Most of us will at some point receive an inheritance. It’s not a nice thing to think about, as it is usually associated with losing a loved one. However, it is part of the circle of life.
As we’re constantly reminded, we’re all living longer. Despite this it’s perhaps surprising to know the average age of receiving an inheritance is now 61 (Resolution Foundation Research).
Another quite surprising number to consider is this: the average inheritance those over 55 expect to leave behind is £124,000. This is the result of a 2,000 person survey conducted by the wealth manager Charles Stanley for This is Money in 2020 (This is Money Article).
We know from our experience of talking to people about the subject, that some are ‘banking on’ receiving a sum and have even mentally accounted for what they’re going to do with it.
Others who will receive, or have received, an inheritance, are sufficiently secure themselves and because of this will look to help their own children, for instance with buying their first home or if a little older, with the costs of bringing up a young family.
We often think of inheritances as a lump sum on death of a loved one. This isn’t always how it works out however, as more and more frequently those in a position to make gifts, want to do so while they’re still alive, to see their loved ones enjoy it and the benefits it brings.
With all of this in mind, we want to give you 5 top tips to think about when inheriting money.
Decide if you need it
You may be in the fortunate position where you have all the money you will ever need and so any further funds from an inheritance will be surplus to requirements.
If this is the case, think about how best the inheritance could be used instead. It could be that one of your own children or another family member would really benefit from the financial help. You have 2 years from the death of the person providing the inheritance to change their will, to benefit other people if this is more tax efficient.
If there is no-one you want to pass it to, you could donate it to a charity that you, or the person you received the inheritance from, care about. If you do decide to do this, it would be worth seeking legal help on varying the will of the departed, as leaving money to charity can reduce the amount of tax the estate pays, meaning a tax rebate.
A word of caution though: are you ABSOLUTELY CERTAIN you won’t need any of it? We always recommend that clients have a lifetime financial cashflow forecast to ensure they haven’t forgotten any unforeseen expenses that may occur in the future.
Think about how best to use it for your long-term financial security
Inheritance usually comes in the form of cash once the estate has been settled, but can sometimes come in the form of a property, either the full ownership of it or in part with someone else.
The inheritance received could be a potentially life-changing amount, however it usually demands that you ‘do something’ with it. If it sits in cash, it won’t be doing anything meaningful for you, particularly with interest rates still very much lower than inflation. If it is a property, or part of, what will you do with it?
Unless there is a need for spending the inheritance on something else, it is usually beneficial to invest for the long-term, particularly if it would otherwise just sit in the bank. If that time is not now, there will be a time in the future when you need the money to do a specific job for you, whether that be as a big lump sum, providing an ongoing income, gifting it to your own children or grandchildren or spending it on long term nursing care as you get older.
You should think very carefully about how to deal with partial property ownership as this can be problematic in the future. At Magenta we know of at least one farming family where a one acre field is owned by 11 cousins – each generation has split its share between ever growing families. It is unlikely that 11 people will ever reach a consensus about what to do with land or property.
Think about how the person you’ve received it from would want you to use it
Very often those who are gifted money or inherit it, feel a weight of responsibility to make the best use of it and honour the wishes of the person they’ve inherited from. This is normal and is not something to worry about. If they didn’t trust that you’d do the right thing with it, they would more than likely have told you what they wanted you to do with it, written it in their letter of wishes or not gifted it you at all!
Therefore, whatever you think is right to do is very likely to be the right thing to do, and you should do so worry-free.
Get advice
In nearly all scenarios where the topic of inheritance is concerned, it pays to get advice from a financial planner.
We understand inheritance tax rules and allowances, so can advise if you are looking to help the next generations, both in your lifetime or when you’re gone.
We can also help those who receive gifts or inheritances, by recommending how to best use that money sustainably as part of your long-term financial plan or to gift it on again if you do not need it yourself.
Our Magenta Manual helps people to really think about how they want to be remembered and how they might want their estate to be distributed and our Estate planning service ensures tax efficiency and simplifies administration.
Spend some
At Magenta we believe in helping people to pursue their passions and live their best lives while also keeping a strong focus on security and general happiness.
In which case, using inheritance to bring joy and happiness to yourselves and your family, while enabling you to do things that otherwise you would have been unable to, is almost certainly why you were left the inheritance in the first place.
A financial cash flow forecast will allow you to clearly see how much you can spend while remaining secure for the rest of your life.
If you have recently received an inheritance and are not sure what to do with it, or you are thinking about how and to whom you want to leave your wealth, do give us a call for a friendly chat – we are sure we can give you some ideas and options that you didn’t even know existed.