If there is a possibility that you might receive an inheritance in the future, it is important to be aware of the following four things.
Keep them in mind for future reference.
1. Expect a Waiting Period
Settling an estate can be a complex task, so it is important to anticipate that the process may take some time.
When someone passes away, if certain matters are not in order, it can complicate things further.
Research conducted by Macmillan Cancer Support revealed that 63 percent of UK residents have not written a will.
However, even with a proper estate plan in place, it can still take time.
If assets are held in a trust, the probate process may be avoided, which is advantageous.
Nevertheless, distributions from trusts can still take a while.
Understanding the specifics of the trust, particularly when beneficiaries reside in a jurisdiction that does not recognize such structures, can be challenging.
Due to these factors and others that arise during the estate settling process, it may take months or even years to finalise everything.
Being aware of this can help manage expectations not only for yourself but also for siblings or other involved parties.
2. Plan Ahead
The second important consideration is to have a plan in place before actually receiving the inheritance.
Sometimes, receiving an inheritance can feel like stumbling upon a windfall, and you may not have factored this wealth into your financial plans.
However, it is essential to have a well-thought-out plan.
Researcher Richard Taylor found that individuals who receive smaller inheritances are more likely to spend the money, while those who receive larger inheritances are more inclined to invest it.
Regardless, the parent or relative who left you this money did so for a reason.
When prioritizing your financial life, it is advisable to address fundamental aspects of financial planning, such as ensuring you have a few years’ worth of expenses in conservative assets, an emergency fund, and paying off high-interest debt.
These actions can significantly impact your financial well-being.
If the inheritance is substantial and you are 50 years old or older, it is crucial to adjust your retirement plan to accommodate the new inflow of funds.
3. Don’t Forget about Taxes
The third important aspect to remember is the tax implications.
If you do not reside in the UK, you may be subject to taxes in your current country of residence, even if the estate itself is not taxed in the UK.
At the very least, you will likely need to report the income to the tax authorities in your current country of residence, and failing to do so promptly can result in significant penalties.
It is crucial to familiarize yourself with the local tax regulations well in advance.
If you inherit a UK pension, it will be exempt from inheritance tax.
However, there may still be local taxes to consider when you access the funds.
Avoid surprises regarding taxes, particularly in the first year after receiving the inheritance, by consulting a tax adviser while navigating the inheritance process.
4. Review Your Own Estate Plan
Receiving an inheritance should prompt you to review your own estate plan.
Through conversations with solicitors and advisors, you will gain valuable insights into the process.
This experience will likely motivate you to make it as straightforward as possible for those who will inherit your assets after you pass away.
This can involve keeping clear records of all your accounts and estate planning documents, such as trusts, wills, powers of attorney, and advanced healthcare directives.
Keep all these documents in one place so that the individuals in charge of your estate can easily locate them.
It is advisable to have open discussions about money with your family while you are still alive to address expectations and ensure everyone is on the same page regarding inheritance.
It is much more challenging to find answers from someone who has passed away than to have honest conversations about financial matters.
Planning ahead is the best gift you can give to those you will leave behind, and receiving an inheritance provides an opportunity to positively impact your own life.
Take the time to create a plan for your current finances and set goals for a better future.
This approach allows you to honor and remember the person who left you the inheritance in a meaningful way.
