As families live longer and financial dynamics evolve, the concept of living inheritance is gaining traction, potentially making traditional inheritance a thing of the past.
Whether you’re recently retired or still in the planning stages, managing your financial affairs can be complex. Recent studies show that many people want their loved ones to enjoy financial support during their lifetimes rather than waiting until they pass away. This proactive approach, known as living inheritance, can significantly impact how you allocate your assets.
Prioritize Your Future
Before considering how to assist your family members, ensure that you have adequately planned for your own retirement. With increasing life expectancies, it’s essential to secure enough resources for a comfortable and fulfilling life in your later years.
If you’re over 55, recent pension regulations allow you to access the entirety of your pension savings or withdraw a tax-free lump sum. Downsizing from a larger family home can also provide additional funds. Always prioritize your financial security before gifting to others.
Gifting Money
One of the most common forms of living inheritance involves giving money directly as gifts. Individuals can gift up to £3,000 each year tax-free. If you wish to give more significant sums, be mindful that your beneficiaries may face inheritance tax if you pass away within seven years of the gift. Additionally, you can also contribute up to £5,000 toward a wedding gift without incurring tax.
Regular Payments
If you’re in a position to make regular payments from your income, those gifts can be exempt from inheritance tax as long as they do not significantly affect your standard of living. Consider utilizing tools like a Lifetime ISA, which can effectively enhance your loved one’s inheritance by allowing funds to grow tax-efficiently.
Open Communication
Honesty and transparency are key when discussing finances with your family. Engage in conversations about your financial situation, future plans, and what you can afford to give. Initiating these discussions can be challenging, but establishing clear goals makes it easier to create a viable financial plan.
Seek Financial Advice
If your financial situation is complex or you’re uncertain about the best course of action, consider seeking professional financial advice. Take the time to research and find a reputable advisor who can offer tailored guidance.
If you’re unsure about the value of various pension pots you’ve accumulated over the years, you’re not alone. The government provides a free tracing service to help find any lost pensions, simplifying your financial planning.
Important Risk Warning
As with all investments, your capital is at risk. The value of your Nutmeg portfolio may fluctuate, and you might receive less than you initially invested. A stocks and shares Lifetime ISA may not suit everyone, and specific conditions apply. You must be between 18 and 39 years old to open a LISA. Withdrawals before age 60, unless for a first home or terminal illness, incur a 25% government penalty, so you may receive less than you deposited.
The Lifetime ISA is subject to different tax treatment than pensions. You may be better off contributing to a pension. If you choose to opt out of your workplace pension to invest in a Lifetime ISA, you could lose the benefits of employer contributions. Always seek financial advice if you’re unsure about your options.