New research suggests fewer than half of people surveyed believe they will receive inheritance at the age when it would benefit them most.
Whilst people expect to receive their most significant gift or inheritance at an average age of 52; but receiving an inheritance earlier in life has a greater impact suggest Canada Life in the latest report to come form their Life100+ research. The research showed 59% of respondents who received an inheritance or gift aged 25 – 34, and 60% of those aged 35 – 44, said it had a great deal of impact. This falls to 36% among those aged 45 – 54 and just 27% among those aged 65 -74.
Younger recipients were more likely to use wealth for transformational life milestones. Those receiving wealth between 25 – 34 years were most likely to use it to fund a deposit for a home (30%) and those aged 35 – 44 years to clear debts other than the mortgage (30%).
The financial services firm said lifetime gifting is becoming more prevalent. Over a quarter (26%) of those aged 18 – 34 have received a significant financial gift from a living relative versus just 7% of those aged 65+. Canada Life added advisers are are also seeing the shift, with eight in ten reporting having more gifting conversations than ever.
Two thirds (61%) of those who had already received a lifetime gift said it had had a great impact on their life, compared to a third (33%) who had received an inheritance on death. Lifetime gifts were more likely than an inheritance to be used for a home deposit, (25% compared with 10%), education costs, (20% compared with 5%) and repaying debt, (41% compared with 32%).
There is though, a “fundamental tension” that families are facing with inheritance; he research showed eight in ten (83%) expected to pass on wealth to younger family members. The question then, said Canada Life chief customer officer Rose St Louis, was not about whether families want to pass wealth on, but more about how much they can afford to transfer without compromising future financial security: “For many families, these decisions are interconnected: how to work differently as lives and careers evolve, how to retire well, how to fund the potential costs of later life, and how to leave a meaningful legacy.
“It’s clear from the data that families want to help loved ones. The majority of Brits intend to pass wealth on in some form, and lifetime gifting is becoming more common. Yet the prospect of living longer is creating a difficult trade-off between supporting younger generations when it matters most and protecting your own financial security in later life.”
For the majority (55%), passing money on when they die remains more popular over lifetime gifting (28%) because they cannot be certain how much they may need for themselves in later life.
Among those who expect to pass money on only at death and had neither gifted nor intended to gift during life, 45% said they needed to retain their money to meet costs while alive. A further 25% specifically said that people are living longer and they might still need the money, while 13% cited future care costs. The central barrier to lifetime gifting is therefore not a lack of willingness, but uncertainty about future needs and what can safely be passed on.
“The unknown scale of potential care costs alone provides good reason for this uncertainty”, added St Louis, “particularly if those costs are set to stretch out further if we are to live longer. As a result, families simply do not know what they can safely pass on during their lifetime.
“It’s important to acknowledge that there is no one-size-fits-all approach to intergenerational wealth transfer. Individual circumstances will determine whether to give during life or leave an inheritance, how much can be passed on safely, and how to balance the needs of loved ones with financial security as life expectancy increases.”
By contrast, nearly half (49%) of those who receive an inheritance, typically received later, add the money to savings, compared to 40% of those who receive a gift, suggesting that later inheritances more often strengthen financial resilience said the institution.
