Traditional inheritance being replaced by bequests to help younger relatives, research shows

Written by Ray Clancy

Tuesday, 06 April 2010 08:13

Traditional inheritance is on the wane in the UK and being replaced with pre-inheritance where the benefactors pass on some of their estate before they die, according to new research.

The old fashioned routine of loved ones gathering for the reading of a will is not realistic anymore as benefactors increasingly like to have a say in how their inheritance is spent, the research from insurance provider Aviva shows.

In a survey it found that nearly half, some 46% of British adults say they have received a pre-inheritance compared with 37% who receive a more traditional inheritance following a death.

But although the idea of a pre-inheritance is growing, and can make sense in terms of investments and tax, today’s over 55s don’t feel financially able to leave a pre-inheritance, they survey also shows.

‘We are seeing a number of shifts in how people use their money in retirement. The pre-inheritance is a fairly new initiative. Alongside the obvious benefits of cutting the amount of money liable for inheritance tax, it also seems many benefactors like to see their money being enjoyed whilst they are still alive,’ explained Clive Bolton, retirement director for Aviva.

People are most likely to receive their pre-inheritance when aged 18 to 25 years old, 29%, followed by those in the 31 to 40 year old age group, 19%, and 26 to 30 year olds at 18%.

However, as the pensions crisis continues to bite, only 17% of over 55s are currently planning on leaving a pre-inheritance to their loved ones, with one in five, 20%, saying they don’t have enough money to pass an inheritance early and 21% saying they need to keep hold of the money to be financially secure for their own future.

The research also shows that a number of benefactors are also beginning to set guidelines as to how they would like their money to be spent. The majority, 55%, of both inheritances and pre-inheritances are given without any major restrictions. However, one third of benefactors, 33%, have made suggestions as to how their money ought to be spent and a small minority have set out specific instructions to use their money for things such as property or education.

Although benefactors are increasingly involved in deciding how their money is spent, most of those receiving an inheritance are using the money sensibly, by investing for the future, 25%, paying off student debts, 19%, house renovations, 12%, and paying off the mortgage, 11%.

Some are using the proceeds of equity release to assist their grandchildren, normally paying for specific items such as house deposits or university fees. And it is the younger generations that are most likely to invest inheritance money for the future but are also more likely to decide to spend the money on a holiday than any other age group.