Keep it in the family – Make sure you think about how to pass on your wealth

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The difference in wealth between Britain’s older and younger generations is greater than ever before. Today, many young people are struggling to save and accumulate money. This is often because of the high costs of rental accommodation and the burden of paying for university tuition fees.

And that’s even before they can save for a deposit on their first home and get a foot on the property ladder or save for retirement.

Meanwhile, FTAdviser reports that baby boomers currently hold more than half of the UK’s private wealth. Many of the older generation are sitting pretty, benefiting from generous final salary pensions and big increases in the value of houses and stock markets over the last few decades.

This means there’s an unprecedented amount of money primed to move between generations in the coming years.

Pass on your wealth in a sensible and tax-efficient way

Like many, you probably want to make sure you pass on your wealth in a sensible and tax-efficient way, and ensure it goes to the people you choose. You may also want to be around to see them benefit from the money you give them.

This is where intergenerational wealth planning can help.

Planning now will help ensure that you take steps to transfer your wealth to your loved ones according to your wishes.

There’s a lot to understand when moving your wealth. It can be a good idea to involve your beneficiaries in the process.

Involve your family and loved ones in conversations about inheritance

Many people feel uncomfortable talking about money, especially with the people they love most. But doing so is an important part of ensuring you pass your wealth on to your family successfully.

Consider introducing your heirs to your financial planner.

You could arrange an informal meeting for everyone to get a better understanding of what is involved, or simply give your beneficiaries our details.

You may not wish to reveal all the details of your financial situation. But having someone with financial experience they can turn to when you are no longer around can help give them peace of mind.

The earlier you start planning, the better

When you’re thinking about passing your wealth on, the earlier you start, the more you can do. Planning ahead also means you reduce the chance of being caught out by any nasty surprises.

You might even find that it’s viable for you to pass your wealth on sooner, rather than waiting until you’re no longer around.

Think about gifting money while you’re still around

Many of our clients enjoy being able to pass their money on to their families while they are still around to watch them enjoy it.

This can also mean you pass on your wealth when your heirs most need the money. Because we’re all living longer, many people inherit money long after they needed it.

However, before you start throwing your cash around, you first need to make sure you can afford to make the gifts you wish, without damaging your own finances.

Make sure you can still afford to pay your bills and enjoy life yourself. Then you can think about how to share it with others.

Pay more to your family and less to HMRC

While intergenerational planning isn’t only about saving tax, an important aspect is that it can help to reduce any Inheritance Tax (IHT) liability. This means less of your money will be spent on tax, and more will end up with your loved ones.

IHT is usually charged at 40% of any assets in your estate above your nil-rate band, currently £325,000 per person. As well as this, there is an additional £175,000 allowance for passing on the main family home to your direct descendants.

If you know you’re likely to be liable for IHT, there are steps you can take to reduce the amount your beneficiaries may have to pay on your estate.

Inheritance Tax rules for giving financial gifts

It’s important to be aware of the rules surrounding financial gifts in relation to Inheritance Tax (IHT). As a rule, your beneficiaries will not have to pay IHT on the value of the gift if you survive for seven years after making the gift.

If you die within seven years of making gifts above the nil rate band, this may affect the amount of IHT your estate will be liable for. The amount of tax charged will depend on how long you survive after making the gift.

When you make a gift, it’s called a potentially exempt transfer. This assumes that if you live for seven years, there will be no IHT charge due.

If you’re thinking about gifting money or assets to your loved ones, it’s important to record it.

To make it easier for the executor of your estate, make a note of:

  • What you gave
  • Who you gave it to
  • What it’s worth.

There are also some gift exemptions you can make use of, including:

  • £3,000 annual gift allowance
  • Small gifts of up to £250 per person
  • Gifts to charities and political parties.

Ring fence assets with a trust

As well as giving your beneficiaries gifts while you’re still alive, another way to ring fence assets is to establish a trust.

You may find a trust useful when:

  • You want to pass money to children or grandchildren but think they are too young to spend it wisely
  • You wish the money to be used for a specific purpose, such as education, buying property, or another milestone in life
  • You want to cover the costs of your IHT Tax bill using life insurance.

We can assess your circumstances and help you understand the type of trust that best suits your objectives.

Forecast how much you need and how much you can give away

We can help you understand how much you can afford to give away, without jeopardising your own financial situation.

Talk to us about your lifestyle needs and desires versus what you want to gift to your family. We can use cashflow planning to illustrate how different scenarios will affect your finances. This will help give you, and your family, peace of mind about how your decisions will play out in the short, medium, and even longer term.

How we can help your children and grandchildren

Unfortunately, many young people don’t have the knowledge needed to look after their finances properly. Most don’t have an adviser to help them make sure they put an inheritance to good use.

When you’ve just had a windfall, it’s easy to fall prey to unscrupulous advisers.

We can sit down with your beneficiaries and help give them a better understanding of their finances. For example, we can explain the importance of saving and all the available tax allowances.

We can also give them support when it comes to their investments, and any protection that might be suitable for their circumstances.

Get in touch

If you want to discuss the best way to plan to pass your wealth to your family and loved ones, please get in touch. Email or call 01937 223055.