Family fortunes: Our survey said…

Planning is key

Even though the majority of participants (60%) confirmed they intend to pass something to the next generations of their family, almost half of them did not know how they might do this, and 30% were concerned over the amount of inheritance tax their children and grandchildren might have to pay.

With property prices rising and the nil rate band tax thresholds currently frozen, an increasing number of estates are becoming liable to pay inheritance tax, making today the optimal time to start looking at how you can reduce the value of your estate. Gifting assets during your lifetime, if done correctly, has the effect of reducing the value of your estate for inheritance tax purposes and can be achieved by setting up a trust or gifting assets outright. These gifts can include cash, personal possessions, houses, land, shares and investments. The key is both in timing and in documenting these gifts carefully and appropriately, to take advantage of all relevant exemptions.

People often shy away from trusts, perceiving them to be over complicated. Whilst it is true that trusts can be complex, it is not always the case and they can provide great flexibility in estate planning. They are a useful means of preserving and controlling what happens to your assets and when. For example, they can prevent your children and grandchildren inheriting before they are responsible enough, protect your relatives against relationship breakdowns and safeguard the wealth of young and vulnerable people.

Starting sooner rather than later

A common theme in the participants’ financial concerns or challenges this year was the recent increase in the cost of living. With food and energy prices rising by almost 10%, now is a good time to review your financial circumstances, re-evaluate your long-term objectives and assess how much surplus capital you hold in your estate. All of this will stand you in good stead to forecast how much capital you can afford to gift to (a) alleviate the financial worries of your loved ones and (b) reduce the size of your estate.

Everyone in the UK has a small gift allowance and an annual exemption. You can give as many gifts of up to £250 per person as you want each tax year (birthday and Christmas gifts out of your regular income are exempt) and a £3,000 annual exemption.

If your surplus capital is greater, we can advise on the optimal way to make gifts during your lifetime and how best to document them.

Taking a cohesive approach

Out of the 60% of participants who confirmed they intend to pass something to next generations of their family, only a small portion (17%) reported having a formal plan in place and only 3% said they sought professional advice from a financial adviser.

The key to making estate planning a success is working in coordination with your other trusted advisers. Your accountant and financial adviser will already be very familiar with your financial and familial circumstances and working alongside them will allow us to provide bespoke advice on how best to structure your estate and take advantage of relevant inheritance tax exemptions and reliefs.

A joint and holistic approach is also important when it comes to family dynamics and ensuring any family wealth is preserved and passed down efficiently. With the nuclear family now less common and family structures becoming increasingly diverse, inter-generational planning (i.e. parents seeking wealth preservation advice alongside their children, as a single family unit) is becoming increasingly relevant.

Breaking the taboos

Another consistent theme throughout the research was the difficulty of discussing such sensitive topics with relatives. Only 58% of participants have discussed inheritance or gifting with their loved ones, which means 42% had yet to do so. Of those who had yet to do so, 37% said they do not envisage discussing this with their loved ones at all.

Overcoming the natural fear of talking about death and the emotions associated with it is the first step to breaking the taboo. Having these difficult conversations with your loved ones will allow them to better understand your wishes and spare them the task, after your death, of deciphering and agreeing among themselves what you might have wanted.

Getting your family involved in these discussions will also allow you to recognise their individual circumstances, future plans and expectations. All of these factors might influence your decisions and will help others feel like they have a stake in the conversation, which in turn avoids any hurt feelings and potential disagreements between your descendants. Afterall, relationships matter more than wealth, and the relationships you leave behind are an essential part of your legacy.

Sparking these conversations with your loved ones should also get them thinking about their own estate planning: who will manage their estate; who will take care of their minor children; what will happen to their pets and digital assets; what are their funeral instructions?  This could, of course, then lead to a combined approach for the family, undergoing inter-generational planning as detailed above.

If you would like some advice about lifetime gifts, trusts or estate planning, please get in touch with your usual Wealth Preservation team member to discuss.