
Discussing money with your loved ones can be tricky.
You might feel uncomfortable broaching the topic of wealth with your family, and discussing your financial legacy may feel particularly awkward. Of course, nobody likes to think of a time when they’re no longer around.
Perhaps because of this, you’re avoiding talking to your loved ones about their inheritance altogether. Research from Canada Life has revealed that 5.1 million people in the UK who received an inheritance in the past five years did not discuss it with the benefactor beforehand.
Yet, failing to do so could have detrimental effects down the line. So, while you may be tempted to delay this particular conversation, it’s a topic well worth discussing now rather than later.
Talk Money Week, which runs from 4 to 8 November, is a national campaign that encourages people to have more open conversations about their money. So, it’s the perfect time to speak to your family about your long-term financial plans.
Read on to find out why it could be a smart move to start talking to your family about their inheritance now.
Talking about your intentions could help you plan
If you’ve been putting off writing a will or creating an estate plan, deciding to talk to your loved ones about their inheritance could provide the motivation you need to get started.
What’s more, if you’re undecided about how to pass on your wealth, talking about your finances openly could help you formulate a plan.
For example, your loved ones may share details of their financial situations and aspirations that you were unaware of.
Simply articulating your thoughts could give you greater clarity about what you want to happen with your wealth after you’re gone. This might help you put a plan in place that clearly sets out your wishes.
Managing expectations could reduce the risk of disputes
Experiencing a bereavement is a difficult time for everyone involved. If your loved ones are unaware of your wishes regarding the distribution of your estate, this could lead to additional upset, stress, and, potentially, disagreements.
According to IFA Magazine, there was a 34% rise in will disputes between 2017 and 2022, and Google searches for “disputing a will” increased by 60% in 2023.
You could reduce the risk of such arguments over your estate and ensure that your wishes are fulfilled by managing expectations while you’re still alive. Having a conversation where you explain your intentions can go a long way to helping your loved ones understand what you plan to do.
Additionally, starting the conversation as soon as possible could give you time to address any issues that arise and iron out any potential disagreements.
Your loved ones may be better placed to plan for their futures
Research published by MoneyAge in 2021 found that many UK adults overestimate their inheritance. Adults aged between 18 and 54 said they expected to receive around £150,000, whereas the average inheritance at the time was £50,000.
If your family are making plans for their future based on misguided expectations of how much money they will inherit from you, this could leave them in a financially vulnerable position.
Instead, talking honestly about how much you intend to pass on could allow your loved ones to make realistic plans for their futures.
You might be able to pass on your wealth more tax-efficiently
Even if your family has realistic expectations about their inheritance, they may not have considered the possibility of an Inheritance Tax (IHT) liability.
Your spouse or civil partner usually won’t have to pay IHT. But, if your estate is valued above the thresholds – “nil-rate bands” – when you die, any other beneficiaries may face an IHT bill.
The standard IHT rate is 40%, which is charged on any of your estate that exceeds the thresholds. So, this could significantly reduce how much your loved ones receive when you die.
Fortunately, you could reduce a potential IHT bill by working together as a family to create a tax-efficient plan for passing on your wealth.
This might include gifting some of your estate to your family during your lifetime. As such, it’s important to discuss this matter sooner rather than later.
Get in touch
If you’re unsure how to broach the subject of inheritance with your loved ones, we can help you start a meaningful discussion.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or will writing.
Approved by Best Practice IFA Group Limited on 15/10/2024