Ten steps to protecting intergenerational family wealth
£5.5 trillion. That’s how much inheritance and financial gifts is estimated to be passed between generations over the next three
decades1.
A perfect storm of low interest rates, property prices and pension reforms has contributed to this eye-opening figure. However, the pandemic in turn has brought about its own set of knock-on effects as people become more financially aware and prepare to plan for the future.
Family discussions about money can be tricky but avoiding them can have worse repercussions and affect the successful wealth transfer to the next generation.
While wealth traditionally passes down upon death, intergenerational wealth is a chance to involve family members in succession planning and explore how wealth can be used in different ways during your lifetimes.
As we all face a rapid increase in living costs, average house prices are also rising. Office for National Statistics (ONS) figures show this trend continued into 2021 as the UK average price for August 2021 was £264,000, up from £257,000 in July 2021, following June’s record level of £265,000.2
For many families, this presents both an opportunity and a challenge. Without careful planning, inheritance tax could be a threat to family wealth. With that in mind, here are ten top tips for protecting
that wealth:
1. Speak to a lawyer. Ensure your wills are up-to-date and clearly state your wishes.
2. Ensure you have power of attorney in place. In Scotland there are continuing and welfare powers of attorney (PoA). Continuing PoAs gives your attorney power to handle things in terms of property and finances if you lose mental capacity. The welfare PoA deals with health and welfare.
3. Speak to your family. If you would prefer not to divulge too much detail about finances, then introduce them to your professional advisers so they know who to turn to after your death. 4. Engage a financial planner to build a lifetime financial model, tailored to your financial situation, incorporating your objectives and family values.
5. Know your inheritance tax (IHT) liability. Everyone has a nil rate band of £325,000 depending on circumstances. Other tax relief, such as residence nil rate band may be available. A financial planner can help identify your liability and is the basis for formulating a mitigation strategy.
6. A financial planner can guide you in relation to future long-term care fees and the financial implications. 7. Consider gifting capital to loved ones during your lifetime. With several types of trusts available, a financial planner can advise on the right choice for you.
8. Trusts may also be an option, with the right advice, if you have concerns regarding the recipient of a gift, perhaps due to their age, responsibility, or their relationships.
9. Over the course of the year, payments from regular income can be made into Junior ISAs for children/grandchildren up to the value of the JISA allowance for each child (£9,000 in 2022/23).
10. Last and certainly not least — enjoy life! Increasing your expenditure and making memories can also reduce the value of your estate which may eventually be subject to inheritance tax. Generational wealth can be transformative for families but isn’t something that should be taken for granted. Education, conversations, and financial planning will help to protect multi-generations of family wealth well into the future. Kevin Mackenzie, Financial Planner, Acumen Financial Planning & Director of The Financial Planning Group * The content within this article should not be looked upon as advice or recommendation. Readers should seek appropriate guidance from a financial planner.