Do you ever talk about inheritance? How does it make you feel? For many of us, it can be a bit of a taboo subject. If you’re passing it on, you might want input on how it’s spent but feel you can’t give with one hand and take with the other. If you’re receiving it, you might feel a sense of guilt or that it’s not your money in the first place. Then there’s the idea of death and leaving loved ones behind which is never easy to talk about.
Over the next 30 years, the intergenerational wealth transfer is expected to be around £5.5trn, labeled as the greatest wealth transfer in UK history.* In the UK, over 80% of household wealth is held by the over-45s, and over the next 30 years, this is set to be transferred between generations as inheritance or gifts (according to the Office for National Statistics).**
So, how do we make sure those who choose to pass on money feel prepared to do so and the younger generation of beneficiaries are educated about the large sums of money that they may one day inherit?
Talking to family, friends, colleagues, and professional connections, we’ve learned that many people in the UK feel embarrassed to talk about their wealth. They fear that they will be seen as ‘big-headed’ if they discuss it in public. Our first point on that would be to take pride in the fruits of your labour - 'you don’t work hard for nothing'. But, understandably, it’s a difficult topic to navigate since money goes hand-in-hand with all sorts of emotions. You don’t need to discuss it with people at the pub or at your exercise class but conversations in confidence with trusted friends and family members make all of the difference. It avoids risk and missed opportunities like tax efficiency if the transfer of wealth is planned for by all parties.
And what if the conversation about inheritance could be a positive one? It’s certainly possible. From a financial planning perspective, it’s helpful if all generations involved in the giving and receiving of inheritance are communicating openly about money. It avoids any misunderstandings or false assumptions.
So that everyone feels like they are on a level playing field, when clients express an interest in passing on inheritance, we encourage everyone involved to think of their wealth as the shared wealth of the family (or friendship). Each member is simply looking after those assets at that point in time, enjoying them, nurturing them, and leaving some to pass on to the next generation if desired.
If you are planning on leaving an inheritance to your loved ones, a good starting point is to talk through the amount you plan on passing on, when you are thinking about transferring it, and some things you would enjoy seeing the beneficiary spend it on. They can then share their ideas on how they might like to spend it and you can align both objectives. That way everyone involved is reassured and comfortable with the plans.
Another thing to keep in mind is Inheritance Tax. Gifting money isn’t as straightforward as passing it from one person to another but, if planned properly, can be a smooth process.
We’ve written a separate blog all about Inheritance Tax Planning here. The key is to make sure you are familiar with rules and tax allowances so you can reduce a potential tax bill for your loved ones. You can plan to gift whilst you are still alive, and that comes with the joy of being able to see your loved ones enjoy whatever you pass on to them, perhaps you can enjoy it making memories together.
Gifting can be done in various ways but you need to be aware of the formalities around this so you can do it confidently and without any surprises from the tax office. These areas can get complex, so we’d recommend speaking to us at Stephen Eve Financial Planning.
Inheritance can feel overwhelming but our job is to provide clarity, ensure you understand your options and feel in control. Financial planners can create a safe, neutral, constructive space to discuss opportunities and concerns. We can also clear up any misconceptions about inheritance and provide unbiased, independent advice. Ultimately, we help to coordinate and facilitate positive conversations about inheritance so you can factor it into your financial plan confidently.
There is no question too big or too small when it comes to inheritance or your wealth in general for that matter. Drop us an email or pick up the phone if we can answer anything for you.
This content is for information purposes and should not be treated as financial advice. We would always recommend speaking to a professional before making decisions regarding your wealth..
The value of investments can fall as well as rise and you may not get back the amount originally invested. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. Even a long-term investment approach cannot guarantee a profit.Tax treatment varies according to individual circumstances and is subject to change. Please note that the FCA does not regulate will writing, tax planning and trusts.