Earlier this year, Betty Larkworthy suffered the loss of her husband, a retired local government officer. Thankfully, he has left her well provided- for. Since his death, she receives 50 per cent of the superannuation pension scheme that was paid to them jointly on top of her basic state pension.

She also owns her home, recently valued at pounds 160,000, outright. She has pounds 14,000 in a 30-day account and pounds 40,000 in a 90-day account - both with Abbey National - pounds 13,000 of National Savings, pounds 8,000 in a NatWest current account and shares worth about pounds 60,000. Her share portfolio consists of 15 companies, mainly a combination of privatisation shares.

Mrs Larkworthy's objectives are to "simplify" her investments, plan for the time when she may need long-term care and consider making gifts to her grandchildren.

The adviser: Andy Harris is director of Maddison Money Management, a national firm of independent financial advisers and member of the Burns Anderson Independent Network (0800 0742233).

The advice: Mrs Larkworthy is relatively cautious when it comes to investing and thus investing in individual shares is a little too risky.

There is no immediate need to generate further income from investments as Mrs Larkworthy's pension covers her monthly expenditure. In fact her state pension goes straight into her 30-day account and remains untouched.

Mrs Larkworthy has no inheritance tax (IHT) to pay as a result of her husband passing away but would like to ensure that her estate remains intact on her death.

First and foremost, she must retain her current account balance and 30-day account balance, as they will continue to serve as a reserve for any emergencies or opportunities (Mrs Larkworthy feels comfortable with pounds 3,000 and pounds 14,000 respectively).

These will be topped up by state pension payments. The balance in the 30-day account should be reviewed annually and excess funds transferred into an investment with potential for capital growth.

Mrs Larkworthy's estate has a total value of about pounds 300,000. Under current legislation it could therefore face an IHT liability of around pounds 31,000 on her death.

This is calculated by deducting the first pounds 223,000 that is not subject to IHT from the value of the estate, leaving pounds 77,000. This sum would then be taxed at 40 per cent.

By transferring the pounds 60,000 currently held in shares into an investment bond, Mrs Larkworthy could take care of three concerns. She would simplify her investments considerably, whilst mitigating the majority of her IHT liability by placing the bond into trust to the grandchildren (40 per cent of the pounds 60,000 is pounds 24,000). This would create a "potentially exempt transfer" (PET), which means that the potential IHT liability would be reduced over a period of seven years. The grandchildren would be the third objective taken care of by this action.

As for the deposit accounts themselves, more competitive rates can be obtained on both current and notice accounts. For instance, while NatWest pays 4.6 per cent on its current account, Sainsbury Bank pays 6.75 per cent. Scarborough Building Society pays 7.3 per cent on its 30-day account compared to Abbey National's relatively uncompetitive 5.45 per cent. Legal & General Bank offers 8 per cent on its 90-day account (Abbey National offers 7 per cent). Incidentally, Saga has an instant access postal account for the over-50s which currently pays 7.9 per cent on balances over pounds 10,000.

For the investment bond, Mrs Larkworthy may wish to consider a guaranteed capital fund. These give the option of guaranteeing the return of anything between 95 to100 per cent of capital and yet still have the opportunity of investing in the market for capital appreciation.

Having said this, as these funds may be placed into trust for the grandchildren, Mrs Larkworthy should consider talking with the trustees (probably Mrs Larkworthy and the respective parents) to ascertain the most appropriate funds. The funds may not be required for some time, and so slightly more risk than Mrs Larkworthy would normally be comfortable with might be acceptable.

For the remaining pounds 45,000, Mrs Larkworthy should consider insurance cover for long-term care. Subject to certain conditions, a contribution of pounds 45,000 would provide cover of up to pounds 35,000 a year with Norwich Union. This could also have the effect of further reducing the IHT liability by pounds 18,000.

Finally, Mrs Larkworthy also needs to be aware of the age-related allowance income cap.

The personal allowance for anyone aged 65 to 74 is currently pounds 5,410 before tax is levied, while the standard personal allowance is pounds 4,195. As soon as income of over pounds 16,200 is earned in any one tax year, the allowance is reduced by pounds 1 for every pounds 2 earned above the pounds 16,200 until it reaches pounds 4,195. For example, a person who earns pounds 17,000 - pounds 800 over the cap - would face a reduction of pounds 400 in age-related allowance of pounds 5,410, which would then be cut to pounds 5,010.

With her two pensions, dividends from shares and income from savings, Mrs Larkworthy is earning well above the cap and is therefore restricting her allowance to the standard. This is unnecessary, as she has no need for any income above her local government pension. The above measures would mean the age-related allowance would only be reduced by a few hundred pounds. Over time, the reduction could be completely offset by juggling with her earnings to cut tax outgoings.