The average age at which a child inherits from their parents is now 61. What does that mean for the 'average' 61-year-old?
If they’re of the 1 in 3 who have made no, or woefully inadequate, provision for their pension, it’s a sad truth that their parents’ death may bring a sigh of financial relief. I’m not sure I really want to know the statistics for the number of middle -aged people counting on an inheritance to finance their retirement; actually (and perhaps anxiously) waiting for their parents to die.
At the other end of the scale is the large number of 61-year-olds who are financially secure with their mortgage paid off and a healthy pension pot. An inheritance, while it might have made so much difference had they received it at an earlier age, is, at this stage in their lives, nothing more than an inheritance tax (IHT) bill waiting to happen (on their own death).
Our 61-year-old’s children will likely belong to the first generation in history to be generally worse off than their parents. Their jobs don’t pay as well; they’re saddled with student debt; they can’t get on to the housing ladder; they may well be in their 30s and still living with their parents.
Time for generation- skipping?
A middle-aged parent confident that an inheritance isn’t required for their own financial security in old age (ever mindful that such old age may last an increasingly long time) might sensibly redirect all or part of that inheritance to their children.
They can execute a 'deed of variation', giving the estate to their children (the deceased’s grandchildren). Provided the deed’s effected within 2 years of the grandparent’s death, it’ll be treated for IHT purposes as if the grandparent had left the estate to the grandchildren directly. There’s no need for the parent to survive the 7 years otherwise needed for a gift to fall out of account for IHT.
A report published last week by One Family suggested:
'Every year over £8.5 billion in inheritance is skipping a generation to benefit younger relatives who need more of a financial boost. 45% of the inheritance is being left directly to younger generations and 55% is passed on by the original beneficiaries.'
The 45% figure reflects the increasing number of grandparents who are, by Will, skipping a generation, and leaving their estate to their grandchildren rather than their children.
What that bare statistic can’t tell us is how much of that 45% figure is made up of fairly small estates so the impact on the adult child’s finances of leaving assets to grandchildren is modest? (The One Family report quotes the Office for National Statistics’ calculation that the average estate is just £11,000.)
Nor can we know how many substantial estates are left by grandparents to grandchildren at the suggestion of the middle aged children – advising their parents that they don’t need the money and that, for tax and family financial reasons, they’d be better leaving their estate directly to the grandchildren?
Given that families are singularly reticent about talking money across the generations, I’d guess that, for the most part, grandparents are leaving their estates to grandchildren of their own volition, without involving their (grown up/likely middle-aged) children in the discussion? And, indeed, why should they? It’s their money to do with as they will? Of course it is – but it’s the job of private client lawyers, like me, to do more than slavishly convert a client’s wishes into a Will. Our role is, in part, to ensure that a client fully appreciates the impact and effect of what they’re minded to do and to ensure that all relevant issues (family as well as financial and tax) are considered as part of the thought process.
In my experience, children expect to be treated equally under the Will of the survivor of their parents.
However well-intentioned the motive for leaving the estate other than in equal shares, inequality can cause disharmony among the children and bring to the surface festering inter-sibling resentments (to which the parent may be wholly blind).
It would be wrong to assume that leaving a larger share of the estate to the child you see as having the greatest financial need will sit comfortably with the other children. Similarly, dividing one’s estate equally among grandchildren will likely be perceived simply as unjust favouritism to whichever child has the most children of their own.
No-one wants to leave a legacy of family disharmony. While it’s far from a hard and fast rule, and what you provide in your Will must always be a matter entirely for you, passing your estate to your children equally - leaving them to provide as appropriate for their own children - may be the safest, fairest and most sensible option.