So, it’s a week until Daughter No. 2 starts her GCSEs and I bump into her old Nursery teacher (don’t know why I felt the need to say ‘old’ – it’s not as though she has a current one). We happen to be in a supermarket aisle at the time and do that annoying thing of barring other shoppers from the fruit and veg while we marvel at how the inevitable growing-up has happened and wonder where all that time has gone. It’s a conversation I’m having with a lot of friends right now and one that usually ends up turning to the subject of sandwiches.


Spread too thinly

The sandwich generation is a term that describes those of us who still have offspring responsibilities whilst also facing the issues that come with ageing parents. Sandwiched between the two can make a person feel like anything but a delectable filling. More like a thin bit of spread that has frankly been spread too thinly.


Contemplating Death and Demise

The gender issues around who does the caring got a good airing (accidental rhyme, soz) in last month’s post Who cares for you so I won’t repeat myself. However, there’s a strand to the conversation that we skirt around because it involves contemplating Death and Demise but which, for many of the sandwich generation, can be a menu changer.


What we’re talking about here is Inheritance.


Estate planning – country piles?

In the world of financial planning, this easy-to-understand word is given its own euphemism. When talking to a client about leaving their worldly goods behind (that’s if there is any left once the care home and the budgie sanctuary have received their share), the term ‘estate planning’ is used. This always makes me think of country piles and acres of meadows lush with biodiversity – a topic akin to ‘how shall we dress this morning’s brace of pheasant’ discussed only by the landed gentry.


Preferring not to pay tax

And it is true that estate planning is something that you only need to contemplate when someone’s total wealth exceeds the not-too-modest sum of £325,000 – or £500,000 in certain circumstances where there is a house involved. On top of which, these amounts can generally be doubled when a married couple leave everything to each other when the first of them goes. (I’ve added a section ‘A bit more understanding’ at the end of this blog for those interested in the detail.) It is only when the amount left behind is higher than this, that tax is payable. But I can confirm that, by and large, people seem to prefer not to have to pay tax if it can be helped and so this is something that does get a lot of attention.


Planning in advance of dying

For people who know they will be leaving behind enough inheritance that tax will need to be paid out of it, talking to a financial planner well in advance of dying can be of benefit. (Yes, I’m aware how ridiculous that sounds – you just have to guess).


Complicated emotions

But what about the generation who actually receives the ‘estate’? For many, an inheritance can involve sums larger than anything they have known before, which, along with the unpredictable timing, make it very difficult to plan for. On top of this, an inheritance rarely comes in neat bundles of cash labelled: Save Me, Spend Me, Invest Me. And it can come with complicated emotions that interfere with your ability to make those ‘what do I do with it’ decisions yourself.


Keep the investments?

A client in just such a situation asked recently if it was worth going through the individual shares and funds that had been left to her to see if there was anything in there that she should hold onto – rather than sell the investments that she had inherited and make a new, balanced set of investments suited to her.  Of course, every situation is unique and everyone’s circumstances are different, but there are a couple of general points worth bearing in mind here:


  • There is no such thing as a dirt-cheap investment that will be universally recognised by all financial professionals as a ‘sure bet on super growth’ going forward
  • We find it hard to let go of things that someone we love has given to us – even after they have gone


Investing is not a science

On that first point, you only have to consider that highly-paid City analysts poring over spreadsheets and interrogating company managers rarely agree on whether the shares in a particular company should be Bought or Sold (or Held, if you are a fence-sitting type). Working out if an investment in a single company is good value at any point in time is not a science – if it were, we’d all be investing in exactly the same things and there wouldn’t be a market yo-yoing all over the place to keep us on our toes.


Endowment Bias

On the second point, we are taught in ‘How to be a Financial Adviser’ school to look out for something called the Endowment Bias in clients. This describes a situation where someone holds onto assets such as property, shares or collections of rare butterflies in the belief that their departed relative would want them to. Or sometimes just because there is an underlying feeling that they should.


