The financial advice industry has spoken at length about the significant influence that the ‘great wealth transfer’ will have on the sector, but studies show it could be bigger than expected in the UK.
Wealth management firm Charles Stanley surveyed over 2,000 adults and found they are set for an unexpected inheritance boom, as many significantly underestimate the funds they are likely to inherit.
The study found that consumers expect to receive an average inheritance of £78,000 ($98,300, €86,870) from their parents.
This is almost 60% less than what parents say they are intending to leave them, averaging £124,000.
The intended figure is higher among older demographics, as baby boomers said that they are going to pass on around £174,000 and those aged over 75 will leave around £275,000.
Lack of conversation
But, despite the significant sums involved, just a fifth (22%) of Brits admitted that their family has spoken about inheritance.
Failure to discuss money and wealth transfer within the family is helping to create an inheritance gap, and although people may receive more than they thought, it means they are not making the most of it.
Some 17% said they don’t know if they will inherit anything at all.
Only 29% have or believe they’ll receive some or part of their inheritance early.
Of those that have already received some of their inheritance, 29% admit it was to help them financially, as they needed support.
Spent before inherited
The research also revealed that 14% are relying on receiving an inheritance and have factored it into their future and have already mentally ‘spent’ the money before receiving it.
A quarter (26%) have earmarked it for their savings account, 18% will pay off debts, and 17% will use the windfall to fund their retirement.
Some 17% will use it to pay off their mortgage and 12% will use it get on the property ladder.
But without a conversation about the inheritance value, people may be severely underestimating what they may be able to do with the money.
Lose out unnecessarily
Alex Price, director of financial planning at Charles Stanley, said: “Adults across the UK are in line for an unexpected inheritance windfall, as a significant gap is revealed between expectations and the amount that is due to head their way.
“When significant sums of money are involved, it’s important to speak to your loved ones about your intentions and your wishes early, and not doing so can come at a price. Having the ‘money talk’ with children is the ‘grown-up’ version of the birds and the bees talk.
“You might not want to have ‘the talk’, but not having it could mean you and your family lose out unnecessarily. The earlier you plan, the more options you have.
“In addition to potentially reducing inheritance tax bills and helping families build wealth into their long-term planning, talking now could see many families passing down wealth early.
“People all over the country have been impacted in one way or another by the pandemic, some may need support; trickling down wealth early could be an option to alleviating immediate money worries now, while reducing inheritance tax liability in the future.”
