A recent Canada Life report has found that more than 5 million Brits who received an inheritance in the last five years didn’t discuss it with their benefactor beforehand.
These beneficiaries received a potentially life-changing amount without knowing it was coming or how much they would receive. As expert financial planners, we at HA&W find this incredibly worrying. And you should too.
This 4-8 November marks Talk Money Week – a chance to break the taboos surrounding money discussions and open up to friends, family, and loved ones.
Keep reading for a look at why you should be talking about your legacy and estate planning, and what to do if you receive a sudden inheritance.
Communication is key to effective intergenerational wealth and inheritance planning
Actuarial Post reports that 20% of Brits delay major life plans until they receive an inheritance.
And yet we know that 5.1 million recipients of an inheritance didn’t discuss this money with their benefactor first. That makes planning for these delayed life decisions incredibly hard.
So why aren’t we talking about money?
Attitudes to money are formed when we’re young and often reflect the views and relationships to money that we see around us.
Royal London research suggests that communication issues might be a generational one. It found that 75% of 18-24-year-olds spoke to their parents about money growing up, compared to just 43% of those 65 and over.
We are beginning to open up though. Virgin Money revealed back in June that 38% of Brits believe they’re better at talking about money now than they were five years ago. But 56% of Brits still admit to feeling uncomfortable having financial discussions with friends about money.
Communication is key, especially in the context of the great wealth transfer. FTAdviser reports that wealth is disproportionately held by older generations, but around £7 trillion will pass between generations in the next 30 years.
Whether you’re giving or receiving an inheritance, now is the time to start the conversation.
Whether you’re giving or receiving a large inheritance, financial advice can help to smooth the process
We’ve established that the first important step in inheritance planning is communication. Both parties need to understand that a wealth transfer will take place and how much money might be involved.
From the benefactor’s point of view, this can help with tax-efficient estate planning and help to form a fuller picture of retirement wealth.
The inheritor, meanwhile, can begin to make plans for big life events and factor a future inheritance into their long-term plans. Even with open and honest communication, though, a sudden windfall can come as a shock.
Here are three important factors you’ll need to consider:
1. Be wary of making quick decisions
It can be easy to become overwhelmed if you receive a large amount of cash in one go, especially as an inheritance. Grief and shock can cloud your judgement so stay calm and try to remove emotion from the decisions you make.
Give yourself a few days as a cooling-off period, especially where large purchases are concerned, and speak to loved ones before you make any big decisions. Large windfalls can come with large tax implications so be sure you don’t rush into anything you’ll later regret.
2. Make sure you’re thinking long term
Remember that if your goals haven’t changed, then your long-term plan doesn’t need to either. With careful planning, though, a large inheritance might mean you can reach your goals sooner.
Thinking long-term might mean clearing debt, topping up your emergency fund, or considering moving the money into an investment, deferring your enjoyment of the money until it has had a chance to grow.
A sudden large sum of money can make it easy to think about short-term gains but remember that you chose your long-term goals for a reason.
3. Consider the implications for your own legacy
A large inheritance could have a huge impact on your overall finances, with knock-ons not only for your savings, investment, and retirement but the legacy you intend to leave too.
You might need to write a will if you don’t already have one or update the one you have. You might be able to leave more to your chosen beneficiaries or even increase the number of beneficiaries you list.
An increased estate might be liable for Inheritance Tax too, which will require careful planning to mitigate the potential for a large charge.
These are all things that expert financial advice can help with, so be sure to get in touch.
Get in touch
If you’d like to discuss any aspect of your estate plan, get in touch. Contact us now to find out how our Chartered financial planners could help you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.