Acting as a nudge

If you are someone with an extraordinarily well-planned-out set of finances in your life with all your basic, discretionary and luxury needs catered for from now until the end of time, then perhaps there is no harm in allowing the Endowment Bias to run riot in you. By all means keep the butterflies and the shares in tulipmania.dotcom for sentimental reasons if it makes you feel good. For the rest of us, an inheritance can act as a nudge to really take a good look at where we are in life and where we want to be.


A buffer between the emotions and the money

This can take time. Especially when you are grieving. Which is why it can be a good thing if you have to wait a while for the tax people to assess the money and property left behind to see if there is going to be a tax charge and how much it will be (a process called ‘granting probate’). These weeks and months can act as a sort of buffer between the emotional time of death and the receipt of the inheritance.


How do you want to feel?

And if you decide to use the services of a Financial Planner at this point, they will help you disentangle the emotional from the practical and get you to voice where you want to be, what you want to achieve and – most important – how you want to feel once the dust and the ‘estate’ have settled. Where the money goes, what investments you choose or what property you buy are merely the final pieces of the jigsaw that should be discussed only once the bigger questions have been answered.


Women inheriting wealth

This could be relevant to an awful lot of women in the developed world. A report on inherited wealth in the US by consulting firm McKinsey & Company in 2020* estimated that American women could control as much as $30 trillion by 2030 – up from a current estimate of $10 trillion. This jump is expected to come from inheritance – not so much from the older generation, but from household wealth passing solely to the surviving woman on the death of her male partner. It also reported the interesting statistic that I know I have quoted before, which is that 70% of women change their financial adviser on the death of their partner. Something that speaks for itself, in my view.


Getting comfortable with the basics

So, should we, as women, plan for this? In many ways, this comes back to the whole point of my Talking Finances With Women initiative. Planning for an inheritance is not something we like to think about because it feels like we are in some way planning for someone else’s death. But I’m not talking about planning elaborate and complicated investment strategies here. I’m talking about being prepared for the questions that come with all financial planning. And that means getting comfortable with the basics, such as:


  • Being clear about how much you and your family will need in the future and how much you have to put by today to get there
  • Growing in confidence around topics such as savings and pensions and the relationship between these and your future life
  • Separating out your ‘long-term’ money from your ‘here and now’ money
  • Understanding that risk brings potential growth to your long-term money, and potential loss to your short-term money


A head start on the emotions

‘Leaving something for the children’ or ‘providing for a surviving partner’ is an incredibly common goal in a financial plan. As someone who might benefit from an inheritance, being prepared for some of the basic financial planning questions and concepts can give you a head start on the emotions that inevitably come with it. Having a good understanding of yourself and your situation is crucial when it comes to deciding what to do with money that has been left to you.


Back to the sandwiches

So, if you are someone who knows you want a luxury sandwich every day for the rest of your life and that this will bring you happiness, then you should factor that in when you are thinking about your future. If, on the other hand, you are someone who prefers to make their own lunch and save the money for rainy days when a picnic would be out of the question anyway, then that, too, is an important part of your planning jigsaw. The rest is mere detail.

Time for lunch.

*Women as the next wave of growth in US wealth management July 2020

A bit more understanding

Some key rules on inheritance tax (assuming you are UK domiciled)

  • You get an inheritance tax ‘allowance’ – also known as the Nil Rate Band (NRB) – of £325,000 when you die
  • There’s an extra ‘allowance’ – also known as the Residence Nil Rate Band (RNRB) – of £175,000 if you leave your main residence to a child, step-child or direct descendant (ie grandchild or great grandchild etc), where it is worth at least £175,000 and your entire estate is less than £2m
  • Anything you leave to a spouse/civil partner is inheritance-tax-free
  • If you leave everything to your spouse/civil partner you can also pass your allowances to them for use when they die (along with their own)
  • Amounts over the allowances are generally taxed at 40%
  • When there is inheritance tax to pay, this has to be paid before any of the inheritance can be dished out to the people named in the Will


Some simple definitions

Estate: All the money, property, possessions etc belonging to a person when they die

Grant of probate: A legal certificate-type document that allows the people (Executors) who are sorting out a Will when someone has died to give the money or property in the estate (after any inheritance tax has been paid) to those named in the Will

UK domiciled: When the UK is your permanent home