After graduating from Oxford University, celebrity chef Rick Stein earned a living by running a mobile disco.
Now, 50 years later, he owns 11 restaurants in the UK and Australia, has published more than 25 books, and is a familiar face on television – and it’s all because of an unexpected inheritance.
In the early 1970s Stein received a windfall of £14,000 from an unknown German uncle, and these funds enabled him to buy his first venue which, in 1975, became his first restaurant.
Receiving an unexpected inheritance is not unusual. Indeed, recent research by Canada Life has revealed that more than half of people who left assets did not discuss this with the beneficiary beforehand.
56% of UK adults who received an inheritance did not discuss it with the benefactor
Discussing money issues with family remains something of a taboo in the UK.
A study by Klarna has revealed that a third (32%) of adults feel too uncomfortable to discuss their wealth with peers, despite almost half (44%) regularly worrying about money.
When it comes to an inheritance, these conversations appear to be even more difficult. Canada Life reports that, while nearly a fifth (17%) of UK adults have received an inheritance within the last five years, this came as a surprise to over half of those recipients – the equivalent of 5.1 million people.
Three benefits of discussing an inheritance with your beneficiaries
Discussing a planned inheritance with your heirs can have significant benefits – here are three.
1. You can set expectations
If you don’t have a conversation with a beneficiary, they may hold unrealistic expectations about the inheritance they are set to receive.
Canada Life reports that just 12% of individuals who have received an inheritance sum knew the exact amount they would receive. Nearly a third (31%) said they received more than they were expecting, while a quarter (26%) received less.
If your loved ones find out you have passed on less than they anticipated, they may respond emotionally and express resentment at what will already be a stressful and emotional time.
If they receive more than they expected, this could lead to them rushing decisions and not making the most of their windfall.
Bear in mind that it’s not just your heirs who may have unrealistic expectations – you may too.
Suppose you own a holiday home where your family have made many long-lasting memories. When you pass away, you may intend to leave this to your family so they can have similar experiences in the future.
However, while you think this will be received positively, your children or grandchildren may not want to holiday in that location or take on the responsibility for maintaining such an asset.
Setting expectations early means there are no doubts or misunderstandings, and it can help your beneficiaries to plan for the most suitable ways to use the wealth they will inherit.
2. They may benefit more from the wealth now
As life expectancies rise, the age at which your beneficiaries receive an inheritance is also increasing.
For example, if you live into your 80s or 90s and decide to pass on assets in your will, your heirs could themselves be in their 50s or 60s when they receive the money.
Discussing passing on an inheritance now could help your children and grandchildren to meet key goals earlier in life.
Indeed, a separate Canada Life study found that more than one in five (22%) UK adults who have received or expect to receive an inheritance are delaying or plan to delay a major life event until they receive the windfall.
Discussing your plans with your beneficiaries now can help them to understand when they might receive any gift. And planning to transfer wealth now could help a child or grandchild to go to university, buy a home, start a business, or even get married.
3. Planning ahead could help you mitigate Inheritance Tax
If your estate is worth more than £325,000 – or £500,000 if you plan to leave your home to a direct descendant – your loved ones may face an Inheritance Tax (IHT) bill when you pass away.
Transferring wealth while you are alive can be an effective way to mitigate IHT. For example, you can gift up to £3,000 (in the 2024/25 tax year) and this amount will immediately fall outside your estate. Making gifts from your income, using trusts, and passing on smaller gifts of up to £250 can also help mitigate an IHT liability.
In addition, any gifts you make are usually exempt from IHT if you survive for seven years after making them. It follows that it’s much more likely you’ll survive for seven years if you transfer wealth at age 60 than age 90, so acting early can help you to plan your estate tax-efficiently.
Having these conversations with your beneficiaries now can help you create a family financial plan that supports your loved ones while reducing a possible IHT liability. You’ll also get to see the benefit of your gifts in action during your lifetime.
Get in touch
Having open and honest conversations with your beneficiaries can help you to manage the intergenerational transfer of wealth tax-efficiently, and in a way that supports your whole family.
To find out how we can help, please get in touch or email us at advice@mlifa.co.uk for more information.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts or will writing.