What happens to your investment portfolio when you pass away?

Last year, we published insights around what happens to your pension when you pass away. Seeing as your pension may make up a large chunk of your overall wealth, it’s important to understand how leaving it as part of your inheritance works.

Indeed, although your pension technically makes up part of your investment portfolio, the rules around inheriting a pension are different to your other investments. As we explore in our insights, your pension does not usually form part of your estate for Inheritance Tax (IHT) purposes, whereas the rest of your investment portfolio generally does.

With this in mind, it may be helpful to understand:

· How inheriting an investment portfolio is different to inheriting a pension

· The steps you could take now to make life easier for your beneficiaries.

Keep reading to find out all you need to know about what may happen to your investment portfolio when you pass away, plus how to prepare your assets for this eventuality.

3 tips for leaving your investment portfolio to one or several beneficiaries in your will

Firstly, there are important steps you could take earlier in life to help smoothen the inheritance process.

Here are three tips for leaving your investment portfolio to one or several beneficiaries in your will.

1. Make a clear will that states who is set to inherit your assets

It is difficult to overstate the importance of being extremely clear about who should inherit your investments in your will. A confusing will could lead to family disputes and a significant delay in the transfer of funds.

If you would like your spouse to inherit everything, for instance, write this clearly in your will. On the other hand, if you have plans to divide the assets among your children, be precise in your instructions.

2. Find out your providers’ inheritance rules ahead of time

It is likely that the equities, bonds, and other holdings you own are spread across several accounts, including:

· Individual Savings Account (ISA)

· General Investment Account (GIA)

· Cash savings accounts

· Investment bonds

· Real estate investment trust.

In addition, if you have business shares and other stakes in various companies, these might be held outside of the above accounts.

So, it may help to find out:

· What each provider requires in the event of an account holder’s death

· How long it may take for the assets to be transferred to the intended beneficiary

· What your loved ones may need to do after your death.

This way, you could leave clear instructions for the executor of your will (more on this in the next section) and help to make the inheritance of your investment portfolio smoother for all involved.

3. Leave your preferences for further action in writing if you wish

Once your investment portfolio has been inherited by your intended beneficiaries, the assets are theirs to control. They may cash in the entire value straight away, maintain and grow the portfolio over the years to come, or simply leave the portfolio as it is without much further thought.

A traditional will does not give you the legal right to instruct a person on how to use the funds you pass down. However, if you do have preferences for how the money is used, you may wish to put these in writing and discuss them with your beneficiaries earlier in life.

Alternatively, you could consider writing some of your investments into a trust.

Some trusts offer the benefactor greater control over what happens to the assets they pass down, and you could also reduce IHT using trusts. Our insights into tax and trusts might help you understand these concepts in more detail.

The executor of your will is responsible for putting your wishes into action

Once you pass away, the executor of your will is responsible for ensuring that your beneficiaries and providers are informed of what should be passed down, and to who.

The executor’s role usually involves:

· Obtaining probate, which means that the executor is officially authorised to handle the estate

· Contacting the relevant account providers to inform them of the death

· Talking to beneficiaries about what they are set to receive, the timeline, and how the funds will be transferred.

If you have already appointed an executor, it may be helpful to discuss this role with them in greater depth – especially with regards to the investments you are passing down.

Transferring funds from an investment account is not as simple as it may be with cash, as there are more steps your executor may need to take before the process is complete. For instance, the account provider might ask if the balance should be cashed in then transferred over, or if the portfolio should remain invested and ownership be transferred to the beneficiary.

As such, talking about these options with the executor of your will may make things easier for them when the time comes.

Your Kellands financial planner can offer guidance on leaving investments as part of an inheritance

Leaving a legacy to those you love is likely to be very important to you. Even so, you may not have taken all the possible steps to ensure your wealth is passed down smoothly and efficiently.

Fortunately, working with a Kellands financial planner could help you do so. Our financial planners can:

· Discuss the investments you would like to leave as an inheritance

· Talk to you, your beneficiaries, and the executor of your will about what happens after you pass away

· Maintain a strong relationship with your loved ones so that when the time comes, they already have a trusted professional on their side who acts in their best interests.

If you would like to find out more about anything you have read here, or simply wish to speak to a financial planner, email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

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.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

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