With careful planning it may be possible to reduce significantly the need for your estate to pay Inheritance Tax. We spend a lifetime generating wealth and assets but not many of us ensure that it will be passed to the next generation – our children, grandchildren, nieces, nephews, and so on. Intergenerational wealth transfer is the passage of wealth from one family generation to the next.
It is becoming increasingly important for more people to consider succession planning and intergenerational wealth transfer as part of their financial planning strategy. As the Baby Boomer generation reaches retirement age, we are on the brink of a vast shift in assets, unlike any that we have seen before.
For those approaching, or in, retirement, it’s important to have frank and open conversations with children about expectations and also whether children have the knowledge and understanding to manage financial matters.
This is not an easy exercise, as you may not want to discuss your financial affairs with your children. You may find your children’s eyes are opened when they see what their parents have been able to achieve financially. They may even want to know how they can do that themselves and change their own habits.
Everyone works hard to provide for their family, and perhaps even leave them a legacy. However, parents approaching retirement should not feel that their family is solely reliant on them, or that they need to be responsible for their children’s financial situation.
A good approach is to help your children establish their own strong financial footing and be ready for intergenerational wealth transfer. For instance, introducing them to your professional advisers can provide comfort that there is someone they can go to for advice.
Having open conversations with your children and expressing wishes and goals will also ensure that your family are all on the same page, which can help reduce potential conflict later when managing intergenerational wealth transfer.
These are some questions you should answer as part of your intergenerational wealth transfer plans:
- When did wealth enter my life and how do I think this timing influences my values and family relationships?
- What impact does affluence have on my life and the lives of my next generation?
- What was the key to my success in creating wealth and how might telling this story to my future generation be helpful?
- What is my biggest concern in raising my children or grandchildren with affluence?
- What conversations (if any) did I have with my parents about money and wealth growing up?
- How did my parents prepare me to receive wealth?
- What lessons did I learn from my parents about money and finance that I would like to pass on to my heirs?
- What family values would I like to pass down to the next generation and how do I plan on communicating this family legacy?
- What concerns do I have about my adult children when it comes to inheriting and managing the family wealth?
- How can I help prepare my beneficiaries to receive wealth and carry on our family legacy?
Despite the vast amount of wealth likely to be passed down between generations, those in line for inheritance could end up being over-reliant on their expected windfall. The key will be to ensure younger generations are able to get involved and understand how to handle the wealth they will be inheriting, as well as being able to make good decisions about the wealth that they generate themselves.
You need to consider who will receive what and whether you want to pass your wealth during your lifetime or on death. These decisions then need to be balanced by the tax implications of any proposed planning. This is especially important at what can be a highly stressful time. By making advanced preparations, the burden of filing complicated Inheritance Tax returns can be reduced.
Growing your wealth
Goals based investing
- Cash flow modelling
- Creating a financial roadmap
- Investment objectives
- Timescales and market activity and the impact of losses
- ‘What if’ scenarios
- Discussing legacy planning with your loved ones
- Inheritance Tax (IHT)
- Inheritance Tax Residence Nil Rate Band (RNRB)
- Lasting power of attorney
- Lifetime transfers
- Making a Will
- Preserving wealth for future generations
- Protecting your assets for the next generation
- Slicing up your wealth pie
- Children’s pensions
- Defined benefit (or final salary) pensions
- Defined contribution pensions
- Personal pensions
- Self-Invested Personal Pensions (SIPPs)
- The state pension
- Annual allowance and lifetime allowance limits
- Busting myths about pensions
- Increases to pension age and new normal minimum pension age
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- The lifetime allowance
- Delaying retirement
- Generating income from investments throughout your retirement years
- Importance of a retirement wealth check
- Retirement goal setting
- Retirement planning
- Reviewing your retirement plan
- Staggered retirement
- Taking control of your retirement plans
- What can I do with my pension?
- What happens to my pension on death?
- Discretionary Fund Managers
- Market timing
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- Multiple asset classes
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- Pound cost averaging
- Principles of investing