5 steps to take if you’re relying on an inheritance

Are you expecting to receive an inheritance at some point in your life? Whilst many of us know loved ones hope to leave something behind for family, it seems that people are increasingly relying on an inheritance to achieve their aspirations.

According to a survey, one in seven young adults expects to inherit money before they are 35. With house prices rising, it’s not surprising that over a fifth hope to fund their first property purchase with it. However, expectations are often not aligned with reality. The typical age to receive an inheritance is between 55 and 64. Furthermore, rather than almost £130,000 young adults hope to receive, the median average handed down is just £11,000.

Further research conducted by SunLife highlights that an inheritance often isn’t life-changing. Less than half (46%) of people aged over 55 have received an inheritance. Whilst the average amount received was a significant £74,816, this still falls below the £184,484 people said they would need to feel comfortable for the rest of their lives.

Relying on inheritance: A risky decision

Whilst an inheritance might seem like it will solve financial worries and aspirations, it’s risky relying on inheritance alone.

Firstly, people are living longer and there’s no guarantee of when you’d receive an inheritance, even if a loved one intends to name you as a beneficiary. For many people, inheritance is likely to come too late to help them achieve milestones. You may not receive an inheritance until long after you’ve retired, for example.

Secondly, there’s no way to guarantee the amount you’ll receive either. Even if you’ve spoken to your loved one about how their estate will be distributed, circumstances can change. For instance, if your loved one requires care in their later years, the value of their assets may be significantly depleted.

If an inheritance is integral to your plans and financial future, it may be worthwhile reassessing the steps you’re taking now and how you’ll achieve your goals. Here are five steps to take to improve your financial security if this is the case.

1. Have an honest discussion with loved ones

Talking to loved ones about a potential inheritance can be challenging, but if it’s going to be crucial to your future, it’s an important one to have. Some people may not want to discuss what is written in their will, while others will be happy to, so keep this in mind. Sensitively asking what, if anything, you may receive can help you plan and build realistic expectations.

2. Assess your goals and how you might achieve them

When you think about how an inheritance will help, which goals come to mind? Perhaps it’s buying your first home, being able to retire earlier or something entirely different. Thinking about these without an inheritance in the equation can help you look for alternative solutions. If milestones or areas that are important to you are currently dependent on an inheritance, creating different options can give you greater confidence.

3. Take steps to build a financial safety net

Thinking that you’ll inherit a significant sum can mean you make more reckless financial decisions than you would if you didn’t believe you had an inheritance to fall back on. Don’t neglect building a financial safety net now even if you believe an inheritance will take care of you in the future. As a general rule of thumb, you should have a minimum of three to six months outgoings in an easily accessible account.

4. Focus on how an inheritance can enhance your lifestyle

Rather than looking at where an inheritance is essential for your lifestyle and goals, look at how it can enhance it. For example, if you hope to retire before State Pension age, you should start taking the steps to achieve this now. Then an inheritance may mean you can retire a few years earlier than anticipated or afford you a more comfortable lifestyle when you do.

5. Speak to a financial adviser

If goals and your financial future seem daunting, a financial adviser may be able to help you create a financial plan. Using cashflow planning tools, for example, you’ll be able to see how your current financial situation will affect your plans in the short, medium and long term, whether you receive an inheritance or not. As a result, it can help you build a blueprint to secure the future you want. If you’d like to discuss your finances and potential inheritance, please get in touch.

Please note: The Financial Conduct Authority does not regulate estate planning.

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