Losing a close family member can be an incredibly difficult time. Receiving an inheritance when you are recently bereaved might only complicate emotions further, but despite the circumstances, an inheritance may be welcomed and have a positive impact on you and your family.
If that is the case, you are not alone in thinking it. Research from SunLife has found that nearly one in five adults are relying on future inheritance from their parents to either help repay debt or supplement their income. One in ten would even go so far as to say their elderly parents are spending too much of their inheritance. A sad situation you may agree, but a reminder of how much weight some place on inherited wealth.
In the first instance, there are surprisingly common things to avoid at such a vulnerable time:
Making emotionally driven decisions
At a time when emotions are running high, it’s fair to say you might not be thinking clearly. Avoid making quick, big life decisions such as quitting work or selling your home.
You may feel some guilt, isolation or even confusion about your newly inherited wealth. This is not unusual, but certainly not the right time to be making life-changing financial decisions.
Spending too much or being too charitable
What might begin as small spending indulgences can quickly turn into a full-on splurge. Be careful, step back and try to re-assess your situation. An inheritance can quickly be squandered with little planning and forethought.
This includes being too charitable. Gifting wealth to family, friends or a charity is wonderful and noble in the right circumstances, but not something to be rushed into.
You may be a be a homeowner already and intend to pass wealth to your children to springboard them on to the property ladder. This seemingly straightforward situation can actually become quite complex. It is worth seeking financial advice to ensure any transaction is appropriate, affordable, tax-efficient and ownership questions are considered and answered.
Doing nothing could impact your financial future as much or more than making some mistakes. For example, repaying expensive debt such as credit cards or overdrafts can save a significant amount of interest. If you have no short-term debt, it may be worth considering paying part or all of your mortgage, depending on your circumstances.
You might also be losing tax-efficient savings allowances. Not maximising your annual £20,000 ISA allowance, or making maximum annual pension contributions available to you, is a huge lost opportunity. Annual pension allowances can carry forward for three years, so are not immediately lost at the end of the year, but ISA allowances don’t. With ISAs, it’s use it or lose it.
Finally, you will potentially be losing investment gains and the huge benefit of them compounding over time. Having any large sum of money sitting in a cash account for an extended period of time means inflation erodes its buying power.
Not seeking advice
During a time of need, there are many different professionals available to offer help, support and guide you. When receiving an inheritance our role as Financial Planners is to ensure you are using it in a way that is purposeful and meaningful; moulding the capital to your financial needs, lifestyle goals and personal preferences.
At Bluesky, we take the time to get to know you and your goals for the future. We believe that getting to know you is the best way to ensure a financial plan for your inheritance has your best interests at heart.
We will discuss your concerns and hopes for your inheritance. We can then establish the best ways to make the money have a positive impact on you and your family in the long term, perhaps through debt repayment or investment. Of course, we’ll also discuss any other, more immediate hopes you have: perhaps a meaningful family holiday that you know your loved one would have wanted you to experience.
Above all, we will work with you on an ongoing basis, guiding you every step of the way as you navigate this change in your financial situation. As your circumstances, needs and goals change over time, you can be sure that we will work with you to keep your financial future secure.