Death and money remain our two biggest taboos. But failing to talk about your inheritance could cost you thousands.
The British were traditionally seen as a stiff-lipped, uptight bunch. Talking about emotions was strictly taboo, even with our close family. That’s no longer the case. Egged on by reality TV, these days we can’t stop emoting about our hopes, fears, dreams, passions and sex lives.
But there are two things we still don’t like talking about. Death and money.
Combine the two and we’re really tongue-tied. But avoiding the subject can be an expensive mistake.
No talking
Three-quarters of us have never discussed our inheritance with our parents, according to new research from Investec Wealth & Investment.
Nearly four out of ten said they would NEVER talk to their parents about inheritance under any circumstances. Yes, you read that correctly. Any circumstances.
Presumably, “any circumstances” would include imminent death, which is exactly the moment you would expect people to be talking about inheritance.
But we don’t.
Talk Talk
The main problem is that children are terrified of appearing money-grabbing. Many also fear their parents would be upset if they raised the subject of inheritance.
Either that, or they simply don’t want to think about their parents passing away.
That’s understandable, but failing to discuss the subject could lead to far more painful conversations later, after your parents are dead, and the remaining family inherits a financial mess, or pays tens of thousands of pounds in inheritance tax (IHT) that could have been easily avoided.
We can talk about sex, baby. Now we need to talk about IHT.
Here’s why.
Where there’s no Will...
Every year, hundreds of thousands of people die without writing a Will. Roughly half of us haven’t prepared this crucial legal document, which decides how the stuff we own is divvied up when we die.
If one of your parents dies intestate - without writing a Will - they could bequeath their family a financial and legal nightmare. Say it’s your father who dies. He wanted to leave all of his estate to your mother, but neglected to write this in a Will. Maybe he assumed she would get it all.
[SPOTLIGHT]Bizarrely, under the Laws of Intestacy, she is only entitled to the first £250,000 of his estate outright. She will also have a “life interest” in 50% of any assets above that, but the other 50% will be shared among the children.
If you think that’s potentially messy, you’re right. It will get a lot messier if your parents have divorced, and messier still if one of them has started a new family with another partner.
By encouraging parents to write a will, you can avoid this mess. You really need to talk about this stuff.
Check out our guide on how to write a will.
Let’s talk about IHT
There is another reason it’s good to talk. It could save you tens of thousands of pounds in inheritance tax.
Currently, everybody can leave £325,000 worth of assets without paying a penny to the taxman. Married couples don’t pay inheritance tax when the first partner dies, which means a couple can leave £650,000 tax free.
Anything above that will be taxed at 40%. Sky-high UK house prices have dragged millions of us into the IHT net, but there is plenty we can do to reduce the bill.
- Give money away. Parents and grandparents can gift money to their loved ones and this will fall out of their estate for IHT purposes, but only if they live for another seven years. It is called a “potentially exempt transfer”, and the earlier they start making them, the better.
- They can also gift up to £3,000 a year to whoever they like, free of inheritance tax. If a 50-year old man with an average life expectancy gives away £3,000 a year he will have gifted £99,000 when he dies at age 83. If his wife did the same, she would have gifted £105,000 by age 85. In total, that’s £204,000. Assuming this would have all been subject to 40% inheritance tax, they would save £81,600.
- Parents and grandparents can also give regular gifts from their income (rather than their capital), provided those gifts don’t affect their standard of living.
- They can also give up to £5,000 towards their children’s wedding, £2,500 to their grandchildren’s wedding and £1,000 to other family members.
These are hard times to be young, thanks to student debt, unaffordable housing, and rising youth unemployment. Parents and grandparents can help, and reduce their inheritance tax bill at the same time. But only if somebody is brave enough to start the conversation.
Read How to cut your Inheritance Tax bill for more.
Talk that talk
I know it isn’t easy. My parents never spoke to their parents about it. I also struggle, because I don’t want to appear money grabbing, and I don’t like to think about my parents passing away.
I bet you feel the same way. We have to get over this together. We have to start talking.
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