Expert advice can help kick start the difficult conversation of family wealth planning

Conversations between generations about inheritance are sometimes simply not held
Conversations between generations about inheritance are sometimes simply not held
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Promoted by Acumen Financial Planning

It is not easy to talk about, but help is at hand for you to express clearly what you want to happen to your estate once you have left the game, writes Fiona Russell

Conservative with a small “c” by nature, most British people often remain tight-lipped about their earnings and wealth. Yet most of us would also prefer not to see our hard-earned savings disappear unreckoned.

Rhian Morgan, a financial planner with award-winning independent firm Acumen Financial Planning

Rhian Morgan, a financial planner with award-winning independent firm Acumen Financial Planning

In particular, one financial area that is typically less discussed among UK residents is family wealth planning. Conversations between generations about inheritance are sometimes simply not held, with the result that assets and money can be swallowed in government taxes or bequeathed in error after death.

“It’s something we see over and over again with families,” said Rhian Morgan, a financial planner with award-winning independent firm Acumen Financial Planning. “Grandparents, parents and their children often do not speak to each other about what they want or wish for and then, after death, it can become overly complicated.”

Indeed, a 2016 report, The Advice Nation by the website unbiased.co.uk, found that just 5 per cent of the UK population has sought advice on inheritance tax. Meanwhile, consumer research data shows that 59 per cent of respondents in a nationwide survey have never sought any kind of financial advice or guidance, whether from colleagues, family or experts.

Rhian advises that intergenerational family wealth planning is best talked about openly and with honesty. She says: “Being clear and concise about what people want to do with their money – or what they do not want to happen – when they die is very important.

“People of different generations usually have different perspectives on savings, passing on their estate and even about talking about this topic. However, it is important to start a conversation so that the future is as well planned as it’s possible to be.”

Rhian also points out that the law on inheritance can be complex, so it is vital that people have the right financial information to ensure they are fully aware of the benefits and pitfalls.

She says: “Laws change and people’s circumstances also fluctuate over time, so a trusted financial advisor, coupled with a solicitor’s advice, will ensure that people make the best plans for passing on capital and assets.

“For example, a recent change is that Inheritance Tax Residence Nil Rate Band was introduced in April 2017. It is in addition to an individual’s normal inheritance tax nil rate band of £325,000.

“Also, people often ask about gifting assets to relatives prior to their death. It is possible to do so, but there are a variety of potential tax implications and it is not always a straightforward process.

“There are ways to reduce certain taxes with gifts to family – for example by setting up a gift trust or a loan trust – that are entirely legal, yet without the right knowledge people may end up paying out when they need not.”

Pensions inherited after death can become complicated and sometimes cause for disagreements. Rhian notes: “Who might receive your pension when you die will depend on all kinds of circumstances, such as when the pension fund was started, whether you are married and who you have nominated in an expression of wish form.

“Pension Freedoms, introduced by the government in the 2015-16 tax year, allow you to leave certain pensions to anyone. An inherited pension can also be accessed before the age of 55, and it’s possible to pass this income down to others if not used in your lifetime.”

Rhian adds that there are other factors to consider with family financial planning, such as whether a person’s will states the same as a “expression of wishes” form.

She admits: “It is surprising how many times I discover that they say different things.”

A range of investments for tax planning strategies can also be recommended, including business-relief portfolios, or the use of bonds within trusts to allow for segments to be assigned to beneficiaries and tax to be paid by beneficiary rather than the trust.

Rhian adds: “There is often a lot that people have not thought about or utilised when when considering what will happen to their estate when they die, and this is where good financial and legal advice can be very beneficial.

“Every case and client is different, but there are many good solutions.”

Modern life and death

While being married or in a civil partnership can make financial planning simpler, today many more people have less “traditional” living arrangements.

“Blended” families, where couples have children from a previous relationship, are on the rise as well.

The Scottish and UK laws governing cohabitation are being modernised, but there are still different inheritance laws for married and non-marrieds.

Rhian Morgan says: “It’s important as a financial advisor to look at the full complexities of a couple or a family. They come in so many shapes, sizes and make-ups these days.

“In some cases, we will suggest legal advice for a pre-nuptial, post-nuptial or a cohabitation agreement, and always a will.

These other agreements are for use during one’s lifetime as insurance against divorce, more than on death, but there is often a benefit where someone wishes to control who benefits from certain capital and policies.”

Here we look at two hypothetical cases...

Blended family

A 50-year-old woman is remarried, and has children from her previous marriage.

The issue It is realised by her financial advisor that she has not completed an “expression of wish” form, which means that the woman’s children may end up not benefitting from her pension upon her death.

The solution In order to include her husband and children, the woman allocates percentages within a new expression of wish, so that her trustees are aware that upon her death she wishes to pass funds to her husband and children.

Trust fund for passing on assets

A couple has three grown up children and wish to gift substantial assets to their offspring.

The issue One of the children is quite young and in a new relationship, and the parents wish to protect this share of the assets.

The solution The parents are advised to ring-fence an amount for that child within a discretionary trust. The sum is below the nil-rate bands so it will not fall under immediate lifetime inheritance tax.

The trust also remains outwith the marital assets and the child can benefit from regular or ad-hoc payments from the trust as needed.

For added tax efficiency, a bond is used as the trust investment.

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