5 Reasons Why Financial Planning is Crucial When You Receive an Inheritance

Losing a loved one is an emotional and challenging time, and if you receive an inheritance, it can bring both financial opportunities and complexities. While it may be tempting to make quick decisions or spend impulsively, taking a step back and engaging in financial planning can help you make the most of your inheritance in a way that benefits you long-term. Here are five key reasons why financial planning is essential when you receive an inheritance.

1. Understanding Your Inheritance

Before making any financial decisions, it’s important to understand exactly what you’ve inherited. This could include cash, property, investments, pensions, or even business interests. Each type of asset comes with its own tax implications and legal considerations, so getting clarity on what you’ve received is the first step in managing it effectively.

2. Managing Tax Implications

In the UK, inheritance tax (IHT) may have already been settled by the estate, but depending on the assets you receive, there could still be tax considerations. For example:

• Income tax may apply to inherited investments that generate dividends or rental income.
• Capital gains tax (CGT) could be due if you sell inherited property or shares that have increased in value.
• Pension inheritances can have varying tax treatments depending on the age of the deceased and how you access the funds.

A financial planner can help you navigate these complexities, ensuring you don’t face unexpected tax bills.

3. Making Smart Investment Choices

Receiving a lump sum or valuable assets presents an opportunity to secure your financial future, but without a plan, it’s easy to mismanage or deplete your inheritance. A financial planner can help you assess how best to invest or allocate your wealth based on your personal goals, whether that’s saving for retirement, buying a home, or growing your investment portfolio.

4. Avoiding Emotional and Impulsive Decisions

It’s natural to feel a mix of emotions when receiving an inheritance, and sometimes people make impulsive financial decisions as a way of dealing with grief. Whether it’s making large purchases, giving away money to family and friends, or rushing into investments, these choices can have long-term consequences. A financial plan provides a structured approach, helping you make informed and rational decisions that align with your financial wellbeing.

5. Protecting Your Wealth for the Future

An inheritance, if managed well, can provide long-term financial security. This may include setting up an emergency fund, paying down debts, or structuring your assets in a way that minimises future tax liabilities. You may also want to think about your own estate planning—ensuring that your assets are protected and can be passed on efficiently to your loved ones in the future.

Take a Considered Approach

An inheritance can be a life-changing financial event, but without careful planning, it can easily be mismanaged or lost over time. Taking a considered approach with the help of a financial planner can ensure that you make the most of what you’ve received, turning it into a lasting legacy that benefits you and your family for years to come.

If you’ve recently inherited money or assets and want to understand your options, speaking to a Financial Planner could be one of the most valuable decisions you make. Get in touch to arrange a free conversation with one of our qualified financial planners.