Great expectations: 31% of millennials put off saving as they expect inheritance to take care of them

Are your children and grandchildren depending on you to bankroll their future?

According to research from Sanlam UK, almost two-thirds (64%) of 25-45-year olds think they will be receiving inheritance in the future.

While that might not be an unreasonable belief for many people, it could cause issues in the future, as a reliance on money which may potentially be passed down is affecting the saving skills of young adults.

31% of those millennials who foresee a windfall are opting to spend their current income, rather than put anything in savings, as they expect to be able to support their future on the legacy of older generations. Meanwhile:

  • 40% have less than £10,000 in savings
  • 8% have no savings at all
  • 34% say they are resting their future financial security on inheritance alone

Putting a figure on it

25-45-year olds expect to receive a combined £1.2 trillion from loved one’s estates within the next 30 years. 29% think they will inherit more than £50,000, but many expectations are set much higher, with an average of £233,000.

Perhaps surprisingly, that figure is not too different to the average amount current over-55s with investable assets worth more than £100,000 expect to leave to their children and grandchildren; £257,000.

Will reality meet expectations?

In other areas, millennials are likely to be disappointed. While the amount older people are planning to leave behind matches the beliefs of younger generations, they may be shocked to learn that it’s not all for them.

26% of older people intend to leave inheritances to both children and grandchildren, and most say that their legacy will be split between more than two people. That means, those millennials who expect to receive enough to see them through the rest of their life may be in for quite a shock.

The double-sided coin

While there is always a slim chance of everything turning out fine, for millennials who have put financial responsibility on the back-burner, while awaiting their inheritance, there are two very possible outcomes to their plan:

1. They receive the expected amount, or more

Younger adults who decide to spend their income recklessly, without any thoughts of the future, could be setting themselves up for failure. Without practising good financial habits, they may find that they are unprepared to handle the inheritance, once they receive it. That could see them use the money unwisely, putting them back to square one, with no plan to support their future.

2. They receive less than expected, or nothing

Relying on a potential windfall will not end well if that money never materialises. By continuing to spend income without making provisions for later life could mean that millennials struggle to start saving and don’t have enough time to build a substantial fund when they realise that they will need to fend for themselves.

Of course, in a perfect world, the inheritance will be straight forward, and the beneficiaries will manage it perfectly, but that can only happen if the right plans are made.

What to do next

Start making those plans. There are four key things to do:

1. Communicate

The simple solution to all of this is talking to one another.

Almost two-fifths (38%) of 25-45-year olds who expect to receive inheritance have not discussed it with the person they expect it from.

Therefore, if you are planning your assets and will be leaving money to your loved ones when you die, it may be best to talk to them about it. That way, they know exactly what to expect and can implement that into their financial plan.

By communicating with younger generations, you may also want to take the opportunity to ensure that they are prepared for the future and that they are taking responsibility for their own finances, rather than simply relying on yours to see them through.

2. Make it official

Once you have decided what will happen to your assets and money, it’s time to make it official. There are several parts to this:

  • Appoint Lasting Power of Attorney in favour of the person or people you want to make financial decisions on your behalf in the event that you are not able to. This relates to decisions which need to be made while you are still alive but gives you protection in situations where you are mentally or physically unable to make choices for yourself.
  • Write a will. It’s not the lightest of topics, but if you are planning to leave an inheritance to your children or grandchildren, your will needs to be updated to reflect those wishes so that the executor of your estate can follow them.
  • Nominate beneficiaries. Workplace pensions, private pensions and life insurance all pay lump sums when you die. Nominating beneficiaries, something which is often overlooked, means this money is paid to the people or organisations of your choosing.

3. Consider Inheritance Tax (IHT)

IHT is payable on estates worth more than £325,000, or £650,000, if you are a widower who inherited the entirety of your partner’s estate.

If you believe your estate may be worth more than this, your loved ones may face a large bill which could cause them both financial and emotional difficulties at what will already be a hard time for them.

There are many ways to reduce the IHT payable on your estate, however, which option suits your needs best will depend on your circumstances, so why not get in touch for tailored suggestions?

4. Talk to a financial planner

Whether you want to gift money while alive, or wait and leave a legacy, we can help you to do so, with the help of a financial plan. Using our years of knowledge, expertise and qualifications, we can help you to determine the course of action which best suits your aspirations and dreams, while making sure those decisions make sound financial sense.

For more information, or to talk about your plans, get in touch with us on 01664 77 88 99.