What to do with inheritance money?

gadgetmind

whiteside wrote: »

I know a lot of middle aged parents who are gifting some money to their offspring in fear of the whole lot being taken from them when older by a ridiculously unfair system.

I fully intend to pay for 100% of my care needs in old age. I expect others to do the same. What's unfair?

jamesd

There is no capital gains tax on increases in the value of the home that you're living in.

£18,000 is a laughably small amount of money for a pension. It'd provide perhaps £900 a year in income - divide by 20 to get a rough income value.

Your home upgrade, second hand car and holiday plans don't appear unreasonable given the durations you have in mind for using the new house.

You really need to start learning a bit more about investing for the future and not sticking to just savings accounts. That pension has to be taken care of longer term or you're going to end up living near to poverty when retired. It's one of the sad realities of the financial world that those who are relatively poor are reluctant to use the investments that those with more money use, so end up keeping themselves poorer than they need to be.

Ask what their objectives are for "they are aware that neither of us have any future security and we are always scrimping and saving to try to make ends meet". Do they want you to start to learn about investments with part or most of the money or are they comfortable with the plan you're considering to move to a larger house? It seems that, should they like your planning, they may choose to add more money later and it would be good to ensure that they are content with your plans.

Since they have been investing you could usefully ask them for assistance in learning about investments.

If invested, £75,000 could provide around £3.750 a year of income for life. Within a stocks and shares ISA that would be tax free. How does the ongoing value of £72 a week compare to the value of a larger house?

cloud_dog

JuniorSherlock wrote: »

We can't do much for the next year due to the fixed rate mortgage....

You don't say who you are mortgaged with but some BS allow you to make over payments even on fixed rate mortgages, for example Nationwide usually (need to check T&cs) allow up to £500 per month over payments. Years ago we had a fixed with Skipton which allowed up to 10% of the loan amount per annum.

whiteside

gadgetmind wrote: »

I fully intend to pay for 100% of my care needs in old age. I expect others to do the same. What's unfair?[/

The unfair aspect is that people who have saved to build up capital/assets are again penalised by having huge weekly charges made against them whilst those who havent savings/assets receive normally the same standard of care for free. If you think the current system if fair then you are in a minority and things are likely to get worse not better. I must clarify that I am referring more in particular to care homes for dementia sufferers or similar type illness.

Therefore I personally think it is very sensible for the OP's in laws to consider a monetary gift. There is nothing illegal in this and it's something I will be doing myself in the future assuming I believe I have an excess of cash etc. I think this is a sensible hedging of bets in the long term if you want your children to benefit.

I appreciate your viewpoint But the fact that you EXPECT others to do the same is not realistic in today's slightly messed up British society.

I hear the Scottish are all entitled to free care home costs. Maybe we should all move there.

browniej

whiteside wrote: »

I hear the Scottish are all entitled to free care home costs. Maybe we should all move there.

You hear wrongly I'm afraid. In Scotland we are entitled to free personal care if assessed as needing it. This does not cover care home costs which still have to be paid by yourself just in the same way as the rest of the UK.

JuniorSherlock

Thanks for all advice so far.
Yes we are very sensible with money and us not having any pension provisions has been a huge worry to me for many years. Unfortunately even with both of us working and not buying things we cannot afford, we don't have enough left at the end of every month to put away in a pension. What we have been doing instead is trying to top up our ISAs and give any spare into the children's savings acccounts.

My thoughts were that in paying off some of the mortage, we could use the money we save every month to put away.

I don't know what bonds or shares the money is tied up in at the moment, but if they are well performing then we will leave them there - as far as I am aware the bonds will simply be transferred into our names. (Well my husband's) We will take some out to top up ISAs and the children's savings accounts, some will go to buying a decent second hand car and some will go towards a camping holiday in France. I am not happy to spend any more than that as I do believe that our futures need securing. On reading this thread I am happy to say that my husband also now realises the importance of this.

Caring for the parents-in-law in their old age is something that is non-negotiable. They have certainly not left themselves out of pocket at all. I get the feeling that these bonds and shares were always meant as an inheritance for the family (husband does have brothers and sisters who are all getting the same) and that it's being handed out now not just because they feel we could benefit from it now but to save us having to pay inheritance tax. They've had some sound financial advice themselves.

Cloud-dog, we are allowed to pay up to £5k extra on our mortgage during the 2 year fixed period which ends April 2013. After that we are free to either move the mortgage or pay off as much as we like.

Trust me, the money will not be spent frivolously. In fact my husband probably has the right idea, to use some now to make our lives a little easier and to invest the rest into our future. Our ISAs will act as our emergency funds as they always have, only now we have a bigger cushion should the worst happen. And yes, there will be some more money to come once the parents-in-law die but it won't be as much I don't think.

