I am going to inherit some money…what do I do?
If you are not sure what to do with inheritance, we have outlined some options available to you in this article. There are two potential situations. The first is you think that when your Mum Dad or Auntie dies, you will inherit. The second situation is that your Mum Dad or Auntie has died and you are due to inherit once the estate is administered.
I may Inherit from an Estate
Broadly speaking you must decide whether you will want to retain the inheritance (to spend or to invest) or would prefer to pass it to your children or some other family member.
Passing on the Investment
Firstly, you should find out whether you are to inherit. Most of the time the inheritance will be under the Will or occasionally the intestacy of Mum Dad or Auntie. You need to try and find out what the situation is and the only way to do this is to ask your relative.
What if there is no Will?
If it turns out there is no Will, you should try to persuade the person involved to make a Will which benefits your children in your place or creates a flexible trust under which the Executors can decide who to benefit. This will usually be decided after consulting with you. If you cannot persuade the person to make a change to their Will, it is possible to do something after you have inherited but for tax reasons it is generally better to get the changes made while your parents or Auntie are still alive.
What if the inheritance is coming from a Trust?
If the inheritance is coming to you from a Trust Fund, you need to find out the terms of the trust. Most commonly the Trust will give you an absolute right to benefit as soon as Mum dies – this is called a “Reversionary Interest” which is a very valuable right. So long as Mum is alive you can give away the Reversionary Interest with absolutely no inheritance tax consequences. The moment Mum dies you own the trust and giving it away would be a gift for Inheritance tax and other purposes. The process of giving away is not difficult but does require proper advice as to how to do this and how to maximise the benefits that can be achieved.
I am Benefitting from an Estate
Next we consider what you can do if your elderly relative has died and you are benefitting under the Will but do not want the inheritance.
The answer is simple, give it away. Be aware the inheritance is then considered a gift for inheritance tax purposes and will impact you and your beneficiaries tax positions in the future. There is a mechanism to avoid the inheritance tax trap and that is to use a Deed of Variation.
The Variation must be done within 2 years of the death of your relative, then the gift which you have made is treated as a gift directly from your relative to your beneficiary and has no impact upon you or your beneficiaries Inheritance tax position. There are potential traps attached to Deed of Variation but this is a fantastic way to benefit your loved ones without adverse tax consequences.
I want to retain the Inheritance to invest
If you want the inheritance either to spend or to bolster your savings, we always recommend you get independent investment advice. If you already have an adviser, they will help you. If you do not have an adviser, take care to make sure the adviser is independent and properly qualified. Watch out for scammers as there are many people out there who would be delighted to relieve you of your inheritance! Check that an adviser is genuine by going to the Financial Conduct Authority website. Remember the old rule that if something you are offered seems too good to be true then it almost certainly is. There is no such thing as a guaranteed return or an absolute guarantee of security, so don’t be tempted by all the offers you see.
How can we help?
At Herrington Carmichael we have extensive experience of dealing with all the above scenarios and can offer extensive advice. For further information about inheritance tax planning please visit our ‘Inheritance Tax Planning‘ webpage, or contact a member of the Private Wealth and Inheritance Team at HCprivateclient@herrington-carmichael.com for advice.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2023 by Legal 500 and Alistair McArthur is ranked in Chambers 2022.