Inheritance tax (IHT) is chargeable on the value of an estate above a certain threshold – usually £325,000 – when a person passes away. It is just one of the myriad of financial issues people will have to deal with when their loved one passes away, and the matter can often be complex and time-consuming. However, in this regard, Britons are being warned about misunderstandings arising when it comes to the matter of inheritance, and how these could be jeopardising finances for all who are involved.
A stark lack of candour on the topic of inheritance is increasing financial confusion, a study by wealth managers Netwealth has found.
The research showed 65 percent of parents believe their children have a clear understanding of their plans for inheritance, but only 39 percent of younger adults agree with this sentiment.
To compound the matter further, inheritance plans still remain taboo amongst Britons, with only 23 percent of younger adults having open conversations with parents about their intentions.
The lack of openness, the study stated, means families will lose out on the benefits in the long-term of family financial planning as well as putting wealth “at risk”.
“Ensuring finance is a topic discussed within the family unit can help educate and build confidence in the next generation.
“By having these transparent conversations, family members are empowered to make financial decisions that will stand them in good stead for the future.”
A matter which can often create confusion is who a person chooses to leave their estate to upon their death, and if expectations do not line up with the eventual reality, this may cause problems.
The research found only half of parents plan to split their wealth equally among their children, citing a wish to even up previous financial support provided, certain individuals having more responsibilities, and a lack of trust as reasons why.
But risks are also short-term as well as long, with the report warning a lack of communication between parents and grown-up children could have an immediate impact.
This is given the fact 65 percent of those asked said they plan to make meaningful wealth transfers in instalments over several years rather than in one lump sum when they die.
Despite this, only a quarter of younger adults are aware of their parents’ financial plans, meaning they could be making major decisions about their future without knowledge of their eventual inheritance.
As a result, Netwealth has encouraged Britons to get to know their ‘financial tribe’ – how they approach finances and money matters.
These are cited as: The Lifestyle Lover, The Wealth Sceptic, The Head in the Sand Avoider, The Big Spender, The Generous Giver, The Calculated Risk-Taker and The Self-Sufficient Saver.
Emma Maslin, financial coach, concluded: “Every life opportunity we face is filtered through the lens of our unique money personality – or ‘financial tribe’ – but we often assume that others think about money in the same way that we do.
“Add to this a lack of communication between generations and there is a lot of room for misunderstanding and potential surprises later down the line.
“By taking the time to really understand our individual and respective family members’ ‘financial tribes’ we can leverage the positives of our different money personas to benefit ourselves and the overall family unit when planning for the future.”