Why we should talk about protecting and growing family wealth

Preserving and growing wealth and thriving family businesses have a vital role to play in strengthening the wider Scottish economy
Rhian Morgan, financial planner with Acumen Financial Planning - Picture, Newsline MediaRhian Morgan, financial planner with Acumen Financial Planning - Picture, Newsline Media
Rhian Morgan, financial planner with Acumen Financial Planning - Picture, Newsline Media

Many of the best-known brand names have their genesis in multi-generational family firms. It’s estimated that the top 100 family businesses in Scotland employ over 110,000 people and generate total turnover of more than £20 billion.

Good financial planning is therefore important to families at all stages of their lives. That could be those looking to help younger people find their feet, or those preparing to hand a business over to their children.

Rhian Morgan, financial planner with Acumen Financial Planning, specialises in inheritance tax (IHT) and estate planning. She explains that people - often ‘baby boomers’ who have built up a relatively substantial amount of money - can feel frustrated when it comes to such things as IHT. They see younger generations not being able to benefit from the likes of final salary pensions and struggling to get on the housing ladder.

“It’s really important for these clients to be able to cascade their wealth to the next generation,” says Morgan. “Part of our role as financial planners is to get the conversation flowing. It can also involve coaching and helping clients identify the opportunities. It’s not a one-size-fits all when it comes to estate planning.”

Morgan aims to involve younger members of the family in discussions at an early stage and tries to ensure the right professionals, such as solicitors, accountants, tax specialists and private bankers, are taking part in conversations. “We take a collaborative approach to estate planning,” she says. “This also applies when talking about businesses. For example, if someone wants to pass down shares we need to look at the likes of capital gains tax, wills and power of attorney.”

There can be a range of challenges to address when it comes to financial planning around family wealth, such as getting people to talk about it in the first place.

According to Morgan, it’s helpful for clients to have a clear understanding of what they would like to do with their wealth. Acumen can then use financial forecasting to test such approaches against whether gifting is possible without leaving the client short of funds for any unexpected occurrences. It can work with clients to explore all their options, including how they can retain control and continue to access their wealth rather than gifting it away at an early stage.

“Other issues can relate to not having the right legal documents in place, or not knowing what’s around the corner with relationships,” adds Morgan. “If you're transitioning wealth to your children you need to make sure they understand what the implications are if they are married and it becomes matrimonial property. It's important that the right frameworks are in place to protect wealth.”

Another challenge is that relevant tax rate relief bands remain low in relation to how quickly family wealth can be accumulated and legislation around this can be complex. “Tax rates are often under review in budgets and many were frozen following the pandemic and there has not been much change to inheritance tax rates and allowances for many years,” adds Morgan.

There is also the need to address people’s reluctance to think about death. “With pension or retirement planning there’s something to look forward to, but that’s not the case with IHT and estate planning, nobody likes to think about the end of life. But there is something to be said about enjoying witnessing the benefit of what they can pass on during their own lifetime.”

Focusing on the main benefits of good estate planning, Morgan explains that, from a company perspective, there is the business relief that’s attached to a trading entity which mitigates IHT. Passing on a business during a client’s lifetime also means the next generation can benefit from their experience. “It’s not just about passing on wealth, but also knowledge. You can bring the family to the next step and slowly give them responsibility and teach them about the business in an impactful way,” she says. “With regards to passing on wealth generally, there’s the opportunity to start the seven-year clock earlier, allowing you to pass on a large gifts exempt of tax. Another advantage is letting the next generation manage their own wealth. I’ve seen clients help pay grandchildren’s school fees or set up a pot for future driving lessons, so there are lots of opportunities.”

It can be helpful for younger generations to benefit from family wealth earlier and tap into what has become known as the ‘bank of mum and dad’, especially during the current period of high inflation and increased cost of living pressures.

Morgan concludes: “It’s about striking the right balance of wanting to give to the next generation, while allowing children to find their own journey. It’s important to cascade wealth down, but to do so in a planned manner.”

Find out more at Acumen