There is an intergenerational wealth transfer brewing, as baby boomers start to think about passing on their assets. Ahead of Global Intergenerational Week (starting 24th April), Brooks Macdonald’s Private Client Director, Luke Ashton, answers key questions on the handover of wealth and the shifting priorities across the different generations.
Why is inter-generational wealth transfer such a hot topic right now?
“The baby boomer generation hold a lot of wealth in this country, and they’re getting older. Inheritance tax has always been a hot topic, and following the announcement in the last autumn statement that the threshold kick-in has been frozen until 2028, it’s now an even hotter topic.“
“Also, given the current financial climate, transferring wealth is one of many financial milestones that can seem more complex than it did before.”
What’s the best way to introduce the next generation to money management?
“Education and support are crucial, so start investing young. Children can learn by managing pocket and birthday money, balancing spending with saving. Parents should set a good example and get children involved with savings accounts and Junior ISAs.
“We encourage our clients to involve their adult family in our financial review meetings, particularly as they prepare to pass their wealth on. It’s a great way for the younger generation to become familiar with their family finances.”
How can we encourage the next generation to value money they inherit?
“It’s good to foster an appreciation of family money and how it was achieved. Clients should talk about where the money comes from and get children to spend time around the business, the properties or the work environment.
“When passing on wealth, it’s not unusual to have concerns about how it may be spent. Wealth Managers such as Brooks Macdonald can help address these concerns by putting a nominal amount in an investment account for each child, or by setting up a philanthropic trust.
“Another big worry is that family wealth will be lost through a divorce. Wealth Managers can make sure money goes where clients want it to, with various options for appropriate trusts – perhaps to pay for grandchildren’s education.”
What else can clients do to ensure a smooth transition?
“Clients should be organised and keep clear records in a suitable place where the right people know where to find them. Sorting out an estate is really time-consuming and difficult, especially for someone who is grieving. If clients have their affairs in order, their families will be in a good place to move forward.
“Clients should write a will and set up power of attorney so that someone else is able to organise your affairs for them, if they are unable to. Clients should also take professional advice – not just from a wealth manager, but also from accountants and/or solicitors. Professional advisers can provide continuity and some helpful handholding.
“Clients should also gauge their heirs’ interests and capabilities – for example, will they take over the business or would it be wiser to sell in advance? Most people give away wealth when it feels right for a number of reasons if they think the person they’re giving it to is in a good place financially, with a good understanding and the right attitude to working and spending.
“But, even if client’s children are in the right place, are they? All clients should take some time to mentally prepare to hand over control.
“It’s natural to worry about the future, and particularly the next generation, but there’s a lot you can do to ease the way. Some thoughtful preparation can make all the difference for a smooth financial transition.”
