Understanding how to manage your own estate becomes more complex when you are also expecting to inherit from someone else. Such a situation necessitates careful financial planning, foresight, and attention to legal and tax implications. Anticipating an inheritance introduces variables you may not entirely control—its timing, form, and value. However, you can still proactively structure your own estate to reflect the potential increase in assets while ensuring your family’s financial security and your own legacy. Engaging in thoughtful estate planning helps ensure that you are prepared to integrate inherited wealth into your existing financial framework efficiently, responsibly, and with minimal tax consequences.
Before incorporating potential inheritance into your estate plans, you must fully understand your existing financial landscape. Undertake a comprehensive inventory of your assets and liabilities. This should include your property, investments, pensions, savings, debts, insurance policies, and any business interests. Assign a realistic market value to each asset and update these values regularly.
By establishing your net worth, you will be better poised to consider how future inheritance might shift your financial balance. It also allows advisers, such as solicitors, accountants, or financial planning professionals, to offer bespoke recommendations that reflect your actual circumstances rather than hypothetical scenarios.
Though difficult to discuss, having open and honest conversations with family members—especially parents or older relatives—about their estates can provide valuable insights. While discretion and respect are crucial, transparency can ultimately reduce family tension and misunderstandings.
Gaining a realistic projection of what you may inherit requires considering various factors. These include the type and value of assets, the age and health of the benefactor, and the likelihood of changes due to life events, market shifts, or long-term care needs. Inheritance may come as cash, property, business interests, investments, or other assets, each with distinct implications for your estate.
You should also consider the liabilities that could be deducted from the estate before assets are distributed. The fact that someone intends to pass on a large house doesn’t mean the mortgage will be settled—debts often reduce the final inheritance significantly. Additionally, wills can be changed, assets sold, or trusts established, meaning projected figures are never guaranteed.
Consulting with the person whose estate you might inherit can provide clearer expectations about the timeline, form, and distribution of assets. It might also make sense to suggest they seek their own legal or financial planning to ensure their wishes are correctly implemented.
Once you inherit significant wealth, your own estate’s value will increase accordingly. This may move you into a different Inheritance Tax (IHT) bracket or even make your estate subject to IHT when previously it was not. In the UK, as of the current legislation, estates valued over £325,000—the nil-rate band—may incur Inheritance Tax at 40% on the excess. Transfers between spouses or civil partners are generally free of IHT, but all individual estates remain liable within certain thresholds.
If you are married or in a civil partnership, consider how inheriting assets might affect your combined estate. The residence nil-rate band allows for an additional tax-free allowance if a property is left to direct descendants, but it comes with conditions and tapering thresholds.
To mitigate future exposure, strategies such as lifetime gifting, setting up trusts, lifetime transfers, or using insurance to offset potential taxes may be appropriate. Review these options with a qualified financial planner, as they often take years to work effectively and must be carefully balanced with your lifestyle needs.
Your will is the cornerstone of your estate plan. If you are anticipating a sizeable inheritance, updating your will becomes more than just a formality—it’s a necessity. An increase in wealth could change how you wish to distribute your estate to beneficiaries, support charitable organisations, or handle business succession.
Consider whether your intended proportional gifts, monetary legacies, or residuary bequests reflect your new position. For instance, if you initially intended to leave equal shares of a modest estate to your children, receiving property or investment income might change how you approach fairness and practicality. Perhaps some beneficiaries are more financially equipped than others or have special needs which require greater support.
Don’t merely append new provisions to your existing will. Ask your solicitor to conduct a thorough review to ensure all components—executorship, guardianship, asset allocation—continue to make sense in light of anticipated changes.
Trusts can offer predictability, control, and protection for your estate, especially if your wealth is growing. Whether you’re planning to shelter assets for minor children, protect your estate from potential creditors, or minimise taxation, trusts provide legal mechanisms to meet these goals effectively.
If you know your inheritance is tied to a trust—such as a discretionary, life interest, or accumulation trust—you must understand how that trust operates. Some trusts might give you income rights without access to the capital; others may let trustees decide when and how to distribute funds.
Likewise, consider whether establishing your own trust makes sense. For instance, if you now have sufficient wealth to pass on without impacting your standard of living, a discretionary trust could help reduce IHT, provide stability for beneficiaries, and protect vulnerable individuals from financial exploitation or irresponsible spending.
