IT is estimated that £1000 billion will pass down from one generation to the next in the UK over the next 20 years and a recent survey found that 60% of over-55s are planning to leave an inheritance to their children and grandchildren.

While some beneficiaries may be lucky enough to come into a small fortune, for most people the amount they inherit is likely to be fairly modest.

Whatever the amount involved, financial advisers say that it is important not to rush into anything.

You need to think carefully about how best to use the money. If you inherit from a canny investor, it could be a good idea to have their investments transferred into your name and hang on to them.

You might even decide not to take the money. Gregor Johnston, director of Glasgow-based independent financial advisers Fitzallan, says: "If you don't need the money, and it is liable to push your own estate into the inheritance tax bracket (currently starting at £325,000), you could consider passing it direct to the next generation by changing the will through a deed of variation. This has to be done within two years of death."

But most people will welcome a financial boost. If you have debts, clearing them should be the first use of your inheritance says Patrick Connolly, a certified financial planner at independent financial advisers Chase de Vere.

He says: "Clear any credit card debt and unsecured loans, as they charge the highest rates of interest, and then put aside some money as a cash buffer so you can avoid getting into debt again. Then you can look at other options."

If you still have a mortgage, whether to clear it or not is debatable, especially when interest rates are low. It partly depends on how much risk you are prepared to take.

Mr Connolly explains: "If you are cautious and prefer to hold your money in savings accounts, you will probably be better off repaying your mortgage because the interest rate on your loan will be higher than the amount you can earn on your savings.

"Also, by clearing your loan, your outgoings will be reduced, so you can start saving that money if you want to."

However, Mr Johnston points out that returns on share based investments are likely to be higher over the long term than the interest rate savings on a mortgage.

But he cautions: "While you should get a better return from shares over the medium to long term, you have to be prepared for your investments to fluctuate."

If your benefactor held money in investments rather than cash, it may be worth considering taking over these investments.

This may be an obvious option with a property but it also applies to other types of investments too, such as National Savings Certificates or investment funds and shares. There is no need for these holdings to be sold before they can be divided among the beneficiaries.

Having some holdings transferred into your name could be an advantage, for example if the estate includes index-linked National Savings Certificates.

These invaluable, inflation protected certificates are currently not available to buy but they can be transferred to a new owner, and then rolled over to future issues as they mature. ISA 'wrappers' cannot be passed on when someone dies but the investments they contain can. So investment funds or shares can be divided up and transferred into the names of the beneficiaries.

This can normally be done free of charge, so you don't suffer the normal buying and selling costs of transferring the money elsewhere. However, it is important to check that the investments are suitable for your requirements.

Unless the estate is liable to inheritance tax, there will be no tax to pay on such investments on death - even if they have been held outside of an Isa, because any liability to capital gains tax is extinguished on the investor's death.

However, more people are being caught by inheritance tax since the threshold was frozen at £325,000 in 2009 says Ronnie Ludwig, partner in the private wealth group at accountancy firm Saffery Champness in Edinburgh. Although the average house price in Scotland is currently well below the inheritance tax limit, Mr Ludwig says: "Homeowners in Edinburgh, Aberdeen and some parts of Glasgow are getting sucked into the net."

But some people who have paid inheritance tax on property in the past may qualify for a refund, Mr Ludwig explains. "If you sell a property within two years for less than HMRC has valued it, you can reclaim the difference in tax."

Nevertheless with property prices starting to rise again, Mr Ludwig believes more Scottish families will be dragged into paying inheritance tax in future as the limit will remain frozen until 2018.

Giving away money to beneficiaries before death is one way of minimising potential tax.

If the donor lives for seven years, the gifts will fall outside their estate.