The loss of a loved one is a difficult time and your clients are unlikely to be thinking about their financial plan when they are grieving.

However, they may need to consider their finances if they receive an inheritance when a family member passes away.

When managed in the right way, an inheritance may offer opportunities to achieve their goals. Yet, making big decisions about their wealth can be challenging when your clients are still mourning the loss of a family member.

Unfortunately, if they do not make optimal decisions, they may not use their inheritance in the most productive way. 

The good news is a financial planner can offer support and may be able to help your clients make sensible decisions that align with their financial plan.

5 ways a financial planner can help your clients manage an inheritance

1. Staying objective

It is easy for your clients to make rushed decisions because they are going through an emotionally challenging time when they receive their inheritance. Additionally, if the inheritance is particularly large, they may not have experience dealing with a lump sum of this size and this can be daunting.

Consequently, they may allow their emotions to drive decisions that they come to regret in the future.

Fortunately, one of the major benefits of working with a financial planner is that they are an objective sounding board. They can help your clients take the emotion out of their decisions and think logically about their next steps.

In many cases, this means simply taking a break until they are emotionally ready to make decisions. In the meantime, a financial planner can advise them on the best way to hold the funds.

2. Understanding their assets

Your client could receive a combination of investments and property, as well as cash. In some cases, if they do not have a lot of experience with investing, they might not understand exactly what they have inherited.

As such, they may not be able to decide how to manage investments or whether to sell properties, for example.

A financial planner can work with your clients to explain exactly what assets they have inherited and what their value is. Your clients can then make an informed decision about how they want to proceed.

3. Considering the tax implications

An inheritance often comes with certain tax implications and your clients may benefit from having a financial planner to help them navigate this.

For instance, if your client is the executor of the deceased’s will, they may need to calculate and pay Inheritance Tax (IHT) on the estate. Any mistakes here could be costly as the executor must pay the difference if they pay the wrong amount.

There may also be other tax implications when inheriting investments. Your client may have to pay Capital Gains Tax (CGT) or Dividend Tax on any investment returns, for example.

Additionally, if they receive a cash lump sum and deposit it into a cash savings account, they could generate interest that pushes them over their Personal Savings Allowance. This could mean they pay tax on their cash savings interest for the first time.

A financial planner can explain all these potential tax implications to your client, so they do not end up with a surprise tax bill.

4. Exploring different ways to use their inheritance

When a client receives a large cash lump sum, they may not know whether it is best to invest it, add it to their cash savings, or use it for something else such as clearing debt.

A financial planner can take them through their different investment and savings options and explain the potential benefits and drawbacks of each. 

Further to this, they can use cashflow planning, to “rehearse” various scenarios and demonstrate how they might help clients to further their long-term goals. 

For instance, they could show clients how their retirement savings may grow if they pay the inheritance into their pension. Alternatively, they may consider how paying a lump sum off their mortgage could affect their monthly payments in the future.

This means that your clients can see what is likely to be the most effective way to manage their inheritance. Consequently, they are more likely to use the funds in a way that furthers progress towards their long-term goals.

5. Updating their estate plan

It is normally a good idea for your clients to update their estate plan when they inherit new assets.

This is especially true if they inherit property or investments as they may need to update their will to decide who they want to leave these new assets to.

Additionally, if a client’s net worth increases significantly, their family may be more likely to pay IHT when they die. A financial planner can help them find ways to potentially reduce IHT, such as lifetime gifting, for example.

Get in touch

Managing a large inheritance can be difficult for your clients but we are here to support them.

They can contact us at hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The Financial Conduct Authority does not regulate cashflow planning.