What we need to do is look into pension plans and perhaps a high interest savings account that we can make monthly payments into without withdrawing. I like the idea of having a few things scattered about so that we're not relying on just the pension plans or just the savings accounts. We can compare all this with what the money is tied up in now and we'll review it all every few months to make sure that everything is still as it should be.

Not sure if we still need an IFA or if we should do the research ourselves?

JuniorSherlock

atush wrote: »

Ex local authority houses can be sought after, as they tend to have larger rooms and are supposedly well built. End of terraces generally have a premium.

Just because you have to ask permission, doens't mean you wont get it. See what other owners have had permission for?

The others don't have the ridiculously tied up contract that we have. They charge more than £50 each time merely for asking permission, regardless of the outcome. I'm not at all happy with the contract but at the time it was either accept it or do without a house as nothing else was on the market for a price we could realistically afford.

qpop

A bigger home is not necessarily the investment you think it is, for reasons I touched on in a previous post.

Along with a bigger home come higher heating costs, more council tax to pay, etc.etc.

It may be what you want to do with it, but it is a serious folly to consider it retirement planning.

People don't like downsizing at retirement, it's a huge hassle and an expensive thing to do. What I think is more common is people living in poverty to support the running of the house they've grown to love.

Whatever you decide to spend this £65k on (and from the type of language you use in your posts I would hazard a guess that you've already decided on what you want to do with it, and were hoping for some general support for your ideas) it has to be pointed out that if you continue to make no retirement plans you will spend your retirement in poverty.

It really is as simple as that.

If, in the back of your mind (and you won't be the only person in the world), you think "oh, no, it's ok as FIL/MIL will leave us a huge wad of inheritance" - retirement planning based on inheritance is not sensible. Families fall out, odd provisions are made in wills, wills are disputed, people end up spending all of their wealth on care/giving it away to a home for cats. You may think "but that'll never happen in our situation." - Do you think anybody who has experienced it thought it would happen to them?

Starting a pension isn't the only form of retirement planning. You gain some flexibility by using Stocks and Shares ISAs (although you have to fight the temptation to spend your retirement nest-egg) - particularly if you are bot basic rate tax payers, ISAs are arguably a better option if you have some self-restraint and will receive no company contributions.

If you *do* open a personal pension you will receive 20% tax relief on any contributions you make. If you have no interest in investments then you could do worse than open a stakeholder style product with any of the large insurance companies - they're expensive for what they provide but they're simple and easy to manage.

If you want to buy a bigger house and it really is a sensible thing to do, then do that - it's your (husbands) money to do with what you wish. But make some retirement plans as well - what's the point of living in a nice house in a nice area, and finding yourself unable to afford to live in it when you decide to retire?

getmore4less

JuniorSherlock wrote: »

Getmoreforless - erm thanks? the reason they think we need it (and we probably do) is because neither of us are in well paid jobs, they are aware that neither of us have any future security and we are always scrimping and saving to try to make ends meet. So yes, to have that security would provide a huge comfort for us..

So you have two extremes,

Reduce costs so you are not skrimping to make ends meet.
Things like, debt reductions, reduced running costs for say cars, increase income through investment.

Carry on skrimping and invest for the future looking for growth and reinvensting the income.


How much extra regular income do you need to be more comfortable/ballanced life.

I think thats the thing you need to decide, where you want that ballance to be and the best way to achieve that.

eg look for the long term,

changing the car needs to pay for itself by reducing costs, remember it will need replacing again at some point so part of the saving need to go towards that otherwise you will be bck were you are now.

If you feel you need a holiday try to reduce costs so you can have one every year or two rather than blow it on a one off.

Long term retirement planning needs the abillity to get through the benifits barrier. Currently small amounts of retirment income just stops benifits like pension credits. This will change but currently there is little point unless you can generate a sizable pot and this will require spare income as well as some/all of this input.

Also check how this cahs will impact your own cuurent benifits, eg it might be better for example for your FIL to pay directly into the mortgage account rather than go through your own accounts if you decided to pay off some of the debt.


in terms of mortgage/bigger house paying don the mortgage does not stop the move later, mind you moving is a costly change.

JohnRo

JuniorSherlock wrote: »

Not sure if we still need an IFA or if we should do the research ourselves?

You don't need an IFA to advise you how to spend and save.

Make a list of all the things you feel you really need and want to do as a start, irrespective of the money involved here and then just be honest with each other and prioritise them. That should give you a broad plan of action starting at the top of that list.

A regular monthly contribution in to a stocks and shares ISA fund or portfolio is well worth considering. The advantage of monthly income based funds is that they can be used to provide a stream of cash for use or simply reinvested to boost future income. It won't be enough to make a jot of difference initially but over the months and years the income stream should build to become a sizeable and welcome monthly boost.