It is no secret that, today, parents tend to be wealthier than their children. Wealth built up during a lifetime of work leading to defined benefits pensions and a strong savings mentality combined with home ownership in a market that has seen ever-increasing values means many of today’s pensioners are reasonably well heeled. That leads to an expectation by the younger generation of a windfall through inheritance when a parent passes away. But how and why are your loved ones relying on inheritance?
A significant number of people in the UK are relying on some form of inheritance. Why?
There are a whole host of reasons why a significant number of people in the UK are relying on some form of inheritance. Those reasons may be as simple as children wishing to gain their inheritance from their parents to help them bring up their own children in an increasingly expensive world.
Alternatively, they may want to receive their inheritance to bolster any pension they may have in their own retirement. Others may wish to clear their mortgage or use their inheritance to buy a more expensive home than they could normally afford. They might want to splash out on foreign holidays or buy expensive cars, or to help with school fees or university or college costs for their children. Others, again, might want to help their own children get onto the property ladder with a substantial deposit for their house purchase.
These are just some of the many reasons why a significant number of people in the UK rely on some form of inheritance.
How to have discussions about your estate with loved ones
There seems to be an apparent reluctance to discuss the level of wealth and the distribution of assets with loved ones. There are many reasons why this might be the case. Parents have their own priorities and these are likely to differ from their children's priorities.
Asking a parent as to where their estate is passing after they die is, perhaps, not the best way to go about this. However, it would be sensible for children to suggest to parents that they consider doing some estate planning as this will give them control over how their estate is eventually distributed. It also opens discussions on how to mitigate the effects of Inheritance Tax (IHT) and, potentially, long-term care costs, as well as taking advantage of a range of IHT reliefs.
It may not be easy to start off those conversations. However, far too many people die without making any arrangements to deal with how their estate is distributed. That is blindingly obvious when almost two thirds of people in Scotland do not have a Will!
Why effective estate planning is so important
Effective estate planning is essential if you want to avoid a sizeable proportion of your estate ending up in the hands of HMRC. Remember, IHT is charged at 40% of any estate more than the IHT threshold – currently £325,000 (or £500,000 if a heritable property is passing to a qualifying beneficiary). Generally, spouses tend to direct their estate passes to the survivor on the first death. However, this may result in care home fees eating into any inheritance planned for children and it may be in the family’s best interests to redirect those assets.
These two issues alone show why effective estate planning is so important. In addition, there may be lifetime allowances available to further mitigate any IHT liability. As such, it is important to start succession planning at the earliest opportunity.
Specialist Estate Planning Lawyers, Edinburgh
Kathryn Johnston is an Associate within Murray Beith Murray Asset Protection group, and is an estate planning specialist. If this article has raised any questions or you would like to discuss an estate planning matter, then please complete our contact form, or call us on 0131 225 1200.
Murray Beith Murray was established in 1849 as advisors for generations of clients, committed to our values of integrity, expertise and trust. This aim and these values continue to this day, as does our commitment to be here when you need us.