There has been increasing focus on the notion of early inheritance, wherein adult offspring approach their parents or grandparents for an advance on their future inheritance. This trend is becoming more prevalent due to factors such as extended lifespans and the escalating cost of housing.
Many parents are open to assisting their children in advancing their lives by providing them with a lump sum of money for endeavours like starting a business or securing a home deposit. However, from a legal standpoint, it’s important for both parties to carefully deliberate the risks associated with giving or receiving an early inheritance.
Determining Whether to Give Early Inheritance
Traditionally, beneficiaries receive their inheritance following the death of the testator. While early inheritance allows parents or grandparents to witness their descendants benefiting from the gift, it requires thorough contemplation and professional guidance.
Before committing to an early inheritance, individuals should ponder several questions:
- Will there be sufficient remaining assets for me to sustain my lifestyle and enjoy life?
- Does the gift consist of assets like land or shares, which may incur stamp duty and potentially capital gains tax, unlike typical inheritance?
- Could the gift impact any existing social security benefits?
- Should the inheritance be structured as a loan rather than an outright gift?
Consulting a financial planner may offer impartial insights into some queries, while others may necessitate legal counsel.
Early Inheritance Structured as a Loan
Providing an early inheritance as a loan could be the optimal approach, ensuring equitable benefits for all children in the long run. The testator’s will can stipulate that the loan be forgiven in lieu of a bequest, with compensatory gifts allocated to other beneficiaries to balance the distribution of assets. Opting for a loan also shields the funds from potential Family Court property settlements or creditor claims.
Challenges with Early Inheritance
While some parents or grandparents may willingly grant an early inheritance, others may feel pressured, fearing strained relationships if they decline. This scenario raises concerns about the susceptibility of elders to financial abuse due to Early Inheritance Syndrome. The recipient might rationalise that the elder no longer requires the money and will eventually inherit the assets anyway. In extreme cases, if a parent refuses to provide an early inheritance, the adult child may resort to emotional or physical coercion, particularly if they hold financial power of attorney over the elder.
Addressing Financial Elder Abuse
Financial elder abuse occurs when an individual exploits a family member’s assets or property for personal gain. The abuser might exert undue influence to manipulate the family member into altering their will or relinquishing an early inheritance. Legal protections for vulnerable elders are limited, and proving abuse can be challenging, especially if the elder is unaware or unwilling to report it.
Equalising Inheritance
Granting an early inheritance can complicate matters if the testator later intends to amend their will to ensure fairness among all beneficiaries. This situation may arise if the early inheritance has been depleted by the time of the testator’s passing. In such cases, the beneficiary of the early gift might pursue further provision from the estate, irrespective of any inequity compared to other beneficiaries.
Illustratively, in the case of Sgro v Thompson [2017], where a parent gave an early inheritance of a house to one daughter with the understanding that the family home would go to another daughter in the will, disputes arose regarding fair distribution. Despite initial rulings favouring the beneficiary of the early inheritance, subsequent appeals emphasised the need for thorough assessment, considering factors beyond mere financial need, and respecting the testator’s intentions. Ultimately, the Court upheld the original will provisions, underscoring the importance of honouring a capable testator’s judgement and considering all relevant factors in estate distribution decisions.
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