Is your inheritance safe? Your money could be at risk – how to ensure cash is protected

Inheritances are relied upon by many families to help get younger generations onto the property ladder and provide a foundation for their financial independence. However, recent research from Hargreaves Lansdown (HL) showed many beneficiaries would be stuck at a loss for what to do with any assets they inherit.

This is important to note as the ONS recently placed the average inheritance at £11,000, a sizable amount to many.

Sarah Coles, a personal finance analyst at HL, commented on the results: “Half of us wouldn’t have the faintest idea what to do if we inherited investments from a loved one, and with one in three of us expecting to inherit something, there’s a reasonable chance that an awful lot of us will face this dilemma. If we don’t get to grips with investments, we could make some very expensive mistakes.

“22 million people held stocks and shares ISAs in 2017/18, while millions more held shares, unit trusts, investment trusts and investment-based insurance products, so there’s a reasonable chance that anyone set to inherit could receive at least part of the legacy in investments. Unfortunately, 48 percent of people don’t feel confident they’d be able to manage them properly.

“If we don’t know what to do with the investments, there’s a risk we just cash them in. Our survey shows that eight percent of respondents would leave an inheritance in their current account, while 38 percent would put it in a savings account. But converting investments into cash could come at a high price. If you put the average sized inheritance of £11,000 into a savings account, you could lose £17,686 over 20 years. This assumes a 0.5 percent rate on the savings account and five percent annual return if you’d kept the money invested. Rock-bottom interest rates – and rising inflation – can quickly erode an inheritance left in the bank.

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“Women are more vulnerable to this than men: 48 percent of women feel confident about managing inherited investments, compared to 56 percent of men. This is particularly alarming given that men are more likely to invest, and women tend to marry older men and outlive them. It raises the risk that women will inherit investments and have no idea what to do with them.

“The squeezed middle is vulnerable too: just 45 percent of 35-54 year-olds are confident about managing inheriting investments (versus 54 percent of those aged 18-34 and 55 percent of those aged 55 and over). This reflects the fact that this age group tends to be less confident about their finances. The older generation are more likely to be investors themselves, and increasingly so are the younger generation, some of whom have discovered investing during the pandemic.”

Ms Coles went on to highlight that one of the most common mistakes people make when it comes to managing inheritances is forgetting about the protection they’re entitled to.

Ms Coles explained: “If liquidating investments is the right thing to do for you, bear in mind that if you have more than £85,000 in cash you should try and spread it across different institutions. This is because if a bank collapses, the Financial Services Compensation Scheme (FSCS) will only protect up to £85,000 held with each institution by each person.”

This protection is also applicable to other areas where people may find themselves with large sums of money such as following a real estate transaction or redundancy.

Where people require this protection, the FSCS may ask for proof, which could include (but not be limited to) the following:

• A property sale receipt or agreement.
• A court judgement.
• A will.
• A letter from an insurer regarding an insurance payout.
• A letter from a lawyer, conveyancer, mortgage provider, former employer, pension trustees.
• Court orders.
• Social security statements.
• Probate/letters of administration.
• Death/marriage certificate.
• Land register and HMRC records.