If you meet your soulmate when you’re in your 50s or 60s, then it’s likely that you will both come with some financial baggage. Here’s our guide to the six things to think about to enjoy those golden times together without future woes
More of us are finding love in later life, with the number of over-65s tying the knot up by nearly 50% over the past decade, according to the Office for National Statistics (ONS). But while romance can bring happiness and security, a new partner at this stage can also bring its fair share of financial headaches.
With decades of adulthood under your belt, it’s highly likely that you and your partner will have different wealth, health and family situations.
“Merging two different financial situations can be complex, both technically and emotionally,” says Joe Roxborough, chartered financial planner at Ascot Lloyd.
“As well as different financial situations, each party might have commitments to children and ex-spouses that all need to be taken into consideration.”
On the rosy side, marriage offers some significant tax breaks. Being able to transfer assets between you can save on income, capital gains and inheritance tax.
Ken Dodd’s decision to marry his partner of 40 years, Anne Jones, just two days before he died in 2018 meant that he saved her having to pay an inheritance tax bill of up to £11 million on the £27.5 million estate he left her.
While many people marry because of the tax breaks, Julie-Ann Harris, partner and head of family law at legal firm Coffin Mew, points out that savings can be outweighed by other financial issues.
“On one hand, being married gives you security, but it also opens you up to financial claims. Your new husband or wife will have a legal right to your assets,” she says.
“It’s not legally binding, but a prenup can offer some protection. With a bit of planning you can also put the right legal and financial framework in place to protect your interests.”
1. Estate planning
Unless both parties agree where their wealth will ultimately go, there can be all sorts of legal wrangling if other family members feel they have been overlooked. So estate planning is key.
While it’s possible to use a will to divvy up assets on death, the home can cause major issues. Ms Harris recommends checking how it’s registered.
“If you own your home as joint tenants, your share will automatically go to your spouse when you die. When they die, as it’s in their estate it could all go to their kids,” she explains.
If you would rather it went to your own children, or even to the local donkey sanctuary, this can be arranged without forcing some bizarre home-sharing experiment.
Julia Rosenbloom, partner at tax adviser Smith & Williamson, explains: “By setting up an interest in possession trust in your will, your spouse will be able to stay in the home until death, when your share will pass on to your kids or whoever you want.”
You will also need to change the way the property is registered, from joint tenancy to tenancy in common, adding a declaration of trust form to confirm the details.
Emily Deane, technical counsel at the Society of Trust and Estate Practitioners, says: “This allows you to stipulate what percentage of the property you own, and what happens on death.”
2. Minimising inheritance tax
The ONS says 92% of people getting married over 65 are divorcees, widows or widowers. So if you are on your second or third marriage, it’s quite possible you or your spouse have already inherited a transferable nil rate band (NRB) when a former partner died (where an unused IHT allowance is passed on to a surviving spouse). However, while this is useful, it’s important to note that you can only have a maximum of two NRBs, so up to £650,000 of assets can be passed on IHT-free.
“If your spouse already has two NRBs, don’t waste yours by leaving it to him or her,” says Ms Rosenbloom. “If you have a spare £325,000 of assets, leave these to other people to use your NRB. Where this isn’t possible, set up a discretionary trust in your will, diverting £325,000 of assets to this on death.”
Having a discretionary trust allows more control over when, how and to whom assets are distributed. As the trustees decide when the assets are distributed, this can work well if you don’t feel comfortable leaving large amounts to children or you’d like to provide for future grandchildren, as well as those already on the scene.
By ensuring you use all the NRBS available, you can save a significant IHT bill. For instance, say both parties have two NRBs – their own, plus a transferable one from a former spouse who died. Assuming the £325,000 allowance is still in force, leaving the full £650,000 of assets to beneficiaries other than the spouse on first death would save an IHT bill of £260,000 (40% of £650,000) on second death.
3. Life insurance and pensions
Ms Deane recommends reviewing any life insurance arrangements that you have in place.
“Some policies will automatically allocate the proceeds to the spouse, so make sure the insurer knows your wishes, especially where this isn’t the case.”
Pensions may also need to be reviewed to ensure that any death benefits are paid to the right person.
“You may have completed the ‘expression of wishes’ form years ago, which could mean the death benefits are still earmarked for a former spouse,” says Scott Charlish, senior financial planner at Brewin Dolphin.
It’s even more important where you have a defined benefit pension. This could include a pension for a spouse or civil partner if you die first, with some schemes also paying out a lump sum if you die in the first flush of retirement.
“Many schemes will pay 50% to 66% of your pension to a surviving spouse,” says Mr Roxborough.
“This might make marriage a particularly attractive proposition.”
Where there’s a considerable age or life expectancy difference, this can add further weight to the argument.
Mr Roxborough points to the case of Alberta Martin in the US. At the age of 21, she married an 81-year-old veteran, and she received payments from her husband’s civil war pension right up to her death in 2004 – nearly 140 years after the conflict ended.
4. Don’t forget about the lasting power of attorney
It’s also prudent to be prepared for the future, with a lasting power of attorney. This ensures that someone you trust can make decisions on your behalf if you become unwell and are unable to do so yourself.
There are two types, one for property and financial affairs and another for health and welfare.
Ms Deane says that everyone should consider these, regardless of age or relationship status.
“It doesn’t matter whether you’re married or not, if you’re not named on a power of attorney, it will be difficult to make decisions on someone else’s behalf, or access their finances unless it’s a joint account,” she says. “Without this, you’d need to apply for a deputyship order, which is more complicated and can take around six months to arrange.” It’s also considerably more expensive.
- Find out more about making and registering a lasting power of attorney at Gov.uk/power-of-attorney.
Wills are a must and are even more important when circumstances are a little more complicated.
“As families get less ‘vanilla’, having a will becomes even more significant,” says Ms Rosenbloom. “Also note that if you marry, any existing wills will be revoked.”
Without a legal will, your estate will be divided according to the rules of intestacy. This isn’t such an issue if you’re married. In this case, your spouse will receive as a minimum £250,000 of the estate and half the remainder, plus all your personal possessions.
However, if you’re cohabiting, all you’re legally entitled to is the deceased’s half of any property you held as joint tenants, which may come with the added sting of an IHT liability.
“The rules of intestacy rarely deliver what people wanted,” says Ms Deane. “If your wishes change, update your will – and if you remarry, then make a new one.”
6. Care fees
As well as being able to look after a loved one’s affairs if they’re unable to do so themselves, it’s also sensible to think about what might happen if one of you needs care.
“Local authorities look at an individual’s wealth when they assess care fees,” says Mr Charlish. “Rules vary between authorities, but although they’ll disregard the property if you both live there, half of any other joint assets will usually be taken into account.”
If you have a joint account, switching money into your own name to avoid it being spent on care fees won’t necessarily wash. Where a local authority believes you have deliberately removed some funds from the care pot – a practice known as ‘deprivation of assets’ – they will treat it as if it was still available to cover care fees.
One option for those who have their finances more entwined than they might want at this point is to purchase a care annuity. This takes into account the individual’s life expectancy and, in exchange for a lump sum, will pay a guaranteed amount for the rest of their life.
But whether deciding who benefits from your pension or where you leave your share of your home, talking about finances from the outset is key to avoiding hefty bills and considerable heartache later.
“Being upfront with your financial obligations and objectives is best to ensure you aren’t misleading, or being misled,” says Mr Roxborough. “Getting married isn’t always the best option financially. While it should always be a personal choice, make sure it’s an informed one.”
SAM BARRETT is a freelance financial journalist writing for FTAdviser.com, Insurance Post and Money Observer.