How to make the most of your inheritance

November 14, 2023

Many of our clients tell us that inheriting wealth can be something of a double-edged sword. Of course, an inheritance usually comes with an emotional impact, but even leaving that aside, inheriting wealth can be both a blessing and a challenge.

It may be life-changing, presenting an opportunity to improve your financial security and accomplish your goals, but it also often involves a sense of responsibility for managing the funds wisely. Whether you need your inheritance to help you achieve your own goals in later life, or whether you yourself are in the position of protecting it for the next generation, managing inherited wealth can come with a lot of ‘baggage’.

At Talis IFA, we’re used to helping our clients come to terms with what’s needed, and guiding them through what might seem a complex minefield of options. We look at the financial world together, identifying the best options and opportunities for you – based on a deep understanding of your situation, your goals and your attitude towards investment risk. We’ll explain everything in plain English and ensure you have the information you need to guide you to a decision. We take a life-first, money second approach – meaning that our first consideration is to make your money work for you, rather than focusing solely on the numbers.

That’s why our approach to managing your inheritance doesn’t focus solely on encouraging you to develop an investment portfolio. There are a number of steps to take before that, to ensure that we’re recommending a strategy that is aligned with and supports your life goals.

An IFA’s approach to managing your inheritance

1. Cash-flow modelling

It can be useful to create and analyse a cash-flow model to help you make informed decisions about how to use your inheritance.

Making assumptions for future investment returns, inflation and interest rates, your IFA can help you to create a comprehensive picture of your current and future financial situation.

Why use a cash-flow model?

• help you to identify and prioritise your short- and long-term financial goals
• gaining a clearer understanding of your financial situation can help you to make better decisions about investing, saving and spending your inherited wealth, ensuring that it serves your needs and goals over time
• by analysing different scenarios and their potential impact on your finances, a cash-flow plan enables you to assess and manage risks associated with investments and other financial decisions
• inheritance often comes with tax implications, and a cash-flow plan can help you understand your tax liabilities and plan accordingly to minimise the impact on your financial health
• when planning for your retirement, a cash-flow plan allows you to see how much you need to save and what returns you need to achieve
• a cash-flow plan can help you determine the most suitable strategies for preserving and distributing your assets following your wishes

2. Analysing your financial situation

This involves thoroughly analysing your current circumstances, goals and future needs, gathering information including your income, expenses, assets (property, investments, pensions, etc) and liabilities (such as loans).

With an overview of your assets established, we can give you a clear understanding of your net worth right now and allow you to assess whether you’re on track to achieve financial independence.

3. Identify your financial goals and commitments

The next step is to gain clarity on what you want to do. Your IFA can help you to determine your short-term and long-term life goals, and the financial needs associated with them. This might include things like saving for a house, funding your children’s education or planning for your retirement, or, if you’ve inherited later in life, thinking about legacies for grandchildren, helping adult children to move up the property ladder or supporting causes you believe in.

4. Evaluate your risk tolerance and investment strategy

Now it’s time to think about whether your investment strategy aligns with your risk tolerance and financial goals. Your IFA will look at your existing portfolio, if you have one, and recommend appropriate changes so it is optimised for your needs.

5. Plan for potential risks and liabilities

Now is the time to check that you have adequate insurance cover to protect you and your family against unforeseen events such as death or disability. Additionally, your IFA can consider and recommend strategies for minimising tax liabilities for you and your beneficiaries.

6. Develop an investment strategy for inherited wealth, capital and surplus income

Once the first five steps are in place, now is the time to develop an investment strategy for your inheritance or any additional income. Understanding your current situation and future goals is essential to ensure that you make wise, informed investment decisions.

7. Monitor and review your cash-flow plan regularly

It’s important to regularly update your cash-flow plan to reflect changes in your financial situation, goals and market conditions. This will help you stay on track and adjust as needed to maintain your financial security. Your IFA will schedule regular reviews to help you keep on track, and make sure you’re aware of the latest changes in tax rules and individual personal allowances.

If you’d like the help of a professional IFA to get a clearer picture of your financial situation and develop a plan for effectively managing your inheritance, you can find a Talis IFA here.

 

The value of your investments can go down as well as up, and you may get back less than you invested. The tax treatment is dependent on individual circumstances and may be subject to change in future.

Estate planning is not regulated by the financial conduct authority. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.