If you are not sure what to do with inheritance, we have outlined some options available to you in this article. There are two potential situations. The first is you think that when your Mum, Dad or other relative dies, you will inherit. The second situation is that your Mum Dad or Auntie has died, and you are due to inherit once the estate is administered.
I may Inherit from an Estate
Broadly speaking you must decide whether you will want to retain the inheritance (to spend or to invest) or would prefer to pass it to your children or some other family member.
Passing on the Investment
Firstly, you should find out whether you are to inherit. Most of the time the inheritance will be under the Will or occasionally the intestacy of Mum, Dad or other relative. You need to try and find out what the situation is and the only way to do this is to speak about it to them before they pass or the person who is dealing with the estate upon their death.
What if there is no Will?
If it turns out there is no Will, you should try to persuade the person involved to make a Will which benefits your children in your place or creates a flexible trust under which the Executors can decide who is to benefit. This will usually be decided after consulting with you. If you cannot persuade the person to make a change to their Will, it is possible to do something after you have inherited but for tax reasons it is generally better to get the changes made while your parents or relatives are still alive.
What if the inheritance is coming from a Trust?
If the inheritance is coming to you from a trust fund, you need to find out the terms of the trust. Most commonly the trust will give you an absolute right to benefit as soon as the person dies – other types of trusts will give you the option to decide how and when you take your inheritance based on your personal circumstances or tax position at the time, this can be very helpful if you are going through or considering a divorce or you have an estate that is already over the inheritance tax thresholds. These types of trust can also allow the beneficiary to bypass themselves and go straight to grandchildren – without any 7-year gifting rule restrictions. The process of giving away is not difficult but does require proper advice as to how to do this and how to maximise the benefits that can be achieved.
I am benefitting from an estate
Next, we consider what you can do if your elderly relative has died, and you are benefitting under the Will but do not want the inheritance.
The answer is simple, give it away. Be aware though the inheritance is then considered a gift for inheritance tax purposes and will impact you and your beneficiaries tax positions in the future. There is a mechanism to avoid the inheritance tax trap and that is to use a Deed of Variation.
The Variation must be done within 2 years of the death of your relative, then the gift which you have made is treated as a gift directly from your relative to your beneficiary or a trust arrangement and has no impact upon you or your beneficiaries Inheritance tax position. There are potential traps attached to Deed of Variation, but this is a fantastic way to benefit your loved ones without adverse tax consequences.
I want to retain the Inheritance to invest
If you want the inheritance either to spend or to bolster your savings, we always recommend you get independent investment advice, our sister company Insight Financial Associates can provide help & guidance on how best to utilise any inheritance received and how these unexpected monies can help you plan for your future.