Intergenerational wealth, or the process of passing wealth onto the next generation, is an area of Estate planning which is often neglected. There are several reasons for this with many people fearful or unaware of how best to transfer wealth. This is especially true given the explosion of wealth for particular groups in society – including baby boomers (those born between 1946 and 1964) who have enjoyed seeing their Estates grow significantly. This has led to something referred to as the Great Wealth Transfer which will see an expected £5.5 trillion being passed on by 2055.
Wealth transfer nuances
It’s unlikely that any of us would want to leave our Estates in a complicated position for our families or see them having to face unplanned for circumstances with our Estates eroded by unnecessary tax, including Inheritance Tax. Yet it’s worth considering that the combination of rising property prices, more people owning their own homes, higher pension savings and strong market performance over the past few decades has seen older generations enjoying increased net worth. Longer life expectancy also means that assets are being held for an extended period of time. The upshot of this means that the average value of what can be left to future generations is growing. Against this backdrop is the reality that talking about wealth – what you have and what you plan to leave – remains a taboo subject. But many people are becoming more aware of the need to tackle this as part of financial literacy and the responsibility to our families, and younger generations, to be open and honest about finance.
If you are likely to have funds which you intend to pass on as an inheritance for younger generations, then one of the key steps when planning is to ensure you know what that package looks like. It’s important to consider your own plans for retirement and later life – how much you need, and what level of wealth you want to pass on and when?
Once you have determined the value of your own Estate, and how you’d like your retirement to look, you can start to think about how you might like to share or pass on your wealth. For a number of people, it might be important to see some of that inheritance in action – to help with school fees, university tuition or to help children or grandchildren get on the property ladder. This is a concept which is certainly growing in popularity; the idea of family wealth, and the option to share a living inheritance –passing on legacies during your lifetime. This enables you to help support younger family members whilst you are still alive and can be a useful way of negotiating Inheritance Tax, as long as you survive for seven years or more, whilst enabling you to see the difference which your unused wealth can have.
Passing on wealth can be made particularly difficult if some of the basic tools, such as a Will, aren’t in place. Wills are the bedrock of any Estate plan, and a very powerful tool when it comes to passing wealth to the next generation. A Will which encompasses family members and ensures that any bequests are properly explained can help make passing on wealth a much smoother process when the time comes. It’s also important to ensure that any children in your Will are aware of your plans – again helping ensure a much easier process for all concerned during a difficult and emotional time, when any new revelations are likely to cause additional stress.
When is probate required?
Probate is the name of the legal and financial process in England and Wales which confirms your Executors have power to collect in and distribute your assets when you die. It involves identifying all of your assets, determining the value of your Estate, paying any taxes or debts, and distributing the Estate to beneficiaries in line with the wishes you’ve set out in your Will. The decision about whether the Grant of Probate is needed will largely depend upon the value of assets held with each financial institution. Generally, probate is required unless the Estate is very small.
Ensure your wealth is passed on with The Fry Group
We’ve worked with many families over the generations and have seen the notion of family wealth becoming much more popular. As a result, there are now many more options when passing on wealth including supporting family members with small bursaries throughout their lifetime and helping them financially when it comes to significant milestones, such as buying a property or setting up a business, as well as ensuring there is a lump sum to pass on tax-efficiently when the time comes.
Would you like to find out more?
We are here to help with your financial planning requirements. For more information, whatever your circumstances, please contact us today.