Author Topic: Morbid pragmatism/peace of mind  (Read 952 times)

Fig

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Morbid pragmatism/peace of mind
« on: June 12, 2018, 11:20:13 AM »
I'm the breadwinner in the Fig house and I manage our finances. Due to multiple health conditions, Mr Fig works part-time and will probably never earn enough to support himself. I'm 40, he's just a bit younger, no children.

None of his conditions are defined as life-limiting. However, while I plan to live to 85, both my mother and grandmother had cancer in their 50s. At any rate, he is essentially a dependent, so it's sensible to make provisions for any emergencies and after my death. He doesn't receive any benefits and I'm not counting on the dwindling safety net of social security.

An added complication is that Mr Fig is American, though he has UK citizenship. He's unlikely to ever move back (not least due to healthcare costs) but he's obliged to keep filing US taxes. As we no longer have any major interests there, he won't owe taxes for the foreseeable future.

This is my initial list of what we need to consider and I'd welcome your comments and suggestions. I'm sure there are things I've overlooked.

Life insurance
  • Id like cover to repay the mortgage and cover many years of reasonable living costs, which I assume might be quite expensive. I may start a separate thread at some point as I have many questions and I need to get this right

My pensions
  • Local government scheme hes named as beneficiary and will receive a small annual pension plus c90k death benefit if I die in service
  • SIPP from past job I assume hell get something from this. I'll check both before I plan life insurance

His pensions
  • We have a few k aside but not currently invested. I need to help him set one up but I believe there are limits on how much can be invested in a pension on a low income
  • SIPP from a past job small income expected
  • We need to look into the US tax implications of a foreign pension, though he may renounce citizenship later in life
  • We don't plan to set up a LISA for him as the bonus would be taxed by the US

Cash/future investments
  • Savings are spread across several accounts and Im about to start investing
  • We have an emergency fund of 15k
  • Accounts are all in my name (to avoid the hassle to US tax reporting) and I plan to type up all the details
  • However, I'm moving some cash into his name to provide ready access to some money

Debts
  • None

Legal papers
  • Wills: if I die first, everything goes to him. To help him cope, my sister is named as executor, with a friend named as back-up
  • Power of attorney for both of us: under consideration, would pass all decisions to each other
  • Living will and funeral wishes for both: also under consideration

Possible inheritances
  • Nothing likely from US family
  • My lovely parents have made some provision for him in case they all outlive me


All of the above to be reviewed every few years


« Last Edit: June 12, 2018, 11:38:36 AM by Fig »

cerat0n1a

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Re: Morbid pragmatism/peace of mind
« Reply #1 on: June 12, 2018, 01:22:35 PM »
I don't think you've missed anything. It's been a long time since I had a mortgage (or life insurance) but I thought the lenders usually insisted on a sum equivalent to the mortgage being insured?

On a pension for him, assuming he has never made a withdrawal from a pension, he can invest up to the amount he actually earns. If he has no earnings, he can still invest 2880 per year and get 20% tax relief, even as a non taxpayer.

Do you have all details written down securely somewhere where he/other executor can find it? I know of two women whose husbands died suddenly (heart attack, car crash - neither are all that rare unfortunately) and in both cases, they struggled short term because they did not know details of online accounts and it took a long time for probate etc. to be sorted out.

melanie2008

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Re: Morbid pragmatism/peace of mind
« Reply #2 on: June 12, 2018, 05:52:43 PM »
I currently don't know all the tax implications about an American having a UK pension yet. I know you do have to claim what your employer contributes as income. I don't know what happens when you start withdrawing though. I will let you know if/when I find out, but also posting to follow.

PhilB

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Re: Morbid pragmatism/peace of mind
« Reply #3 on: June 13, 2018, 02:23:38 AM »
I can't comment on the complications of the US citizenship - other than to say that it sounds like renouncing it might be a good idea!  All thoughts below are purely in respect of UK tax.  No idea what Uncle Sam will try to appropriate if he's still a citizen.

If you die before age 75 and before crystallising your SIPP, and he is named as the beneficiary, then he gets the whole amount tax free.  If you die after putting it into drawdown he can inherit the SIPP, but any future withdrawals would be taxed as his income.
Based on the death in service figure you quoted I take it you aren't a higher rate taxpayer?  If you are (or expect to be soon) then, assuming you will be a basic rate taxpayer in retirement and won't be exceeding the lifetime allowance, your first priority for pensions should be to contribute any income taxed at 40% to a pension.  The >41% return you get far exceeds the 25% he could get and if you die he inherits it anyway.  For any income taxed at 20% the choice between pensions for you or him comes down to minimising the tax rate on withdrawal.  It sounds like he will have unused personal allowance in retirement so pensions for him up to that point are a good option.  On the other side you will be using up you PA once LGPS and SP are in payment, but you have the option of opening an LGPS AVC account that would allow you to leverage the DB scheme to take out the AVC as tax free lump sum - if your LGPS DB paid 10k pa you could take 66,666 tax free from your AVCs (25% of {AVC + 20xDB}).  Again this is inheritable by him tax free if you die early.