Reviews and Ratings for Financial adviser Chris Wheatman, Lancaster

7 steps to take when you receive an inheritance to make the most of it

Receiving an inheritance can be life-changing. It could provide you with the financial security to pursue your dreams or make significant changes to your lifestyle. However, it can be overwhelming, and you may worry about making the “wrong” decision that could impact the rest of your life.

According to a report in Your Mortgage, 11.6 million people in the UK have received an inheritance in the last 10 years. For more than half of beneficiaries, the inheritance was left by parents, and a fifth received an inheritance from grandparents. The average sum left by parents is £65,600, while grandparents leave £24,200 on average.

If you’ve received an inheritance, here are seven steps that can help you understand how to get the most out of it.

1. Understand the probate process

The first thing to do is make sure you understand the process and what you’ll inherit.

In some cases, the process can be time-consuming and complex. For instance, if the deceased has not left a will or they have complicated assets, it can take more time. In rare cases, a will may also be contested. Make sure you know what the timescales are and any potential issues. The executor of a will can help you with this.

If your benefactor’s entire estate is worth more than £325,000, Inheritance Tax may also be due. This could reduce the inheritance you receive.

2. Take a step back

When you receive an inheritance, you may feel like you need to make immediate decisions. But taking a step back can give you the space to think about what you want and consider the long term. Making immediate decisions may mean emotions have an impact.

It’s not uncommon for beneficiaries to worry about how their benefactor would want them to use the inheritance too. It can result in conflicting decisions and may mean you make choices that aren’t right for you. If you have the means to do so, leaving your inheritance largely untouched, until you have a plan is a good idea.

Under the Financial Services Compensation Scheme, your money is protected when it’s held in a UK-authorised bank, building society, or credit union if it fails. So, you don’t need to make quick decisions to ensure your money is safe.

Under normal circumstances, up to £85,000 is protected per eligible person per financial institution. Up to £1 million is protected for six months from when the amount is first deposited for certain qualifying temporary high balances, which includes inheritances. If your inheritance is higher than this, you should spread it between several accounts with different financial institutions.

3. Review your current financial situation

By reviewing your finances now, you can understand where the inheritance will have the biggest impact. It provides a baseline to start making changes to your finances and lifestyle. Going through your statements now can help you take stock of your situation. For example, do you have debt that the inheritance could help you pay off? And how much do you have saved in your pension?

4. Set out what you want to achieve

Setting out your goals and priorities can provide some direction when you’re deciding how to use an inheritance. Think about the lifestyle you want and how an inheritance could help you achieve that.

You may want to spend more time with your family, and the inheritance can provide you with the financial security to reduce your working days. Or you may hope to retire early, so adding an inheritance to a pension can help you towards this goal. Your aspirations should inform the financial decisions you make.

5. Speak to a financial planner

From tax liability to investment risk, there are a lot of things you need to consider when deciding the best way to use an inheritance to help you reach your goals. A financial planner can help you create a blueprint that will enable you to get the most out of your money, with your goals in mind. Financial planning isn’t just about calculating how much you have either; it’s a chance to understand how your decisions will affect your overall lifestyle now and in the future.

If you’ve received an inheritance and would like to talk about your plans and options, please contact us.

6. Schedule a review

While setting out a plan is great, things do change. Whether it’s your finances that change or your wishes, scheduling regular reviews and taking time to think about what you want is important. It can help make sure everything stays on track and you’re not faced with any unexpected surprises. The frequency of reviews will depend on your circumstances but, as a general rule, once a year is a good idea.

7. Plan your own legacy

Having benefited from an inheritance, it’s worth setting out your own legacy. When you pass away, who would you like to benefit from your assets? The decisions you make about your estate could impact the lives of your loved ones. Think carefully about how you’d want your assets distributed and then write this into your will.

Even if you already have a will in place, you should review it. As your circumstances have probably changed over time, your wishes may have to, too.

We understand that receiving an inheritance can be a confusing time when you’re expected to make decisions. If you’d like to talk to a financial planner about your plans, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate will writing, tax planning, or estate planning.

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