Have you spoken to loved ones about what you’ll leave behind for them? It’s not a conversation anyone wants to have, and that’s understandable. But discussing inheritance could be useful to you and them.

As Brits, we often don’t talk about our finances. And what will happen to our wealth after we pass away even less so. In fact, research from Royal London found that 6.5 million adults refuse to discuss their will. Nearly half (45%) of parents with adult children said the contents of their will is ‘no one’s business’ but their own or their partners. However, there are benefits to openly discussing plans with beneficiaries. Among them:

1. Ensure loved ones understand your wishes

One of the key benefits of talking about your will is that it’s an opportunity to explain your wishes. Speaking to beneficiaries and those you may choose not to leave anything could reduce tensions. The number of people contesting wills in the UK has increased. It’s often due to a feeling that a will was unfair or that someone has missed out. An open chat can ensure loved ones know your wishes. Hopefully, this will reduce the chance of someone contesting you will.

2. Provide realistic expectations

Statistics suggest UK adults are over-optimistic about the inheritance they’ll receive. Adults expecting an inheritance are, on average, anticipating over £130,000 to be left to them. But the reality could be very different. The average amount passed down by parents is far less at £30,000. If loved ones are making plans with very different expectations it could leave them in a financially vulnerable position.

3. Understand their financial situation

Speaking about inheritance is also a chance to understand what loved ones will do with it. Young adults, for example, may be hoping to get on the property ladder. Whilst others plan to use it to fund retirement. You may find that your wealth can have a greater impact on their security if it was given as a gift instead. If gifting is an option you’re considering, ensure you understand the gifting rules first. You should also assess the impact it could have on your own security and plans.

4. Reduce potential Inheritance Tax liability

Could your estate be liable for Inheritance Tax when you pass away? Careful estate planning can often reduce the bill. Discussing your estate with loved ones can highlight where steps can be taken to cut the amount owed. Gifting, as mentioned above is an option, as is using a trust or leaving a portion of your estate to charity.

Calculating the value of your estate

Before discussing potential inheritance with beneficiaries, it’s important to understand your estate. How much is it worth now? How will this change over the course of your lifetime?

The first step is to work out the current value of your estate. This should include all your assets, such as savings, property, and investments. Pensions can also be a useful way to pass on wealth to your loved ones and are typically free from Inheritance Tax. However, your beneficiary may pay Income Tax on the withdrawals made depending on your age when you pass away and their income.

You then need to understand how this value will change. Withdrawing an income from assets in retirement, for instance, can have a significant impact. You should consider how you’ll use your wealth over your lifetime. It can be difficult to understand how your wealth will change in the medium and long term. This is where financial planning and cashflow modelling can help. Whilst there are no guarantees, it can help you answer questions like:

  • How will a longer retirement affect the legacy you leave behind?
  • What impact would needing care later in life have?
  • How will expected investment returns affect long-term wealth?
  • Can you afford to spend more now and still leave the legacy you’d like behind?

With this information, you’re in a better position to think about how you’d like to distribute your wealth.

Remember, plans and circumstances can change

Remember your circumstances and plans can change. If you were to need care in your later years, for example, the amount you leave behind for loved ones could decrease. Or, you may decide you want to distribute your wealth differently. As a result, reviewing your estate plans and going back to conversations about inheritance can be useful. It’s a way to ensure your will continues to reflect your wishes and wealth, whilst keeping everyone in the loop.

Are you unsure of what you’ll leave behind for loved ones and what inheritance plans mean for your current lifestyle? Please contact us if you’d like to chat with a financial planner and better understand how your wealth and assets could change over time.

Please note: The Financial Conduct Authority does not regulate Estate and Tax planning.