The ‘Great Wealth Transfer’ – Are You Ready?

In the UK the baby boomer generation (those now aged between 53 and 72) currently has more wealth than any previous generation, largely due to the perfect storm of interest rates, dramatic increases in property values over their lifetime, and pension reforms that enabled investors to manage their savings more effectively. As well as financial and economic changes, we are also living longer thanks to greater awareness of healthy living, advances in medical opportunities and improved assisted living facilities.


The Great Wealth Transfer?

This increase in prosperity means that the next generation of beneficiaries are set to inherit more overall wealth than any generation before them, whether that’s in the form of inheritance or gifts during their lifetime. It’s estimated that globally the next 30 years will see over £5.5 trillion pass between the generations and in the next decade alone £327 billion will be distributed to 300,000 younger people in the UK.


This scale of inheritance is unprecedented and raises various questions about how to manage your finances now, how to prepare for handing over your wealth and whether the younger generation of beneficiaries are prepared for the large sums of money that they may one day inherit.


When Planning for Passing on Your Wealth, there are Three Questions

Let’s start with three questions at the core of this issue;

  1. What do you want to pass on;

  2. How do you want to do it;

  3. How do you prepare your loved ones for receiving a large sum of money?

Most of the time the answer to the first part is as much as possible. This is where good financial planning becomes even more essential. Our Financial Plan process covers five key areas to make sure all areas of your financial house are covered, including inheritance tax planning and creating a Will to ensure your legacy ends up where you intended. Our long-term approach and regular review of your situation means that we can plan against uncertainties such as the cost of living challenges that we are currently experiencing that will likely impact retirement incomes and the future value of your savings.


This leads on to how to pass on your wealth. The answer to this is very much down to your individual circumstances: how much you have to pass on and in what form. If most of your wealth is held in bank accounts and deposits, things may be simple to arrange. But if you own properties, shares, businesses or other assets it may not be so straightforward and your heirs will need to be coached in what to do with the wealth that they receive.


Planning as early as possible for how you will transfer your wealth to your children or other beneficiaries will allow you time and breathing space to make sure you have the right structures in place. This is especially helpful if you own a business.


There are various options to explore, and your Financial Planner will suggest those which might work best for you. One option is to provide direct gifts. Each person has a £3,000 annual tax exemption for gifts, but you can gift money or assets above this threshold and still be exempt from Inheritance Tax provided you live for at least seven years afterwards and have no interest or link to the gifted assets.


If you would prefer to exercise some control over how and when the money is allocated, gifting via a trust will allow you to do this. You can write letters of wishes for beneficiaries which are implemented by the trustees of the trust.


Bare trusts are a useful solution for passing on assets to minors, as they allow access to the capital and income within it on reaching age 18. You might also make use of family investment companies to transfer assets, or life insurance policies and offshore bonds can be considered. Each option comes with tax and planning implications, which is why we advise speaking with your Financial Planner to decide on the best option for you.



Prepare the child for the money, not the money for the child

The question of how to prepare those who are set to receive your assets is not an easy one to answer. Often talking about money and death feels extremely uncomfortable, but we strongly believe that opening up conversations with your family is a good place to start. Our expertise lies in growing and protecting your wealth for future generations, and we have many family groups within our Client community.


As ‘Values-Based’ financial planners we’ve found that our clients are not only concerned about how to pass on their wealth, but also how to make sure that the next generation deal with it in the way in which they would like. The fear of a child – albeit a fully-grown adult – receiving a carefully cultivated portfolio that has taken a lifetime to build and promptly ‘splashing the cash’ is a real one for many people. Yet when we initiate conversations between families, overwhelmingly the younger generations are anxious to understand and honour their parents motivations, and to continue the traditions and values that the whole family agree is important to them all. Having these ‘values’ conversations can be hugely influential in creating an effective and long lasting wealth transition.


We are always happy to facilitate meetings with you and your family members and to guide them through these important conversations. Acting as a guide and coach, your Financial Planner can help to highlight concerns, address issues and explain complex arrangements to everyone’s benefit. If you’d like to arrange this please speak with your Financial Planner and we can set this up. We plan to cover this topic in more detail in a future post so if you don’t already receive our email newsletter please do sign up so that you receive the article straight into your inbox.


An important consideration is to maintain an up to date Will that specifies your wishes. We recommend you review your Will at least every 3 years to ensure it’s still relevant. We can point you in the right direction - please get in touch to find out more.


We have helped manage the ‘Great Wealth Transfer’ for many of our clients over the years, and it’s an area in which we have lots of experience. A successful transfer is about very much more than just having the right paperwork in place. Talk to your usual contact to explore this topic further, or contact us here.



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