How to prepare your loved ones ahead of inheriting money from you

Often referred to as the “great wealth transfer”, there is an estimated £5.5 billion to be passed down to the next generation over the next 20 to 30 years, figures from Barclays suggest.

Your wealth may well make up a portion of this figure. Indeed, you might have named your children and grandchildren as your beneficiaries in your will, leaving them in line to receive significant sums of money when you pass away.

Interestingly, many young people may be banking on using this wealth to achieve their own financial goals in the future.

As MoneyAge data shows, 1 in 5 millennials and Generation Z individuals expect to inherit more than £600,000 from parents or other family members.

On the surface, this may seem like a good thing – you no doubt want to help your children or grandchildren in the future, and providing them with a nest egg may be one of your main goals.

However, it’s important for your beneficiaries to be well-prepared to receive this wealth. Otherwise, they may not manage it as prudently as you might hope.

Even more worryingly, they might build the wealth they expect to receive from you into their long-term plans. This could become an issue if they are relying on money that there’s a possibility of them not receiving if you end up having to use it for yourself.

So, find out how you can prepare your loved ones to receive their inheritance from you.

Speak openly with your beneficiaries

To begin with, it can be sensible to speak openly and honestly with your loved ones. It may feel uncomfortable, but explaining your financial situation and what your family are in line to receive can be hugely productive.

This way, your children or grandchildren can understand what wealth they might receive in future. In turn, this could help them plan more effectively for the long term.

You can tell them what you’d like to happen to your wealth, too. While not legally binding, telling your child or grandchild that you want them to use their inheritance sensibly to achieve their goals might encourage them to think twice before wasting it.

This is also an opportunity to explain that their inheritance may not be guaranteed due to factors outside of your control. Find out more about this below.

Consider putting assets in trust

Trusts can give you greater control over how and when your beneficiaries access your wealth.

When money or assets are held in trust, it is ringfenced for a specific individual that you name. You then usually name a trustee to oversee the wealth on your behalf.

Trusts can be useful because you can set money aside for whoever you like, leaving instructions for when they can access the wealth and what for.

This can be especially helpful if you’re passing money to someone who might not yet be as financially savvy as you’d like them to be.

For example, if you’re passing your wealth to a teenage grandchild, you may be concerned that they’ll squander it in their youth, rather than use it to secure their future. Meanwhile, by leaving their inheritance in trust, it may help to ensure that the money is left untouched until they are older.

Additionally, putting a reliable trustee in place can give you the peace of mind that someone will be there to coach your loved one and provide some level-headed guidance, even when you’re no longer around.

There are various types of trust that may be of use to you in this instance. It can be useful to work with a professional to help you select the right one.

Bear in mind that putting money into a trust is typically irreversible. Make sure you’re entirely comfortable with this before doing so.

Impress on them that their inheritance is not guaranteed

A serious concern you may have is that, while you may want to pass wealth to your loved ones, there’s a possibility that you’ll need to use it during your lifetime.

The MoneyAge figures show that 3 in 5 millennials and Generation Z individuals expect to receive an inheritance of some kind. But, there are circumstances outside of your control that might mean they don’t get the money they expect.

For example, imagine that there’s a significant financial crash during your retirement and you lose some of the value of your holdings.

In this case, you might need to use more of your invested wealth to fund your lifestyle. This could reduce the inheritance your loved ones would have otherwise received.

Furthermore, what would happen if you needed later-life care? Care home fees can be expensive – UK Care Guide estimates costs to be as high as £39,000 a year, just for residential care – and so these costs could quickly eat into the inheritance your loved ones are expecting.

As a result, it might be sensible to encourage your beneficiaries to think of your inheritance as a bonus, instead of relying on it. Otherwise, they might organise their financial future around wealth that they may end up not receiving.

Working with a financial adviser could help you prepare your loved ones

If you’d like help preparing your family to receive your wealth in the future, you may benefit from working with a financial adviser.

At Rosebridge, we can explain your options for organising your money for your loved ones, depending on your personal circumstances, concerns, and what you want to happen to your wealth.

Crucially, we can also help to mediate conversations with your family members. We can explain your decisions and how everything will work so that everyone understands what will happen in future.

This way, there’ll be no surprises for your beneficiaries. Meanwhile, you can be confident that you’ll have enough wealth to live your desired lifestyle in future, no matter what happens.

Email or call 01204 300010 to organise a meeting with us.

Please note

This blog 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, will writing, or trusts.


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