Aviva’s new report, The Intergenerational Wealth Shift Report, reveals a widespread reliance on inheritance among younger generations, but a lack of communication between families about expectations and plans and little understanding of the amount of money they may receive.
The study has found 37% of people who expect to inherit saying they are financially dependent on it, and 43% saying it is essential to their financial security. However, more than half of these people (60%) say they don’t know how much they will receive.
This raises concerns that many households could be making important financial decisions based on assumptions, particularly where inheritance is expected to help pay for everyday living costs, clear debts and fund their own retirement.
Demographic and societal changes mean that younger generations face rising housing costs, higher savings challenges and increasing pressure on household finances. As wealth passes between generations, inheritance is becoming a more important part of many peoples’ financial plans.
More than half (54%) of the people in the survey are comfortable discussing their plans for inheritance with their families, However, almost the same number (53%) said their family did not need to know how much they would receive - suggesting they might not appreciate the reliance being placed on inherited wealth. Despite saying they are comfortable with discussing plans, more than half of people with children (51%) have not had discussions on this subject with their beneficiaries, but 31% do say they plan to.
Demographic changes, such as blended families, are driving the importance of clarity of communication. Younger people are more likely to say they are reliant on receiving an inheritance than older people: 41% of under-45s compared to 32% of over-45s. They are also more likely to challenge a will if they felt it was unfair: 16% of under-45s compared to 9% of over-45s. It could be they feel there is more at stake since many younger people might not have built up their own wealth. With greater propensity to challenge a will, it is important that inheritance plans are clear and expectations well-managed.
The lack of communication could be driven by uncertainty about future financial needs and how much money people might need to support themselves in their retirement. More than three in five (61%) don’t know how much money they might have left and more than half (53%) don’t know how much they might need to support themselves. Typically, money goes across generations before it goes down. Over half (59%) plan to leave all their estate to their partner and a further 19% will leave it to a combination of partner and children. Additionally, where people have already received an inheritance from their spouse or partner, almost two-thirds (63%) inherited the entire estate.
Lorna Whalley, Director of Aviva’s Adviser Platform, believes these findings demonstrate the importance of getting later life planning in order, saying: “There’s a crucial role for financial advisers within inheritance and estate planning discussions, which goes beyond simply putting the mechanics in place. While recognising that situations can change, financial advisers can encourage clients to consider the levels of income they will need in retirement and what contingencies need to be in place. More than half of people say they don’t know how much money they will need to support themselves through retirement. This is an important step in helping people to avoid either helping family out to the detriment of their own financial security or thinking they might need more money than they actually do. A clear understanding of your financial situation and future needs is the building block for open conversations about inheritance and expectations.”
Those who say an inheritance is essential to their financial security are planning to use the money for ordinary expenditure, rather than big-ticket or luxury items. The most common essential use of the inheritance money is for funding day-to-day expenses (35%). Almost a third (32%) of people say inheritance money is essential for funding their own retirements, while 29% intend to pay off debt, and 27% will pay off their own mortgages.
What will your inheritance be essential for?
Day-to-day expenses – 35%
Fund own retirement – 32%
Pay off debt – 29%
Pay off mortgage – 27%
Fund a house move – 24%
For own or children’s education – 20%
Lorna Whalley continued: “People are relying on inherited wealth to fund essential parts of their lives, but many have no idea how much they are likely to receive. This uncertainty could prove disastrous for future financial plans and makes it much harder to take steps now to meet future requirements. Advisers have an important role in facilitating conversations between clients and their families to help ensure expectations are better understood.”
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