in fact, this could be a valuable act of kindness towards your loved ones, and bring you valuable peace of mind.

Organising and paying for a funeral can be challenging for anyone in a time of grief – and according to the Sun Life report, funeral fees and other associated costs are higher than ever.

The Sun Life report reveals that, in 2023:

• The overall cost of dying rose by 5% to £9,658
• Only 54% of people who made provisions to pay for a funeral set enough money aside
• On average, families of the deceased end up paying £2,716 of their own money towards a funeral
• 44% of people said the cost of living crisis affected how they organised and paid for a funeral.

As such, it may be worth asking yourself the following questions:

• If I passed away today, have I set enough money aside for my funeral and other death-related fees?
• If not, would my adult children or other family members be required to make up the shortfall using their own funds?

These questions may prompt you to put funeral arrangements in place far in advance. Many providers offer a pre-paid package. This allows you the opportunity to choose the type of funeral you want, as well as the price point.

Not only might your loved ones then experience less financial stress when you pass away, but you could also use a pre-paid funeral to get ahead of the cost of dying, which is likely to rise again in the coming years.

2. Understand why Inheritance Tax bills are rising and take steps to mitigate yours

The government has released data showing that between April 2023 and January 2024, it received £695.1 billion in IHT, up £33.6 billion from the same period in the previous year.

There are several reasons IHT receipts are increasing so steeply – the main factor being that the nil-rate bands have been frozen until 2028.

The freeze was initially put in place by former chancellor Rishi Sunak in April 2021, but in fact, the nil-rate band of £325,000 has not increased since it was instated in 2009. Plus, the residence nil-rate band, an additional tax-efficient break given to homeowners who pass their property down to direct descendants, has stood at £175,000 since April 2020.

While only time will tell if the nil-rate bands will rise, fall, or remain the same after April 2028, it may be wise to begin forming an IHT mitigation strategy now. Otherwise, alongside rising funeral costs, if your family are also left with a large IHT bill upon your death, the cost of dying could increase exponentially.

Some helpful IHT reduction strategies to discuss with your financial planner include:

• Giving while living. As of the 2023/24 tax year, you can give away up to £3,000 a year without this gift forming part of your estate for IHT purposes later on. There are several other gifting allowances available too, including tax-efficiently gifting from income, which you can read about on our news page.
• Placing assets in trust. Trusts are not tax-free inheritance vehicles, but they could help to reduce the amount of IHT due on your estate after you pass away.
• Leaving pension assets as inheritance. Your pension does not usually form part of your estate for IHT purposes, so leaving pension assets to the next generation could significantly reduce their IHT burden.

Each of these options could provide the opportunity to reduce a potential IHT bill, especially in light of the frozen nil-rate bands.

3. Speak to a Kellands financial planner

Although the cost of dying crisis may sound daunting, working with a professional could help you to anticipate these rising costs and lessen their effect on your family’s wealth.

Our experts will listen carefully to your estate planning goals and draw up a comprehensive financial plan to support them. We can help you set funds aside for funeral costs, as well as looking at the assets that may be liable for IHT and discussing potential options to help mitigate this tax burden.

To find out more about how financial planning could help to lessen the effects of the cost of dying crisis, email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or tax planning.

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