If you mistakenly received your local community’s £287,000 Covid-19 relief fund tomorrow, what would you do?
Of course, morally, you would elect to report this mistake to the relevant authorities. However, a 24-year old Japanese man, who has remained anonymous, had a different idea. According to the Guardian, when this really happened to him, he gambled away the entire sum at a casino.
While it is highly unlikely your local council will accidentally send you almost £300,000 in the near future, it could be that you receive an inheritance in the coming years. Indeed, according to Barclays, £5.5 trillion is set to be passed down between the generations as either inheritance or gifts over the next 20 – 30 years.
If you aren’t prepared to take on an inheritance, you might find the experience overwhelming, potentially leading to poorly thought-out decisions down the line.
Read on to find out three surprising lessons a 24-year old Japanese man could teach you about handling a large inheritance.
1. Having honest conversations about your inheritance can help you plan accordingly
Of course, in the case of the Japanese recipient of his town’s Covid-19 relief fund, there was no way he could plan ahead. Luckily, when it comes to your inheritance, there are ways to find out how much you are set to receive.
According to 2019 research by Just Group, published by MoneyAge, the average UK citizen vastly overestimates the amount of inheritance they will be given.
The study revealed that on average, participants expected to receive £132,000 from their parents – but the national average, in fact, is around £50,000.
If you know you are due to receive a large sum from your parents or other relations when they pass away, it’s important to initiate an honest conversation about what you can expect. Money is often an uncomfortable subject – particularly when it involves talking about death – but by getting a realistic view of what you might receive, you can begin to plan accordingly.
As a beneficiary, you might receive far more, or far less, than you originally expected. If you only find out this fact during a time of grief, you could feel blindsided, increasing your stress and leading to uninformed decisions.
2. Your inheritance could change your life – if you use it wisely
Receiving a large sum of money from a benefactor could change your life. Upon gaining your inheritance, you could:
- Pay off any remaining debts, such as your mortgage
- Fund children’s education by paying school or university fees
- Help adult children onto the property ladder
- Give up work if you wish
- Contribute larger sums into your pension each year (although bear in mind you cannot access this until age 55 (57 from 2028)
- Expand and diversify your investment portfolio.
But, like the 24-year old Japanese man who unexpectedly received a large sum and gambled it away, money can easily be spent unwisely – especially in a time of grief. You could make large investments without conducting proper research, or pay too much into your pension at once, resulting in a large and unnecessary tax bill.
By planning out how you might like to use your inheritance ahead of time, you may be less likely to make rash choices when the money arrives.
You could even discuss your benefactors’ wishes for how you might use the money; for example, your parents may wish for you to use a portion of your inheritance for your children’s education.
3. Working with a professional can help you make the most of your inheritance
Receiving a life-changing sum of money should not be taken lightly. Indeed, you may feel overwhelmed by the prospect of inheriting your family’s money – even if you know, ultimately, what a brilliant opportunity it is.
So, working with a financial planner both in advance of inheriting your family’s estate, and once the money has been received, could be extremely constructive.
We can help you create a financial plan that aligns your life goals with the inheritance you might get, in order to make the most of this financial opportunity and honour your family’s wishes, too. Whatever your dreams for the future, we can help make them a reality.
Your financial planner can also work with the entire family to mitigate the amount of Inheritance Tax (IHT) you might pay, helping to maximise the estate value that is set to be passed down.
The sooner you start this process, the better – so even if you aren’t expecting to receive your inheritance soon, it could still be beneficial to discuss IHT with your financial planner now.
Get in touch
While the accidental beneficiary of a Japanese Covid-19 relief fund did not have the luxury of working with a seasoned expert, you do. Email firstname.lastname@example.org or call 0161 8080200.
The Financial Conduct Authority does not regulate tax planning. Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.