The so-called “great wealth transfer” will see an estimated £5.5 trillion pass between generations over the next three decades. That’s a huge sum and an important reminder about the vital need for intergenerational financial planning.
From mitigating a potential Inheritance Tax (IHT) liability to educating younger generations on how to handle a sudden inheritance, a family financial plan can benefit everyone.
Here are three important factors to consider.
1. Start planning early
Inheritance and estate planning isn’t something to think about only later in life. It should form an integral part of all our long-term financial plans, from the outset.
Worryingly, though, this isn’t the case for some.
Back in October 2022, Professional Adviser reported that 60% of baby boomers (those born between 1946 and 1964, so aged 59 to 77 now) want to leave money to the next generation, and yet only 17% had a plan in place.
Financial advice gets clients thinking about their future. Factoring estate and legacy planning into these discussions can help to put a long-term tax-efficient plan in place early.
2. Communication and education are key
The key to successful estate planning is communication but talking about money isn’t always easy.
In the YouGov survey published by Professional Adviser, just over half (58%) of baby boomers confirmed that they had discussed estate planning with loved ones.
One of the main ways to pass down money is through a will. Talking about a will (ensuring one is put in place and then kept up to date) can make a huge difference. When all affected parties are in the loop, it is easier to talk openly and to understand the thought process behind the decisions made. In turn, this should help to lower the risk of disputes further down the line.
Money and inheritance conversations are “uncomfortable” for 41% of millennials and Generation X, with many opting not to discuss the subject at all. Increasingly, this could lead to strain, especially as the great wealth transfer builds up steam.
Strangely, among the older generations who plan to discuss the transfer of their assets, 53% would be unwilling to tell their beneficiaries the amount they could receive, while 52% were not prepared to give possible timescales.
This makes planning much harder for the younger generations soon to be beneficiaries.
Inheriting money can be stressful, especially without the financial education needed to confidently deal with potentially large sums.
But there can be worries for those giving their wealth as well.
Another Professional Adviser report, this time from February 2023, finds that 32% of baby boomers are reluctant to pass their wealth to someone whose attitudes to money differ from their own. The perceived difference in spending and saving habits between generations requires both communication and education if it is to be successfully bridged.
While older generations no doubt have decades of experience and lessons to pass on, a third party might be best placed to deliver this. In this case, ensuring that young people have access to professional financial advice from a young age is key.
The earlier a financial education begins, the more likely the younger generation is to be proficient and sensible with the inheritance they receive.
This education is particularly important as tech-savvy younger generations are the most likely to turn to social media for advice, which can be a huge mistake.
Back in May 2021, we wrote about Why your clients should think twice before taking investment tips from social media and this message remains valid today.
3. Giving while living
Traditionally, wealth has been passed down on death. This can lead to large sums being transferred at an already stressful time, often without the education and communication that we now know is so fundamentally important.
In recent years, a change has been underway and “giving while living” continues to grow in popularity.
With the nil-rate and the residence nil-rate bands both frozen, IHT receipts are on the rise with more and more families affected. In fact, HMRC figures confirm that the Treasury received £2.6 billion from IHT in just 13 weeks between April and July this year.
One way for you and your clients to lower a potential liability is to lower the value of your estate during your lifetime.
Gifts can be made free of tax if the giver of the gift lives for seven years from the date the gift is made. For this reason, these gifts are referred to as “potentially exempt transfers” (PET), subject to the “seven-year” rule.
But some gifts can be made tax-free from the outset.
The HMRC annual exemption allows gifts of up to £3,000 to be made each year, tax-free. It is also possible to use the normal expenditure out of income exemption to make regular gifts, into a loved one’s pension or ISA for example.
Gifts between spouses and civil partners are tax-free, as are small gifts (below £250) such as for birthday or Christmas presents.
Giving money in this way lowers the value of an estate for IHT calculation purposes but can have non-financial benefits too.
The person giving the gift is still around to see the difference their money makes. And those receiving the gift will get the money earlier in life, possibly at the point where they have the greatest need of it.
Get in touch
The ongoing client relationships that we nurture at Boolers mean that we’re here for the long term, which might mean advising multiple generations of the same family.
We provide financial advice and education through open communication, helping our clients to build tax-efficient plans for their future, and the futures of their loved ones.
If you have clients who would benefit from intergenerational financial advice and estate planning please get in touch. Email firstname.lastname@example.org or call 0116 240 7070.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
“At Boolers, you know that things will be dealt with properly and professionally. A real safe pair of hands!”
“I have always found the quality of advice, technical knowledge and level of service is second to none. ”
“Thank you to all of you for such a wonderfully smooth transaction! Hope we can do it again some time.”
“Boolers provided excellent advice when we needed it most.”
“Boolers have provided myself, family and business with pension and investment advice for over 30 years and continue to provide a high quality professional service to us all on an ongoing basis.”
“Chris Ball has been our Financial Adviser for many years and, from the start, we have been impressed with his strategic sense, his deep knowledge and his skills in helping us build our own successful retirement. He understands our aims and how to achieve them and has taken great care of us throughout. ”