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Is an inheritance important to your financial plan? – Clifton Nash

Is an inheritance important to your financial plan?

As we make financial plans, it’s often necessary to make some assumptions. Perhaps you’ve factored in a few pay rises before retirement or calculated what investments can expect to return. But research indicates some people could be relying on receiving an inheritance with little information about it to reach their aspirations.

If you’re expecting to receive an inheritance, it can be tempting to build it into your financial plan. Maybe you hope to use it to fund retirement, pay off mortgage debt or tick something off your bucket list. However, it’s a financial area you have little control over, making it difficult to effectively be part of realistic plans.

Recent research has highlighted how making an inheritance key to financial plans could affect security in the future. According to research, one in seven young adults expect to receive some inheritance before the age of 35, with the average expected to be almost £130,000. However, statistics suggest reality is very different. The typical inheritance age is between 55 and 64, whilst the average amount handed down is significantly below expectations at £11,000.

Further research conducted by Canada Life supports the potential gap between expectations and reality:

  • 63% of over-45s had not told their beneficiaries how much inheritance they plan to leave them
  • Two in five over-45s are concerned they will use up their assets to fund their own retirement, with nothing left for loved ones
  • Furthermore, 40% are worried they have not saved enough to cover later life, suggesting they may not be able to leave an inheritance

These findings highlight the two biggest challenges of making inheritance part of your financial plan; you don’t know when you’ll receive it and can’t say with certainty how much it will be.

1. When will you receive an inheritance?

There’s no way to know when you’ll receive an inheritance. Whilst in the past people may have received an inheritance in middle age, helping them to pay off a mortgage, support children through university or contribute to a pension, rising life expectancy means this often isn’t the case now.

It’s normal to think about how an inheritance can be used, but if your plans hinge on receiving an inheritance at a certain point, it could mean they derail.  If a benefactor lives five or ten years beyond average life expectancy, how would it affect your financial security?

2. How much will you receive?

The research suggests that some people will be disappointed with the amount of inheritance received. This may simply be down to a lack of communication. Speaking to loved ones about how they intend to distribute their assets and the value of their overall estate can help to avoid misunderstandings.

However, this isn’t the only reason for the gap. Potential benefactors may face unexpected expenses that mean the amount they leave behind is reduced. For instance, higher than anticipated living costs throughout retirement can slowly eat into money that had been earmarked for inheritance and often if care is required individuals will have to cover the costs themselves unless total assets are below £23,250. As a result, there’s a chance that actual inheritance is below what the benefactor planned.

Should you include an inheritance in your financial plan?

Making an expected inheritance integral to your financial plans could cause financial insecurity and lead to decisions that may not be right for you. For instance, if you choose to forgo paying into your pension with the expectation that an inheritance will come before you expect to retire, what will you do if it’s received a few years later than anticipated or not at all? Believing you have a lump sum coming in that you can fall back on may mean you take more risk with investments than you may otherwise have done, for example. 

Whilst inheritance can and should be included in your financial plan, ideally, it shouldn’t be essential for achieving the lifestyle you want. A plan should ensure the income you have greater control over can provide for you, with inheritance being used as a bonus that can enhance your lifestyle or bring plans forward. It’s an approach that can give you more confidence in the future and your financial security.

If you’d like to discuss your financial plan and inheritance, whether you’re expecting to benefit from inheritance or want to protect what you’ll leave behind for loved ones, please contact us.

Please note: The Financial Conduct Authority does not regulate estate planning.  

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For South Wales based clients and new enquiries please contact John Davies via email jdavies@cliftonnash.co.uk or call 07970 070659

For Bristol based clients and new enquiries please contact Richard Wilcox via email rwilcox@cliftonnash.co.uk or call 07786 933765

For all administrative and general business enquiries please contact Samantha Durkan via email sdurkan@cliftonnash.co.uk or call 07896 991454

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