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Controlling How Children Spend Their Inheritance

New research from Prudential has revealed a growing desire amongst parents to keep control over how any money they leave after they die is spent by their children.

Prudential highlights that many baby boomers will be in the fortunate position of being able to pass on significant assets to their heirs, thanks to rising property prices and pension wealth, and 77% of over-55s have indicated that they want to have some control of how their legacy is spent.   

Fears on Inheritance Squandering

One in four parents (26%) are concerned that part of an inheritance could end up being given to spouses of their children in the event of a divorce. About a third (30%) say they don’t want their wealth to be squandered by their children, and the same number want to ensure that grandchildren benefit from an inheritance. 

In order to retain some level of control over the inheritance:

- One in eight parents (12%) want to specify what their legacy is used for.

- 13% have already sought, or intend to seek, financial and legal advice to help ensure that their legacy is used wisely.

- One in ten want to stipulate that their children must receive professional financial advice on receiving their inheritance. 

“With two in five marriages ending in divorce, it is easy to understand why the problem of keeping wealth within their family is a growing concern for the bank of mum and dad when they’re planning to leave money to children and grandchildren,” commented Les Cameron, tax expert at Prudential. “To help ensure efficient inheritance tax planning, obtaining financial and legal advice should be money well spent.”

Lack of Awareness of IHT

The research also revealed a lack of knowledge of inheritance tax (IHT), with 67% of over-55s saying they are unaware of what the national average inheritance tax bill is. Just one in 25 UK adults (4%) correctly guessed that the average bill was within the range of £100,000 and £200,000. 

Despite more than a third of over-55s (35%) being concerned about having to pay inheritance tax on their estate, less than a fifth (19%) have actually taken action to reduce their potential tax bill. Fewer than one in ten (9%) are seeking financial advice, making gifts to family members (6%) and/or setting up trusts (4%).  

Support for Early Inheritance Giving

A separate piece of research into parents’ attitudes to inheritance has revealed that many parents support the idea of early inheritance giving rather than making their children wait.

The study, by Key Retirement, found that half (53%) of parents plan to make major financial gifts to their children, with an average target of £15,000 per child, while more one in 10 (11%) expect to give more than £25,000 in gifts to each child.

Around 54% plan to fund the pay-outs through their savings but a growing number are looking to release cash from their home to help out family. Key Retirement’s study shows more than a fifth (22%) of those not wishing, or able, to use savings would use equity release to fund their gifts.

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