New figures from the Institute for Fiscal Studies (IFS) suggest that 16% of the lifetime income for people born in the 1980s will come from inheritances. This is almost twice as much as it would be for someone born in the 1960s and, for us, signals a need for families to engage in effective Estate planning.
This could look like a very welcome top up to what these people will earn for themselves during their working lives. However, there is a concern the trend could lead to an even greater division between those from more and less affluent families.
In real terms for those born in the 1980s this gap could be as wide as 5% of annual income for those whose parents are in bottom fifth of the UK’s wealth distribution table and 29% for those whose parents are in the top fifth.
The IFS figures are backed up by an independent study carried out by inheritance lending specialist Tower Street Finance.
They recently surveyed 2,000 people, asking how much they believed they would inherit from family during their lifetimes. They found that on average those over 55 expect to be left around £180,000 while 35–44-year-olds expect an average of £251,000.
They were also told 1 in 5 of the interviewees in the 45-55 age group planned to use inheritances to fund their lifestyle in their later years.
The disparity between the percentages of lifetime income inheritances represents for the different age groups and how much the different age groups expect to inherit can in part be explained by economics. As the overall value of salaries, property prices and other assets are increasing, more money is being left to children and other family members.
However, if this trend is to continue in line with inflation, an increasing cost of living (including rising care fees) and the expected hardening of the tax regime following the COVID pandemic, it could be highly prudent for younger families to engage in effective estate planning to support their and their children’s future.
Although estate planning is always something that could be put off, we’d suggest there is never a better time to think about the future than now, especially as what we inherit is – according to the findings of the studies we’ve looked at in this blog – going to play such a huge part in our later years and our children’s futures.
There are many benefits of starting the Estate planning process with an experienced and regulated lawyer but the most important are:
Working through the different parts of your estate with a lawyer will help you understand the value of your estate and how this value may change over time.
Once you know exactly what you have, you can start to work out what you want to leave to who. It will also allow you to work when would be best to pass on your assets. For example, lifetime gifts can often be a more suitable option to leaving everything to your beneficiaries in your Will.
Your Estate may be liable for Inheritance Tax (IHT) if its total value exceeds the available tax free allowance at the date of your death and IHT could reduce the final amount your loved ones receive from your Estate. However, a lawyer will be able to talk you through various options that could help you minimise your IHT liability.
Have you thought about how what you are planning to leave for your children balances against what you will need to sustain the lifestyle you want later in life?
Effective Estate planning will help you assess how sustainable your income and your inheritance plans are and highlight where tweaks will need to be made to support (or even improve) both.
It is never easy to talk about your Will or your Estate. However, giving your family some assurances as to your plans and what they can expect will give them greater peace of mind over their own financial futures.
As you work through your option with your lawyer, you may find you can offer your children some immediate financial support (without impacting on your IHT position).
As our life expectancies increase, this could have a monumental impact on your children’s lives, perhaps allowing them to pay off their mortgages early or giving them some extra help to fund your grandchildren’s education.
You can also receive advice on ways to ring fence assets, usually the family home, to protect against nursing home fees and ensure that your children’s inheritance is not post