Under-45s expect £1.2 trillion in inheritance, but parents don’t trust them with it

If younger adults hope for an average of £233,000 each, it’s time to start talking about cash after death

Handing it on: Millions of adults base their financial planning around an inheritance windfall (iStock)

We may not be comfortable admitting it – to ourselves or others – but millions of us are banking on being left or given a chunk of cash to get by long-term.

More than 11 million 25-45 year olds – around two-thirds of the entire generation expect to receive inheritance from parents or grandparents. Of these, almost half believe they’re on course to receive £50,000.

In fact, today’s youngest adults anticipate an average of £233,000 each over the next 30 years, according to research from investment firm Sanlam.

Inheritance, or generational wealth transfer has always played a part in our long-term money management, but the handover currently under way is from the wealthiest generation in modern Britain to some of the most stretched.

But the latest data from the Office for National Statistics out this week shows the distribution of this transfer is far from consistent.

Individuals with the most income and wealth to start with are most likely to receive the largest gifts and loans.

The least wealthy and youngest individuals receive smaller inheritances, on average, but those transfers make up a much larger proportion of their total wealth.

The money received by people in the poorest fifth of the population typically makes up 44 per cent of their total wealth.

It’s clear this kind of windfall has the potential to change the recipient’s life – one that alters the way we deal with our financial affairs long before we receive the money.

Around a third of those expecting a substantial inheritance admit to putting off saving and “living in the now” because they have the windfall coming, the Sanlam figures suggest.

A similar number say they will be reliant on their inheritance for their future financial security. And yet huge swathes of them haven’t ever had a conversation about the money from the people they expect to receive the money from.

“Given that 25-45 year olds are expecting to receive more than £1.2 trillion in the next 30 years, conversations around the intergenerational transfer of wealth are becoming increasingly necessary,” says Carl Drummond, senior wealth planner at Sanlam UK.

“While it’s often not an easy conversation to have, it’s an important one. Many younger people are relying on inheritances to pay off debts or avoid saving for later life and if their expectations exceed the windfall they receive, they are at risk of making unrealistic long-term financial decisions.

Meanwhile, nearly half of those planning to leave an inheritance to the younger generation are concerned about how they will use the money.

Nor is this just about the discomfort of addressing the nation’s two most taboo subjects – money and death – as they coming crashing together.

“The average age at which people get assistance from their older loved ones is getting later and later as government policy encourages people to pass on wealth on death,” says Rachael Griffin, tax and financial planning specialist at Quilter.

“The age that people can expect to inherit is now edging into their mid-sixties, while those aged 25 to 34 are most likely to get gifts or loans from family, consistent with the rise of the bank of mum and dad as one of the prime lenders for first-time buyers.

In 2018 people are living longer and retired households are at historic highs in terms of the wealth they hold relative to the working-age population. One way to ease the pressure on the younger generations is to allow wealth to filter down more easily. There’s also a small matter of inheritance tax, which could wipe up to 40 per cent off the amount being passed down without careful planning.

All of this means it’s high time for an honest intergenerational discussion. But where to start?

5 tips for good inheritance chat

Before you have a family discussion about inheritance, you need to have a good idea of your financial position and your intentions:

1. Who do you want to receive your wealth?

It sounds simple enough, but our study, The Generation Games, has shown that potential beneficiaries don’t always realise they will be sharing their inheritance with others, such as grandchildren, charities or friends. While this may result in a difficult conversation, at least you will be helping your beneficiaries be more realistic about their financial future.

2. Establish how much you are likely to pass down

This is quite complex, and it’s worth seeking advice from a financial planner. Firstly, you should write down the total value of your assets, where they are held and how they are invested. (As an aside, it may be worth considering consolidating accounts to minimise paperwork and administration for you.) Then you need to calculate how much you think you will need for the future. Obviously, this is hard to predict as you don’t know how long you will live and how healthy you will be, but it’s good to make some predictions. Lastly, you need to consider how you would fund possible care expenses if the need arises.

3. Gift now or leave for later?

Once you have been through this exercise, you should have a better idea of how much money you have, how much you will need, and how much you could potentially gift now.

4. State your wishes

Do you want to have a say on how the assets are spent or used? Are you happy to provide an outright gift with no conditions attached? State your intentions now so that your beneficiaries know what to expect.

5. Plan to minimise inheritance tax (IHT)

With the help of a financial adviser, work out your IHT position (in total) and on each asset (individually) you have. Once you have this information, you can start considering how you can reduce your inheritance tax by reviewing all the different allowances and options available. You should also fund your expenses from assets that are subject to IHT, as this will help reduce your taxable estate.

Source: Sanlam