It’s not just Inheritance Tax that impacts your estate planning. CGT and Income Tax can also influence the overall efficiency of your plan. Inheriting property or investments involves tax considerations if those assets are sold later at a gain. Although inheritance itself is not usually subject to CGT, any increase in value post-inheritance may trigger tax liabilities upon disposal.
That’s why it is important to record accurate valuations at the date of death—this becomes your acquisition value for calculating CGT. Additionally, any rental income from inherited properties or dividends from shares will need to be declared and appropriately taxed. This could push you into higher income tax bands, automatically changing your obligations and potentially reducing income-linked benefits.
Increased wealth might require greater sophistication in your investments. You may find yourself holding new types of assets, such as commercial property, private equity, or collectibles, which could demand a reorientation of your risk-return profile. Perhaps you were previously conservative in your investments but are now capable of absorbing risk in specific allocations given the buffer provided by an inheritance.
Seek professional investment advice to align your portfolio with your revised objectives, which might shift from accumulation to preservation or from income growth to legacy building. Diversifying across sectors and geographical regions becomes increasingly important as your portfolio grows, enhancing stability and reducing volatility. If you feel uncomfortable managing these changes yourself, use a discretionary investment manager with experience handling estates and multi-generational wealth.
Greater wealth can complicate family relationships, particularly when expectations diverge or when some members become dependent upon support while others remain financially independent. Estate planning in this context should therefore take account of more than balance sheets.
If your family relationships are complex, strained, or involve stepchildren or blended units, clear instructions and thoughtful plans are essential. Letter of wishes documents can supplement legal instruments with guidance for trustees or executors about the rationale behind your decisions.
Consider holding a family meeting, perhaps led by a mediator or adviser, to explain your intentions and prepare your loved ones. While not everyone will agree with your choices, transparency reduces the likelihood of disputes, misunderstandings, or litigation later.
Suddenly acquiring valuable but illiquid assets—such as property or shares in a private company—can leave you asset-rich but cash-poor. If your estate requires liquidity to meet tax payments or provide sufficient cash flow to dependents, plan accordingly.
Some practical measures include keeping sufficient life cover, allocating liquid investments for potential tax bills, or establishing a joint ownership structure for properties. Additionally, you’ll want to consider power of attorney arrangements to ensure decisions can be made in the event of your incapacity, particularly when managing complex or high-value estates.
Your life circumstances and financial responsibilities change after inheriting wealth. The amount and type of insurance cover you hold should reflect this evolution. The need for substantial life insurance might decrease if your estate contains sufficient assets to support dependents. Alternatively, you might require different types of cover, such as buildings insurance for inherited property or public liability cover for land or holiday homes.
Review pension arrangements in light of your new financial framework. While pension pots are usually exempt from Inheritance Tax, their nomination forms must be kept up to date. A large inheritance may also change your plans for retirement age, contribution strategies, or income drawdowns. Consider integrating these pensions into your broader financial and estate plans for maximum tax efficiency and intergenerational benefit.
An increase in wealth offers the opportunity to make a lasting social impact. Many individuals choose to support charities through gifts in their wills, donor-advised funds, or family foundations. Charitable giving can also reduce the inheritance tax burden. In the UK, if you leave at least 10% of your net estate to charity, your IHT rate on the remainder may be reduced to 36%.
Whether you are passionate about education, healthcare, the arts, or environmental protection, incorporating philanthropy into your estate plan can serve as a testament to your values and inspire future generations. Engage professional advisors to structure gifts effectively while documenting your vision for their use.
Comprehensive planning is rarely achieved alone. Work with solicitors, tax advisers, and wealth planners to tailor each element of your estate plan. They bring expertise in tax legislation, legal instruments, and financial planning that can ensure both compliance and strategic advantage.
Choose professionals who understand family dynamics, multi-generational legacies, and wealth psychology as well as numbers. Estate planning is not only about the assets you leave, but it’s also about the clarity, values, and stability you leave behind.
Anticipating an inheritance while managing your own estate introduces new layers of responsibility and opportunity. By proactively assessing your financial position, updating legal documents, understanding tax implications, and aligning your plans with your personal and family goals, you can integrate future wealth into your life and legacy with foresight and confidence. With the support of experienced advisers, this process can ensure that both your current and inherited assets are preserved, protected, and purposefully passed on.
Privacy Policy
Terms and Conditions
Disclaimer
COPYRIGHT © 2024 MY WILL AND PROBATE
