Who will inherit your money?

A disconnect between parents’ intentions and children’s expectations, coupled with a lack of communication between the generations, could lead to some nasty surprises on the parents’ deaths, not to say litigation, as more parents leave their inheritance unequally between their children.

A recent report by Netwealth-Generation Game: Family Tribes in Family Finance finds that only 23% of young adults have had open discussions with their parents about their respective plans for the future. 66% of parents believe their children have a clear understanding of their specific plans for their wealth when they die. Worryingly, only 39% of young adult children agree. And there is a further lack of understanding about how the parents’ wealth will be divided.

One common conundrum is equality. It might be assumed that the starting point for most clients is that their children should inherit equally and this might be what the children expect. Netwealth’s report indicates that nearly half of parents (47%) intend to split their estates unequally between their children.

Consider these scenarios:

• A. Parents have two sons; A is a hedge fund manager, who has more money than he needs. B is a state school teacher, who would benefit from an inheritance to pay off the mortgage, supplement retirement provision or help with his own children’s university fees. 14% of parents would give unequal shares where their children have different incomes and they wish to provide greater support to the one(s) that need it;
• B. Widow in Birmingham, daughter lives locally, son lives in Cornwall. Both children well enough set in life without the need for inheritance. Daughter takes mother to all appointments, shopping, helps in her house etc. A further 14% of parents would give greater support to a child whose financial or care responsibilities mean they need it more; and
• C. Grandmother has three children, A, B and C. A, B and C are all wealthy enough themselves. A has 4 children, B 2, C none. Grandmother decides all grandchildren should inherit her estate equally. Some say that is penalising C for not having children; others say it is targeting inherited wealth on those who need it most – ie for education and housing. 12% of parents agree with grandma.

Other reasons for divvying up the estate unequally include the situation where parents have already provided significant financial support to one child and want to even things up on death (15%) or, sadly, where they are estranged from one child (7%) or do not want their child’s partner getting their hands on the money (4%).

Many parents assume, wrongly, that their children are aware of their plans, and the children can be reluctant to open the conversation for obvious reasons.

It is, perhaps, no coincidence that family disputes over wills have reached an all-time high, as reported in The Telegraph in September 2021. Will disputes in the High Court in 2020 were up 50% on the 2018 total.

It is clear that parents need to have those difficult conversations, and to start them earlier, so that their children understand and (hopefully) accept how the family wealth is going to be divided. That will enable the children to plan their financial futures better, and will give the parents peace of mind, that there is less chance of their children falling out over their inheritances and ending up in court.

A good starting point is to come and discuss the issues with us first. We can help clients identify what is in the pot for distribution, consider the impact of inheritance tax, help them plan and suggest different methods for achieving their wishes – whether through wills or lifetime planning. A conversation with us helps frame that subsequent conversation with the children.