Keeping it in the family - take action

In our previous article, we looked at the reasons why it’s beneficial to plan to pass on wealth to the next generation, and why some people find those conversations with their loved ones difficult.

As firm advocates for generational wealth planning we believe that the difficult conversations are worth having, and once you are comfortable there are a number of ways in which you can plan ahead and protect your wealth. 

  • Wills - Make sure you have an up-to-date will to ensure that your assets pass to those whom you would want to benefit. 
  • Inheritance tax-free gifts - Based on current legislation, there are a range of gifts that can be made that would immediately fall outside of your estate. This includes charitable gifts and notably, IHT will be charged at 36% (reduced from 40% currently) if 10% or more of your net estate is left to charity.
  • Potentially inheritance tax-free gifts - Other gifts, known as Potentially Exempt Transfers (PETs), made during your lifetime may be exempt from, or eligible for, a reduction in IHT, however, you must survive for seven years after making the gift for it to be completely outside of your estate. 
  • Trusts - Trust planning is often complex but can be a very useful tool in reducing the inheritance tax payable on your estate, whilst also allowing the person passing on their assets to maintain control over how and when these are apportioned.  There are several different types of trust, such as Bare Trusts, Discretionary Trusts, Discounted Gift Trusts and Loan Trusts, that could be employed and that may be treated differently when calculating IHT liabilities.
  • Pension Planning - Thanks to the ‘pension freedom’ rules introduced in 2015, the tax treatment of pensions on death has vastly improved for those schemes that have adopted the new rules. Not only can beneficiaries inherit pension funds that would sit outside of their estates for IHT purposes, but if death occurred before age 75, the beneficiaries could also draw the benefits tax-free either as a lump sum, via drawdown income or an annuity. If death occurs after 75, the beneficiary could draw the funds taxed at their own marginal rate. 
  • Life Cover - Consider making regular premiums to an insurance policy that would pay out on death to cover an IHT liability. 
  • Reliefs - You may be able to claim Business Relief on your IHT bill by up to 50% or 100% where you are an owner of, or have an interest in, a business after an initial qualifying ownership period of two years. Enterprise Investment Schemes (EIS) and AIM shares may also qualify for Business Relief. 
  • Only give away what you can afford - despite the array of efficient ways to and arguments for passing on your wealth, the first step should be to consider how much you will need for the rest of your life. Lifetime financial forecasting is an essential exercise that TPO advisers will undertake to help determine your affordability and financial objectives.

Action Points

  • Start sooner rather than later - Give you and your family the time to have those challenging conversations, work out the finer details and understand the options.
  • Communicate - All of the ‘why nots’ from our previous article can be alleviated or even eliminated through conversation. Whether with your family, your adviser or both, talking about your wishes and plans for the future can not only help to extinguish any doubts or problems, but can also help towards starting to shape your succession plan.
  • Educate and involve the family - Share your experiences and educate your children about wealth to develop their understanding and, when the time is right, include them in meetings with your advisers. 
  • Understand your position - Determine how much income you require to see you through the remainder of your life, what the total value of your estate is and which assets you have access to.
  • Write or revisit your will - Remember to revisit your will at every ‘big life event’, such as marriage, a death in the family, a new child/grandchild, a business exit, or retirement so that it accurately reflects your wishes. 
  • Consider every option - There are a plethora of options available to someone looking to secure their wealth for future generations and you should not discount any of them, perhaps due to highly technical legislation or media portrayal, without first speaking to your trusted professional advisers.  
  • Keep records - Whenever you engage in any form of estate planning, it is vital to maintain prudent records that can be passed to your legal representatives or executors; this is especially important should HMRC review any historic gifting.

As outlined above, there are various ways in which you can start planning for your own future and for the future of those closest to you. Your financial adviser at TPO can assist in developing these conversations and helping you to put the most appropriate structures and plans in place to help protect you and your family wealth for future generations.

For more detail on generational wealth management, sign up for the second part of our webinar series, ‘keeping it in the family’, or watch the first part here.

The Financial Conduct Authority (FCA) do not regulate estate planning, tax or trust advice.

Venture Capital Trusts (VCTs) are high risk investments and there may be no market for the shares should you wish to dispose of them. You may lose your capital. 

Enterprise Investment Schemes (EISs) are very high-risk investments and may not be suitable for all clients. An EIS investment is usually concentrated in one single unquoted trading company. Often there is no market for the shares and it may therefore be very difficult to make a disposal. There is a strong possibility of the chosen company failing.