Yahoo Finance What to do with an inheritance
It might not feel like it, but as a nation we’re getting richer. We’re sitting on more value in property, investments and savings than ever before.
This wealth is predominantly held by older people, and unless they’re busy spending their kids’ inheritance, there’s a good chance they’ll end up leaving at least some of this to their family.
Around one in 20 people will inherit money during their lifetime, and while some will spend it overnight, others could use it to make a significant difference to their lives.
A fifth of people said they would use at least some of an inheritance to pay off debt and a fifth would put it towards buying a house, according to a survey by Hargreaves Lansdown.
Almost half would save at least some of it and almost a quarter would invest. Only a fifth said they wanted to have fun with at least some of the money.
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Of course, there’s a world of difference between what we say we’d do, and what we’d actually be tempted to do if we were handed thousands of pounds. So here are seven tips on what to do with an inheritance:
1. Take your time
When you’re dealing with a bereavement, you might not be in the best place to make long-term plans, so don’t rush into anything.
2. Work out your key priorities
This will depend on where you stand right now. If you’re struggling to make ends meet, it could be a chance to get some breathing space in your finances. If you have expensive short-term debts, it may make sense to pay those down.
If you don’t have emergency savings to cover three to six months’ worth of essential spending, and planned expenses over the next five years, you might want to consider a savings account or cash ISA. If you already have savings, this can be an opportunity to invest.
In many cases, the right answer tends to be a mixture of all of these things.
3. Don’t overlook the very long term
It’s difficult to see this money come into your account and then choose to lock it away for decades, but it can make perfect sense for at least some of the money.
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Only around a third of people are on track for a moderate retirement income, and an inheritance is a brilliant opportunity to address this.
4. Consider if you need it at all
Some people may feel that they don’t need the money as much as other people in their family do.
You may be able to put together a deed of variation so that the money passes directly to someone else, so it never belongs to you and won’t affect your inheritance tax position.
5. Check if you can boost it
There are a couple of ways to super-charge an inheritance. If you’re aged 18-39 and are saving for a first property, you can put £4,000 a year into a Lifetime ISA, and the government will boost it by 25%.
Likewise, if you’re putting it away for the future, it’s a sensible idea to consider a pension or a SIPP, so you get tax relief on it.
6. Don’t be afraid to ask
There are some big decisions to make, and while you may be comfortable with many of them, you may end up wrestling with others.
Read more: How to choose between saving and investing your money
Professional advice can come at a cost, but this is one of the times in life that you may decide it’s worth it.
7. Don’t rely on it
It can be dangerous to assume money will come your way eventually, because circumstances can change.
It means you need to plan for life without it, and adapt those plans if you inherit — rather than the other way around.
Watch: Starting conversations with your family about inheritance
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