Are your loved ones relying on an inheritance to reach life goals?

13 November 2024

Research suggests that a worrying number of families are putting off major life decisions until they receive an expected inheritance. It could place their long-term finances at risk, but talking to your loved ones may identify ways you could offer support.

According to a Canada Life survey, more than 1 in 5 UK adults who expect to benefit from the estate of a loved one are delaying major life events until they receive their inheritance. The figure increases to 27% among those aged between 18 and 34.

While waiting to receive an inheritance may seem sensible, it poses some risks.

3 important reasons why relying on an inheritance could affect long-term security

1. The beneficiary’s expectations might not reflect reality

Many families don’t speak about finances, including inheritances. In fact, separate Canada Life research suggests that more than half of UK adults who have received an inheritance in the last five years did not discuss the value of it with the benefactor beforehand.

As a result, your loved ones might be delaying decisions based on inaccurate information. If they’ve put off saving for a home on the expectation they’ll be able to put down a sizeable deposit when they receive an inheritance, they could miss out on home ownership if there’s a gap.

2. Your circumstances could change

Even if your beneficiary understands what they’re likely to receive from an inheritance, it’s important to note that circumstances can change.

Perhaps you plan to split your estate evenly between your three grandchildren. If you welcome more grandchildren, the portion each may receive could fall substantially.

Alternatively, you might spend more than you expect during your lifetime. For example, according to The King’s Fund, the number of people who need social care has risen in recent years, and most people will be required to pay for all or a portion of their care costs. So, if you need support later in life, the inheritance you leave behind could be less than both you and your beneficiaries expect.

3. Putting off decisions could affect their long-term financial security

Putting off life goals could affect the long-term financial security and freedom of your loved ones too.

For instance, some might decide to skip contributing to their pension in favour of waiting for an inheritance. It could mean they miss out on years of potential investment growth and long-term financial security.

Speaking to your loved ones about their inheritance could be valuable

Canada Life found that just 12% of people received the exact amount they expected from an inheritance.

In some cases, speaking to your loved ones about your wishes and the value of your estate could be useful. While talking about money can be something of a taboo subject, it might help them make better financial decisions.

You don’t have to provide all the details of your estate if you’re not comfortable with that. But, explaining the inheritance they may receive could ensure their expectations are realistic.

Arranging a meeting with loved ones could also provide an opportunity to talk about their finances. For example, what are their financial circumstances like now, and how do they plan to use an inheritance? You might find lending support now could be more beneficial.

More families are choosing to gift assets during their lifetime

While an inheritance has been the traditional way to pass on wealth to your loved ones, more families are choosing to pass on assets during their lifetime.

Indeed, according to IFA Magazine, in the last decade, the number of families distributing their wealth before they pass away has increased by 48%.

There are many reasons why you might choose to gift some of your assets now. Perhaps your grandchildren are struggling financially, so a gift now could prove to be more beneficial than an inheritance later in life. Or, if you’re concerned about Inheritance Tax, gifting might be a way to reduce the potential bill.

One of the challenges of gifting during your lifetime is understanding the potential impact it could have on your financial security – could passing on a lump sum now mean you risk running out of money in the future? Or could it affect your ability to cover unexpected costs, such as care services?

Making gifts part of your financial plan may help you assess whether it’s the right decision for you.

If you decide to gift assets, you might also want to consider how it’ll affect how you want your estate to be distributed when you pass away. For instance, if you’ve given one child a gift now, you might decide the other will receive a greater proportion of your estate.

Regularly reviewing your will to ensure it continues to reflect your wishes and circumstances could help you balance gifting with inheritance plans.

Contact us to talk about your beneficiaries and how to offer support

If you’d like to understand how to support your loved ones financially, we could work with you to make it part of your financial plan. Whether you want to leave an inheritance or pass on wealth now, we may help you balance your needs and financial security with the goals of your beneficiaries.

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, Inheritance Tax planning, or will writing.

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