How to use an inheritance to secure your future

Receiving an inheritance can be life-changing and enable you to reach goals. But it’s often also overwhelming, and your emotions are likely to be conflicted. Handled right, an inheritance could secure your future, so what should you do?

1. Don’t rush into any decisions

When you receive an inheritance, you may feel like you have to start making decisions immediately. But in most cases, it’s wise to take a step back.

You may be grieving, and emotions can affect the financial decisions you make. Rushing into spending an inheritance can mean you make decisions that you later regret. Instead, take a step back. Giving yourself time to think and come to terms with what’s happened can mean you’re in a better position to make financial decisions that suit you.

If you’ve received an inheritance but aren’t ready to make decisions yet, ensuring the assets are secure should be a priority. Keep in mind the limits of the Financial Services Compensation Scheme (FSCS) if you have cash assets, which protect your money in the event of a bank or building society failing. Please contact us to discuss how you can protect your assets until you’re ready.

Another thing to keep in mind is that it can take some time from being informed of an inheritance to receiving it. The probate process can take months for complex estates and where there are disputes. It can be tempting to spend or make decisions knowing that an inheritance is coming, but where possible hold off until the probate has been completed.

2. Take some time to think about your goals

What do you want to achieve in your life and how can money help you do this?

Thinking about your goals is a core part of any financial plan and it’s important to reassess aspirations when your financial situation changes.

The important thing here is to think about both short and long-term goals. If you had financial freedom, what would you like to do? For some, retiring early will be a priority, while others will want to offer support to loved ones or use the money to pay for a once in a lifetime experience. There’s no right or wrong answer.

An inheritance can add an extra layer of complexity when thinking about what you want to achieve. You may feel as though you need to make certain decisions because you believe it’s what your benefactor would have wanted. This is understandable, but it can mean you make decisions that aren’t right for you. Try to focus on what your aspirations are.

Part of the financial planning process is understanding how your assets can help you achieve goals and what your priorities are. Please get in touch if you’d like to discuss your financial and lifestyle goals with an adviser.

3. Should you pay off debt, spend or save?

This step brings together your goals with your financial situation. It can help put your plans into perspective and show what is possible.

You essentially have three choices when you receive an inheritance.

  1. Pay off debt: If you still have debt, such as credit cards and loans, it’s usually wise to pay these off first. The interest rate on debt is likely to be higher than the interest you’d receive on savings. It will also free up the income you’ve been using to pay down the debt in the future. While mortgage rates are typically low at the moment, paying it off can provide a sense of relief and provide more freedom too.
  2. Spend it: When receiving a lump sum or other assets, it can certainly be tempting to spend it. Whether you’re planning a luxury holiday or the purchase of a new car, think about how this will fit into your goals. Spending can deliver instant gratification, but will you still appreciate it in a year? In some cases, the answer is ‘yes’ but in others, it can highlight where the money could be put to better use.
  3. Save it: Saving your inheritance, or part of it, can help you achieve long-term goals. However, you’ll also need to think about the best product for saving. Should you use a savings account, invest or contribute to a pension? Which option, or options, is right for you will depend on your goals and time frame.

Of course, you don’t have to pick one of these choices, for most people a mix of the above will suit them. Working with a financial planner can help you see how the decisions you make now can keep you on track towards goals and what it means for your future.

Securing your own legacy

If you’ve received an inheritance, it’s a good time to think about your own legacy. This includes what you’d like to happen to your wealth when you pass away and putting the necessary steps in place. It can be difficult to tackle this, no one wants to think about dying, but it’s the only way to ensure your wishes are carried out.

Your first step should be to write a will. This will set out who you’d like to benefit from your estate, from family to charities, and how you’d like your assets distributing. Second, you should also make sure you have a Power of Attorney in place. This will give someone you trust the ability to make decisions on your behalf if you’re unable to do so due to illness. While this can be worrying to consider, it’s a step that can protect you and your legacy.

Even if you already have a will and Power of Attorney in place, it’s worth reviewing them. The inheritance received may have changed your wishes or priorities.

If you’d like to discuss how an inheritance can help you reach your goals and the steps to take now, please get in touch.

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

The value of your investment 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.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The Financial Conduct Authority does not regulate will writing and estate planning.

Request a callback

If you would like to speak to one of our advisers please get in touch by calling us on 01423 870731, alternatively complete the form below and we will call you back.