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What are the pros and cons of a living inheritance?

Your Money
Friday 26 February 2021

As they say in life, timing is everything. And if you’ve accumulated wealth or property over your lifetime, the chances are you’ve already thought about how to distribute it to your loved ones when you’ve passed away. But what about giving some of it now as a living inheritance?

As with all financial decisions, there are pro and cons to consider. So we’ve taken a look at some of the advantages as well as disadvantages to help you decide whether giving a living inheritance is right for you.
Helping your loved ones when they need it
We’re all living longer, so giving a loved one a financial helping hand now may make more sense. An early financial gift can make a big difference to someone’s life - helping them pay for their education, get onto the property ladder or become financially stable.
By giving them an inheritance earlier, you get to see the impact it has on your loved ones’ lives or enjoy experiences together. There’s also the peace of mind that comes with knowing they will be more financially stable and or in a better position going forward.
Giving early could reduce estate taxes
Giving away some of your wealth before death may reduce inheritance tax exposure. When you leave money in your will, it goes through a process called probate and that money could be subject to taxes that reduce your children’s inheritance.
Of course, tax allowances, reliefs and thresholds are subject to change, so it’s always important to seek specialist tax advice before giving an early inheritance.
You may outlive your money
People are living longer than ever and you don’t want to outlive your money. It’s important to carefully think about how much money you will need to keep aside for later life before looking to help your loved ones.
Sharing gifts equally
It may be harder to divide financial gifts equally - particularly if one of your loved one’s needs is greater than another. Even if the gift is divided equally, it could create family tension if one is deemed not to need as much.
How to finance a living inheritance
Of course, not everyone is in a situation where they can give an inheritance early. However, for those who are cash poor, but asset rich - releasing equity from their homes could provide an answer.
With equity release you can unlock some of the value of your home in tax-free cash.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits.
So you must seek expert advice when looking to release equity to gift to a loved one - such as through Key Equity Release.
Key Equity Release offer lifetime mortgages only, which is a loan secured against your home.
Our specialist equity release advisers are on hand to answer any questions you may have, explaining the whole process and going through your options so you can decide whether it’s the right thing for you.
To find out more, download our free guide here.
Page last updated: Monday 08 March 2021