27/12/2024

Have you overlooked speaking to your beneficiaries as part of your estate plan?

You may already have your estate in order and have written your will accordingly, but have you overlooked the value of speaking to your beneficiaries?

A new report by PIMFA suggests that 58% of people in the UK have never discussed inheritance with their family members.

Not doing so could mean that your beneficiaries may be unprepared for receiving an inheritance, or they perhaps expect to inherit a substantially different amount than you intend. It may also mean that far more of your estate may be liable for Inheritance Tax (IHT).

The research also revealed differing generational attitudes towards talking about finances. 49% of Generation X and 63% of baby boomers said they never talk about their finances with friends. Conversely, more than 80% of millennials and Generation Z said they do so at least once a year.

So, what are the benefits of speaking to your beneficiaries?

Understanding your beneficiaries’ goals

Your beneficiaries may have goals and ambitions that they have not yet shared with you or other family members. Speaking with them about your estate plan could allow you to make adjustments that better suit their goals.

Perhaps one of your beneficiaries has dreams of starting their own business, in which case you could consider investing in their business now rather than leaving them a lump sum later? Or maybe a beneficiary wants to send their children to a particular school or university and would rather the money be kept in a fund for when the children are old enough?

Your beneficiaries may also want to use their inheritance to boost their own pension fund or buy a property.

In each case, you may find that there are better ways to use your wealth and align your beneficiaries’ goals with your estate, provided you are given ample time to plan for it.

Reducing potential Inheritance Tax liabilities

In the 2023/24 tax year, individuals can usually pass up to £325,000 on their death without IHT being due. The threshold can increase by £175,000 if a direct descendant inherits your main residence. With married couples or those in a civil partnership able to transfer any unused allowance, you could leave up to £1 million before IHT is due.

If your estate is valued above the nil-rate bands, your beneficiaries could be liable to pay IHT on everything they inherit above that figure.

If you make gifts to your beneficiaries at least seven years before your passing, they may not have to pay IHT on the value of these gifts. This is known as a “potentially exempt transfer”.

So, talking to your beneficiaries about transferring wealth intergenerationally may mean you can make gifts sooner. You’re much more likely to survive for seven years after making a gift at the age of 50 than at the age of 90.

Clarifying expectations

Speaking to your beneficiaries about their potential inheritance also gives you a chance to ensure they are clear about what to expect. It can remove any shock or surprise when your loved ones receive less or more than they anticipated.

For example, if you have chosen to leave some of your estate to charity or a friend, you may want to inform your family about it before they read your will. It might also smooth over any potential misunderstandings as you can explain the decisions you have made.

Ensuring your beneficiaries are prepared

Talking openly with your beneficiaries about your estate plans may provide them with peace of mind that they’ll be in a good position to manage an inheritance.

In preparation, they may want to open new accounts, begin exploring different investment options, or start looking for properties within their budget.

Encouraging them to seek sound financial advice

Speaking to your beneficiaries is a good opportunity to encourage them to seek ongoing financial advice that may improve their long-term security.

It might be useful to ask them to consider using financial advisers you have already spoken to and who you trust. It can even be useful for the whole family to work with the same firm or adviser so they can align their interests and ensure the tax-efficient transfer of wealth.

Speaking to your beneficiaries can be an important part of planning your estate, though many families overlook the benefits. Get in touch to find out how we can help you and your family.

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, Inheritance Tax planning, or will writing.