Potential Heirs Could Squander Their Legacy; Surprisingly Cautious Behavior Expected.
In a Nutshell:
It looks like the odds are in your favor that your family will make responsible decisions with a hefty inheritance, according to recent research. The majority of people surveyed asserted they would save some of the money left to them by loved ones, with popular choices being investing, paying off mortgages and debts, and beefing up their pension. Spending the inheritance on 'fun' activities comes in seventh place, while aiminglessly spending or splurging on a big purchase is less likely.
Furthermore, if you're worried about your family squandering your hard-earned inheritance, fear not! Most families take a relaxed approach, with the most common response being 'don't mind,' followed by saving the money and having a bit of fun. Sarah Coles, head of personal finance at Hargreaves Lansdown, puts it this way, "You don't need to worry that your family is going to squander any money you leave to them – they're going to do all the sensible things you want them to, if anything, they're going to be more sensible than you'd like."
However, Hargreaves Lansdown cautions that people might give the answer they believe they're supposed to give, so they may end up wanting to spend some of it on a big vacation or buying a shiny new car instead of socking it away for a rainy day. So, while families are generally wise with inheritances, keep in mind that some may have different plans, and it's essential to understand and communicate your wishes.
If you're grappling with what to do if you receive an inheritance, Sarah Coles offers some helpful tips. First, consider saving some of the money, giving you time to strategize. But don't just leave it in cash for the long haul – consider investing it in a Stocks and Shares Isa to give it more growth potential.
If you're saving towards a first home and qualify for it, using a Lifetime Isa would be advantageous, as you'd get to take advantage of the 25% government bonus. Remember that passing on knowledge about saving and investing to your family can be just as essential as passing on the money itself, as it empowers them to make the most of the inheritance and work towards their goals.
Here's a quick guide to popular decisions made with significant inheritances based on Hargreaves Lansdown's expertise:
- Invest the money for long-term growth, rather than spending it right away.
- Use the inheritance to pay off debts like mortgages or buy property, which indirectly supports wealth building by avoiding high rental costs.
- Employ tax planning strategies to minimize inheritance tax liabilities and preserve more of the estate.
- Plan your inheritance efficiently to minimize taxes and pass it on to the next generation effectively.
- Families tend to save a portion of their inheritance, with popular choices being investing, paying off mortgages and debts, and increasing pensions.
- If not minding the money, some families may opt to spend a part of their inheritance on enjoyable activities or aimlessly spend or splurge on a big purchase, but this is less common.
- Sarah Coles, head of personal finance at Hargreaves Lansdown, advises that while families are usually wise with inheritances, some may have different plans, and it's essential to understand and communicate personal wishes.
- To help manage an inheritance, Coles suggests saving some money for strategic planning, and considering investments like Stocks and Shares Isa or Lifetime Isa for improved growth potential and tax benefits.
- Along with the inheritance, passing on financial advice about saving, investing, and tax planning strategies can empower family members to make the most of the inheritance and work towards their long-term financial goals.
