By Lorraine Denton, Chartered financial planner at Punter Southall Wealth
Over the next thirty years, an estimated £5.5 trillion is due to be passed from one generation to another in the UK.[1] Make sure you’re ready for it.
Intergenerational wealth planning involves getting the generations to meet and agree to talk about their finances – from older children up to great-grandparents. To ensure a more successful and smooth transition, information needs to be shared about investments, pensions, savings, business, and property. This will ensure the transfer of your clients’ wealth down the generations is not only in line with their wishes but also as tax efficient as possible.
As financial planners, it is our role is to make sure that our clients, when looking to pass on their wealth, can still sustain their standard of living in the intervening period and make the transfer in the most tax-efficient way, giving them control, timing, access, and protection.
However, it is becoming more apparent that our clients’ heirs should also be involved in this planning process. When a client’s wealth is passed on, wouldn’t it be better that the beneficiaries have already met the financial planner and Investment Manager, who can help with the transfer when the client is no longer around? This can leave your clients with greater peace of mind that they have been left in a safe pair of hands.
Talking about money within families is difficult. Your clients may not want their children to know their worth. However, by starting to openly discuss this with your client and their families, you can be a guiding third party, ensuring the best outcomes for all.
For most clients, it’s about passing on wealth to the people that matter the most. This can involve many different factors: making sure that the will is set up correctly; educating children about the benefits of a Lasting Power of Attorney; and discussing how the pension death benefits will be nominated, alongside many other considerations.
Family structure
Planning is especially important with modern families, which can be much more complex than those from previous generations.
When we have second marriages, for example, the destination of funds for each spouse may have a different path. We must also consider that passing on a client’s wealth to their son or daughter could now see half of the money gone if they get divorced. So, we need to plan carefully to protect any gifts and create a path that protects the wishes of those gifting.
What if a client needs to discuss leaving more to one of their children who may be disabled or vulnerable? Needing to leave more of an estate to a particular child as they are unable to be financially independent can lead to difficult conversations. As financial planners, we can help clients navigate this based on need.
Involving the family
It is important for financial planners to make it part of their future business plan to get to know their clients’ beneficiaries, as it may alter the advice that they give to their clients. Also, many young families do not have the knowledge and experience to manage their own finances or to make good use of an inheritance. It is up to financial planners to help to guide them through the importance of saving and help them to understand the many tax allowances that could be available to them. You can give them support on their investments, family protection, mortgages and much more, particularly pensions, and really add value to their financial situation.
One of the main parts of the new flexible pension legislation is the change to pension death benefits. The new legislation introduces new concepts that will radically change how pension wealth is passed on through future generations. A major change under pension freedom is that non-dependants can receive death benefits in income form. Previously this was only available to dependants. It is up to us as financial planners to explain how this works and what it will mean to them by educating the future generations that will inherit.
An advantage of this is that a client’s beneficiaries can access the money in a pension at any age – they don’t need to wait until they reach 55. So, they could use the money to pay off a mortgage or to fund their children’s education fees. This has changed how we look at passing on assets.
