The Purposeful Wealth Podcast

Spending Your Inheritance

October 26, 2022 Jonathan Gibson
Spending Your Inheritance
The Purposeful Wealth Podcast
Show Notes Transcript

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Welcome to the Purposeful Wealth podcast, and today the subject matter is Spending your Inheritance.  

The main principle of legacy planning is that you’re providing for the people who are important to you, and the challenge is to do so in an efficient way. It’s something we should all be thinking about, and ought to be a core part of your financial plan.

One of the main issues is that most people aren’t aware of their annual tax allowances and exemptions. These allowances are all perfectly legal and, when used correctly, they can help you reduce your current and potential tax liabilities; but often these are things that people don’t even consider until they sit down with a financial planner who can plan how best to reduce their tax liabilities.

When we think of inheritance tax and legacy planning in a different context, new research suggests the cost of living crisis could prompt older millennials to burn £2.4 billion a year in inherited cash during the next two years.

Spending this inheritance would help keep pace with rising bills as more people put their property dreams on hold.

Higher living costs are now the primary expense anticipated by most people regarding how they will spend their inheritance.

The study of those aged 39 to 41 by Barclays Wealth found that spending inheritance on living costs has overtaken using the money as a deposit on a new home or to start a new business.

On average, older millennials told the researchers they expect to spend 61% of money gifted by relatives on energy bills and other living expenses.

The average gift anticipated from family members is £2,000 over the next couple of years but rising living costs will take up around £1,220 of that inheritance, a total of £2.4 billion.

The survey found that more than three in four people aged 40 have already received some form of inheritance from their parents.

Clare Francis of Barclays Wealth explained that the findings showed that older millennials, some with young children, are feeling the pinch. She said:

“The average 40-year-old has high monthly outgoings. Add to that the pressures of inflation and soaring energy bills, and you have a section of society that is really struggling.”

With household incomes forecast to decline by 10% over the next two years, due to soaring price inflation and slower wage growth, families might expect to see their income cut in real terms by £3,000 in this time.

One inevitable consequence of these real terms pay cuts is deferring property purchasing ambitions, which inherited monies can often help fund in adulthood.

Parents and grandparents might increasingly decide to make gifts during their lifetimes to help alleviate the cost-of-living crisis, and so they can see their offspring ‘enjoy’ use of the funds.

The survey from Barclays Wealth also found that more than a third of parents of 40-year-olds said they might need to give money to their adult children to help cover living expenses.

Where inheritances are being paid earlier than initially anticipated, it is essential to consider your own Financial Planning first, to reduce the risk of running out of money during your lifetime.  Tax will always play a part in the transfer of wealth, but if it’s done tax efficiently, then the next generation will be able to enjoy more money.  As much as reducing tax is about wealth preservation and wealth enhancement, it also ties back into the principle of stewardship. It’s the idea that you want your money to work hard and smart for you so you can live the life that’s important to you, yet to ultimately transfer as much as possible to loved ones or causes and communities you care about.

It’s our mission at Wells Gibson, to help clients put themselves at the centre of this bigger picture. Whatever stage of life our clients are at, we help them anticipate what they’ll need for life’s transitions and plan accordingly. All of that feeds into your legacy planning because it’s only when you’ve understood the rest of your financial future that you can start to determine what you can pass on and to whom that will go.

If you have any questions about early inheritance or legacy planning, please do get in contact with the team at Wells Gibson.

And until the next time, thank you for listening to this episode of the Purposeful Wealth podcast.