Britannic Place Financial Management Limited

7 mistakes you should try to avoid when inheriting investments

Receiving an inheritance can be a difficult process. Not only do you have to deal with a potentially complex estate, but you’re also processing the emotions of having lost a loved one.

It can become even more complicated when dealing with your loved one’s investments, both from a financial and emotional perspective.

These complications can lead to a set of common mistakes that can reduce the size of the inheritance you receive.

Here are seven of those mistakes that you should do your best to avoid when inheriting investments.

1. Acting rashly

The first and most common mistake that individuals make when inheriting investments is thinking there’s a time pressure to make decisions.

When you lose a loved one, there are a lot of different elements of an estate to sort out. As a result, investments can feel like just another bit of paperwork that needs administering.

This can create an artificial pressure where it seems like you need to make a snap decision over what to do with them. However, this is rarely true, and you’re likely to have more time than you think.

Take a breath, relax, and only decide what you want to do once you’re settled and sure.

You may also have to pay Income Tax, Capital Gains Tax (CGT), Stamp Duty, or Inheritance Tax (IHT) on money, shares, or property you inherit.

2. Selling and converting to cash

The next mistake you might make is to instantly sell the investments so you can access the value in them. However, this may be a mistake for two reasons.

Firstly, you should check the progress of the investments before you sell. The investments your loved one had might have room to grow even further.

As a result, you may be selling before the investments have reached their full potential value. Take a good look at the investments you’ve inherited and see how they’re performing first.

Secondly, depending on where you put your cash after you sell, you may also be at risk of exceeding the Financial Services Compensation Scheme (FSCS) protection limit.

The FSCS protects up to £85,000 of your money with each financial institution you hold it with in the event that it goes bust. However, you won’t get back any value over this amount if you hold all your money with a single institution.

If you’re set on liquidating your investments as the cash is more valuable to you, it may be wise to spread your inheritance across a range of financial institutions.

That way, you can be sure that you won’t lose all your money if something goes wrong with the institution you hold it with.

3. Not considering how these investments fit into your portfolio

On the flip side of converting to cash, a mistake you may not have thought about is that simply adding the investments to your portfolio may not be right for you.

For example, you may be inheriting investments that aren’t right for your risk tolerance. They may be shares in Alternative Index Market (AIM) listed companies, or in investments that you wouldn’t choose for yourself, and so carry too much risk.

Or you may be interested in ethical or environmental investing, but the investments you’ve inherited are for oil and gas or mining companies.

Whatever the reason, you should assess whether the investments suit your investment plan and wider views before adding them to your portfolio.

4. Not thinking about your entire financial situation

Closely related to adding the investments to your portfolio is the idea that you can decide about these investments without considering your finances as a whole.

For example, if you have debts that you need to clear, it may be sensible to sell the investments and use the cash to clear these instead.

Whatever you decide to do with your investments should suit your entire financial plan, not just your investment strategy.

5. Becoming emotionally attached

One thing that can happen to people when they inherit their loved ones’ investments is that they become emotionally attached to them.

You may start thinking of those investments as “dad’s shares”, which makes it all the more difficult to make constructive choices over how you administer them.

This may make you want to hold on to them indefinitely, despite the fact they’re losing value and look like they’ll continue to do so.

Or you may feel like you’re sorting through someone else’s investments, and so don’t want to make decisions that you think that person wouldn’t have made for themselves.

As difficult as it is, it’s important to remember that those investments are separate from the person you’ve lost. Try to make informed, logical decisions with them, just as you would with your own investments.

6. Thinking that you can’t take them as you’re over the ISA limit

If you’ve lost your spouse or civil partner and they had investments contained within an ISA, you may be concerned that you won’t be able to administer these without a tax charge as you’ve already used your ISA allowance.

However, this isn’t necessarily true, thanks to the additional permitted subscriptions (APS) rule.

When you apply for an APS, you can gain an extra portion of your personal ISA allowance, equal to the value of your deceased partner’s ISA investments.

This means you can continue to administer those investments without worrying about Income Tax or CGT.

There are various conditions you must meet to be able to apply for APS. You may want to work with a professional who can help you work out whether you’re eligible.

7. Not taking advice

Crucially, people who inherit investments often underestimate the value of working with a financial planner.

A planner can help you to make the right decisions with your inherited investments, seeing how valuable they are and whether they can fit into your portfolio.

Most importantly, they can evaluate how useful they’ll be in helping you reach your wider financial goals.

Need help inheriting investments?

If you’d like help making decisions over what to do with your inherited investments, please speak to us at Britannic Place.

Email [email protected] or call 01905 419890 to find out more.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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