Inheriting money can often be a complex and emotional process for many people, considering the many tax rules, asset types, and inheritance options that could apply.
Therefore, we thought you may benefit from a guide to financial planning when inheriting money, to help you achieve a successful financial outcome with your inheritance. Read on to learn more.
A Guide to Financial Planning for When You Inherit Money
1. Seek Expert Financial Advice
One of the first things you can do – when planning for any financial event – is to seek expert advice from a modern wealth manager.
Your adviser will most likely be experienced in dealing with inheritance matters, and be able to offer you the right guidance on how to inherit your money as tax efficiently as possible.
For instance, with Netwealth financial planning, an expert adviser will take the time to analyse your financial situation, and offer an approach that’s best suited to your needs and capabilities – giving you the best chance of reaching an optimal outcome.
2. Establish Your Goals and Challenges With Inheriting Money
Another important thing to do if you inherit money is to establish any goals or challenges you might have around your financial planning.
This is important, as the more accurate and tailored your plan is, the more effectively you can implement the right steps to achieve your goals.
Your adviser can help you refine your financial goals so that they’re both beneficial for building your wealth, while also being achievable given your financial situation. For example, this could be to inherit a certain amount from the estate, have a specific number of assets from the inheritance, etc.
Also, by discussing your challenges and worries with your adviser, they can offer you personalised advice that aims to help you overcome your obstacles and help restore your financial confidence.
3. Explore Options for Sheltering Your Money From Tax
When planning for an inheritance, it’s also important to understand the various tax credit rules that might apply and explore the best options to shelter your money from tax.
If you receive an inheritance, you might be required to pay inheritance tax (IHT) on the value of the estate. The exact amount of tax you’re charged will depend on the value of the estate against the IHT threshold at the time of inheriting.
The IHT threshold is currently £325,000, meaning any value of the estate below this amount is sheltered from tax. Any value of the estate above this will have a tax rate of 40%, with various exceptions for partners and family.
Your adviser will help you make the most of your IHT threshold and structure your inheritance in a way that shelters as much money from tax as possible. Your approach could involve things such as:
• Receiving an estate from a spouse or civil partner
• Inheriting property as part of the estate
• Receiving gifts as part of the estate before the person diesA
4. Consider Ongoing Advice From Your Wealth Manager
There are various things which could alter or impact the effectiveness of your financial management plan, which is why ongoing advice from your wealth manager could be of great benefit.
Your adviser will regularly review your plan to ensure the money you inherit is managed as efficiently as possible, considering the many factors which might have an impact – such as changes in tax rules, your total income, additional beneficiaries, property value changes, etc.
They’ll help you to navigate these changes more effectively and shelter as much of your money from tax as possible.
Once you receive your inheritance, your adviser can also offer guidance on the best way to invest your money, to build your wealth for the future.
Please keep in mind that the value of your investments can both rise and fall.
