A few weeks ago we blogged about the importance of having a Will. Today we’re writing about the other side of that – receiving an inheritance.
Again, it’s not something we tend to plan for, as it comes with the burden of having lost a loved one. However, it is worth knowing a bit about how inheritance works, and what you could do with the money.
There are 4 ways that inheritance funds generally get used:
- Repaying debt (car finance, mortgage, personal loans, credit cards.. etc)
- Purchasing something special, like a new car or going on a holiday
- Renovating your home
- Investing for the future
Depending on your situation, your goals and where you are in your financial journey all 4 may be options. Before making any big financial decisions make an appointment to discuss your situation with your financial adviser and make the best of your circumstances and your funds.
When you receive the inheritance there are some things that you need to consider carefully. Especially with a large sum of money, it’s important to seek advice about the best way to use those funds. It can be easy to fritter that money away.
One important thing to note is that Inheritance funds or assets are not automatically considered relationship property, according to the Property (Relationship) Act 1976. However, if the inheritance has been used for the benefit of the relationship it will likely be allocated as relationship property in the instance of a relationship breakdown and dividing up of assets.
So, if you wish to keep the inheritance funds separate from your relationship property you need to:
- Seek legal advice (we can’t offer that, but are happy to recommend a lawyer)
- Make sure that any funds relating to the inheritance are kept in a separate account in your name only
- Consider putting the funds into a trust
- If you do wish to use the funds for joint relationship reasons, seek legal advice and make sure that you have a relationship property agreement
One way to make use of Inheritance funds while maintaining one person’s ownership is to use the funds on an offset facility – that way the funds stay in your name but can still be of benefit by reducing the amount of interest paid on a joint loan. Talk to us if you think this could be an option for you. Not all banks have offset facilities.
What about the “early inheritance”?
Parents (or grandparents) sometimes choose to advance some funds in the form of a gift to help their offspring to purchase a house. At this stage the funds are not deemed an inheritance. If the funds are used as the deposit to purchase the property, the gift becomes joint property (assuming the child has a partner with whom they are purchasing the house). Should the relationship break down that gift is deemed joint property.
Again, you need to seek legal advice if you are the parents, or even the person receiving the gift if you want to protect that gift.
A refresher on Wills and how they work.
When someone dies their assets get distributed by the Executors according to their Last Will and Testament, commonly known as a Will. If that special someone does not have a will when they die, then those left behind have a more challenging time sorting out the process and it can be costly depending on the complexity of their estate. You can read more here.
If you don’t have a Will then contact us and we may be able to help you put together a simple will. If your situation is fairly uncomplicated Building on Basics can provide a will, using SimpleWills.
Do note that Building on Basics is a Financial Advice business and we do not provide legal advice. SimpleWills have been developed by Lawyers and are only suitable in certain situations. If your situation falls outside of these, we will happily recommend a lawyer to you.