Are you in the dark about your parents’ inheritance plans?

Inheritance involves a two-way relationship between a giver and recipient. There is somebody on either side of the inheritance equation. In Ireland, where parents are the primary source of gifts and inheritances for most households, that relationship almost always is between a parent and child. In fact, more than three-quarters of households with at least one member aged 45 or older has either received a gift or inheritance, or is expecting one. And the wealthier a household is, the more likely it is that at least one member will receive an inheritance, with more than 50% of people in the top wealth decile reporting either getting or expecting a gift or inheritance from their parents - far higher than any other income group.*

The data is clear: the dispersion of wealth in Ireland is from parent to child. It is not surprising that this is the case. What comes through most strongly in our conversations with clients is a desire for financial security - both in terms of providing for old age and providing for the next generation. Those concerns are interrelated, which is why we see parents looking after the future with a mix of gifts for today and inheritance for tomorrow. For the families we talk to, the key milestones are when their children marry and buy their first home.

Not only is household wealth heavily correlated with receiving gifts or inheritances, but receiving a gift or inheritance increases a household’s relative wealth position. Research by the Economic Social Research Institute (ESRI) indicates that having received an inheritance moves a household up the wealth distribution curve by more than 15 percentiles versus households with the same income , but which did not benefit from inheritance. That means wealth accumulation and economic mobility from one generation to the next hinges significantly on inheritance.

Given how fundamentally inheritance influences wealth and financial outcomes for the beneficiaries, one would expect that children are as involved in estate and inheritance planning as their parents. After all, the children have the most to gain or lose from managing the process as effectively as possible.

Yet at Goodbody we have seen time and again that educating and preparing the beneficiaries of inheritance to receive wealth remains largely an untouched area.

While most parents do share some aspects of the plans they have made, our research shows that many parents have not shared the full details with the next generation. One story we hear frequently from clients is that they are not, in fact, passing wealth on to the next generation at all, but rather leaving it to their spouse, who they believe is in a good position to manage the estate themselves. That may be true in the short term, but it is not a long-term strategy. Parents usually do not outlive their children. So the inheritance will end up with the children eventually.

We also come across clients who believe that their children are fortunate to be receiving an inheritance in the first place and, therefore, can sort out the tax bill themselves - that the financial responsibilities of inheritance are the sole responsibility of the recipient. Equally, children don’t want to appear greedy or ungrateful by proposing to develop inheritance planning strategies. There is just a taboo around talking about inheritance within families. And it can be awkward to broach the topic, which is why seeking advice and an independent facilitator is so essential to the process.

This dynamic is so difficult to manage because there is an essential conflict between giving money and assets on the one hand and withholding information on the other. Increasingly, our in-house tax experts are asked by parents to chair meetings with children or intended recipients of wealth. The aim is to objectively inform the children of the financial position, the proposed course of action, and the distribution of wealth so they can absorb the information and ask questions of an independent expert source.

* ESRI Working Paper No 579, December 2017: Gifts and Inheritances in Ireland. Martina Lawless and Donal Lynch.

Independent quantitative and qualitative market research was conducted as part of a Goodbody report, Death and Taxes, a guide to tax-efficient inheritance planning in Ireland today.

We can help start that conversation. Contact us about arranging an initial consultation for your family.

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