Wealth Succession- how to start the conversation about planning for the next generation

May 26, 2023

When we talk to our clients about their finances, it’s quite common for people to tell us early on in the conversation that they feel uncomfortable talking about financial planning. For some, that’s because they see the whole financial world as mysterious and daunting. We always remind people that that’s what we’re here for – to sit together on the same side of the table, and look into it together.

One of the aspects of financial planning that people tend to find particularly difficult is wealth succession – also known as estate planning.

It’s one of those conversations that people shy away from, as no-one really wants to talk about dying. But the fact is that wealth succession needs to be an integral part of your financial planning. The right preparation can ensure the most positive impact on future generations. Ignoring this issue could mean the Exchequer becomes one of the greatest beneficiaries of your estate.

When it comes to transferring wealth between generations, an open dialogue is important for creating the best outcome for everyone. At Talis IFA we take the view that transferring your wealth is not just about preparing the money, but also about preparing the family.

It can help to start the conversation if you recognise that wealth succession or estate planning doesn’t just mean what happens to your estate after you die. It could also be about what you are able to do, and want to do, during your lifetime.

Despite, or perhaps because of, the uncertain economic climate, families are doing their utmost to ensure they can leave behind a secure financial future for their children and grandchildren. According to predictions, the amount of wealth passed on in the next two decades could double, with estimates this figure could be as high as £5.5 trillion by 2047 [1].

However, recent figures also suggest that an astonishing £15bn inheritance remains unclaimed due to people not informing their beneficiaries about the existence of these funds [2].

The last thing you want is for your carefully amassed wealth to become part of that second statistic.

 

How to prepare for talking about wealth succession

Before you start opening up conversations with your family, it’s helpful to think about the following questions:

• When do I want to transfer my wealth?
• How much wealth do I want to pass on?
• To whom do I want to pass on my wealth?
• How do I want to transfer my wealth?

These four questions are closely interconnected. With careful planning and discussion, which an Independent Financial Adviser can help with, you can ensure that your assets are handed down as simply and tax-efficiently as possible.

 

1. When do I want to transfer my wealth?

Everyone has different objectives and priorities when it comes to wealth succession; what’s important is striking the right balance between sharing your wealth with your loved ones and ensuring that you have enough left to maintain your quality of life.

Transferring assets during your lifetime gives you the chance to see your beneficiaries enjoy the use of those funds. If you are a UK taxpayer, it may also bring benefits from a tax point of view. It can be complex, though, so it’s important to take professional advice to determine which options are best for you and your family.

There are a number of things to take into account when deciding on the best time to transfer wealth.

 

• your age: you may have time to accumulate assets and grow your estate. But if you are older, you may want to consider transferring wealth sooner rather than later in order to maximise the amount that can be passed on to your beneficiaries before tax.
• the age of your beneficiaries: if they are young, they may not need the money immediately and it can be used to help them further their education or buy a property. However, if they are older, they may need the money to support themselves in retirement.
• the value of your estate: if your estate is large, transferring wealth sooner rather than later could minimise Inheritance Tax liabilities. However, if your estate is small, you may want to wait until later in life to transfer wealth in case you need it yourself.
• the types of assets involved: this is an important consideration. Liquid assets (such as cash or investments) can be transferred easily but physical assets like property can bring complications of their own.

 

An IFA will help to consider various scenarios and ‘stress-test’ the outcomes against assumptions such as potential investment returns, inflation projections and long-term care costs.

At Talis IFA our ‘life first, money second’ approach means that we look at how you want to live your life, and what you’ll need to achieve that, and help you to make better informed decisions about how to manage the future distribution of your wealth based on your needs.

Keeping your Will up to date is an important part of planning for the future. Not only does it ensure that your wishes are carried out, but having a Will that reflects the current legal landscape where you hold assets can allow for greater flexibility and potential advantages.

 

2. How much wealth do I want to pass on?

When calculating how much wealth you want to pass on, it is important to consider your own personal circumstances (will transferring assets now risk leaving you short of money later?).

Additionally, the amount of assets you transfer should be enough to cover future costs such as taxes or estate planning services. You should also factor in inflation and other potential investments that could increase the value of your assets over time.

Ultimately, it is essential to have a thorough understanding of your goals and financial situation when calculating wealth-passing decisions. By taking the time to consider these factors, you can ensure that your hard-earned wealth is passed on in a way that honours your wishes and provides for your beneficiaries.

 

3. To whom do I want to pass on my wealth?

The choice is entirely yours. But it’s important to consider who your beneficiaries are, as there will be choices to make based on their needs and ages. If you want to give a legacy for young grandchildren, for example, a trust structure could be beneficial in helping with their future expenses such as education, university fees or property purchases.

You can keep some control by being a trustee yourself, especially if one of your beneficiaries has additional needs, as this helps ensure the trust deed works for their long-term interests.

Or, you may want to benefit charities close to your heart.

Ultimately, the decision is a very personal one and should take into account timing and other factors that matter most to you.

 

4. How do I want to transfer my wealth?

When it comes to transferring your wealth, it’s essential to understand the different options you have and ensure that your plans meet your financial goals.

This is where a detailed discussion with an Independent Financial Adviser becomes essential. They will look with you into your options and help you to assess the implications – whether for Inheritance Tax or by helping you to take a step back and assess the possible impact on your own lifestyle of transferring wealth during your lifetime.

Considering these four questions can help you to get clear in your own mind how you would like to deal with your wealth now and later on. And that’s often the first step towards being able to open up a dialogue with your nearest and dearest.

If you’d like to talk about how we can help you, click here to find a Talis IFA.

 

 

Source data:

[1] fwu-report-final-version-20-april-2022.pdf (mandg.com)

[2] https://www.independent.co.uk/money/spend-save/inheritance-will-investment-pensionassets-life-insurance-a8927966.html

This article does not constitute tax or legal advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice.

Inheritance tax and estate planning are not regulated by the Financial Conduct Authority.