Achieving financial freedom is often the happy outcome of a life’s work, so it makes sense to ensure that any wealth you’ve spent time building is protected and passed on sensibly. Steve Wright, our Head of Estates, shares some key steps to consider if you’re thinking about how to preserve and pass on your wealth.
Creating and protecting wealth is an important consideration when managing your money. The past few years have seen many people re-evaluate their lifestyles in the quest for quality of life and financial freedom. But a number of our clients are also keen to ensure that wealth built up over the years can do more than just enable their own financial freedom and go some way to supporting the next generation.
In fact intergenerational wealth, as it’s referred to, is rising enormously with GBP215 billion due to be passed onto the next generation in the next ten years. So, with this in mind what steps should you take if you’re keen to protect and pass on your wealth:
- Be honest and open – it’s important to set out your plans and make sure your family are aware of your intentions. Death, divorce and remarriage can be tricky topics, and with more blended families than ever before it’s vital not to leave any surprises in terms of how you’re planning to share your wealth.
- Seek expert advice – setting any of your plans or intentions out professionally can lead to a smoother transition of your wealth for your family. An adviser can also provide useful information about the use of trusts, letters of wishes and powers of attorney, as well as guidance on how to think about other aspects of your estate such as digital items.
Sadly all too often we see makeshift Wills which fail to deliver our client’s last wishes and protect children from previous marriages. Whilst there is inevitably a cost to arranging a professionally drafted Will, that cost may well be small compared with the potential consequence of getting things wrong.
One of the main issues is that there tends to be a misconception that assets will simply pass to a spouse or partner where a Will has not been put in place. Regrettably, in many cases, that isn’t so and if there are children involved, it’s possible they will benefit to some degree.
- Bear in mind tax – tax is one of the most important considerations when passing on wealth. Inheritance Tax can seriously erode your wealth and leave your heirs losing a large proportion of your estate, so it’s critical to ensure that a tax expert is involved at every step of your plans.
When reviewing your Inheritance Tax position, a good adviser will want to identify whether you have a Will in place and check it’s been drafted properly so it doesn’t create an avoidable Inheritance Tax liability. If you have been widowed previously there are certain provisions that could be included in your Will which might reduce your liability. It’s also possible, by leaving part of your estate to charity, to reduce the Inheritance Tax rate applied to your estate.
- Move with the times – younger members of your family are likely to have different values to your own. Encouraging discussions about how you’ve built your wealth may lead to a better understanding of what’s motivated you, and the importance it means to you in passing on a family legacy. It also gives you the opportunity to explore how younger members of your family may put your wealth to use perhaps by using it to invest in social change projects or ESG (Environmental, Social and Governance) initiatives. This can be a wonderful opportunity to share some of that financial literacy which you’ve built along with your wealth over the years.
If you are thinking about how to best pass on your wealth our webinar shares details of what you can do to safeguard your estate. For help and advice with any aspect of wealth or estate planning please contact your nearest office.