Is Relying On Your Inheritance Risky?

Are You Relying on an Inheritance?

If you’re the child of wealthy parents, your long-term financial security might depend significantly on an expected inheritance. While inheriting substantial wealth can provide tremendous opportunities, this dependency carries significant risks that need careful management.

If your lifestyle and future plans hinge on receiving a large inheritance, it is important to ask questions, understand the details and have a robust backup plan. Relying on an inheritance that may not materialise as expected could leave you vulnerable to major financial disruptions.

Understanding the Risks

There are certain risks associated with relying on an inheritance as your means of financial stability, such as:

• The timing and amount of your inheritance can be unpredictable. Changes in family dynamics, legal disputes, or economic conditions can impact the value and timing of any inheritance.
• On top of this, market volatility and economic downturns can significantly reduce the value of inherited assets.
• Inheritance can be subject to complex legal and tax issues that may diminish the anticipated amount.
• Increased longevity and healthcare costs for aging parents can deplete the estate.

Understand Existing Plans and Structures

It’s key to have open and honest discussions with your parents about their financial plans and the specifics of your expected inheritance. Consider these key points:

• Have you discussed the funds with your parents? Understanding their financial situation and plans can help you prepare better.
• Have you had discrete conversations with your parents about how this affects you? Talking about finances can be uncomfortable, but it’s essential for your future security. For more information about how to approach this, we will be releasing a future guide on the topic.
• Do you know the underlying plan? Ensure you are aware of how the inheritance is structured and any contingencies in place.
• Are you aware of the taxation of those investments? Inheritance can come with significant tax liabilities that could affect the final amount.
• Do you understand the liquidity profile? Knowing how easily you can access the inherited assets is necessary for planning.
• What is the investment risk taken? Assess the risk level of the investments to understand potential fluctuations in value.
• Are there plans to take care of your parents’ care and health needs? Ensure that there are sufficient funds allocated for their healthcare and other needs, which can impact the estate’s value.

Building Your Own Financial Security

While it’s essential to be prepared for your inheritance, developing your own financial security is equally important. Here are some steps to consider:

Understand Tax Structures

Understanding tax implications is vital for managing your inheritance effectively. In many circumstances it can be more efficient to work with a wealth manager, alongside tax advisers and legal experts, in order to explore effective strategies to minimise tax liabilities and encourage your parents to engage in estate planning. This can help mitigate tax burdens and ensure a smoother transfer of wealth.  We’ll be delving into some of these considerations throughout our series.

How to Engage with Professional Services

To navigate the complexities of relying on an inheritance, consider leveraging the expertise of professional service firms like Bentley Reid. We specialise in providing holistic financial planning services tailored to the needs of high net worth individuals and their families.

What to do next:

This is just an introduction to some of the terms and questions that need to be considered when starting your succession planning. Bentley Reid will be sharing more content around inheritance and succession planning.

Need more advice? Reach out to our experts:

Anna Warren – Tax Director

anna.warren@bentleyreid.com

Mike Winstanley- Director, Wealth Management

mikewinstanley@bentleyreid.com