Transferring wealth to the next generation – what to consider

Research suggests we’re on the doorstep of the largest intergenerational wealth transfer in history. In 2047, the total wealth being passed down could be as much as £5.5trn.¹ With this in mind, it’s surprising that so few people are putting wealth transfer plans in place to ensure their wishes are met and their beneficiaries are adequately prepared.

Intergenerational wealth transfer planning now extends far beyond inheritance tax planning. Our Wealth Planning Director, Sharon Thorpe, explores how to make sure your wealth is passed down to your beneficiaries as you wish, and that they are ready to receive a large inheritance.

Important questions to ask before leaving a legacy

You’ve worked hard to build your wealth and don’t want it to be frittered away after you die, so it’s important to ask yourself some key questions:

1. How much money will I need until I die (including provision for later life care)?
2. What am I likely to leave? (Including cash, savings, investments, properties, vehicles, business interests, art and jewellery.)
3. Who or what do I want to provide for?
4. Is there anyone I want to leave out?
5. How much do I want each beneficiary to have?
6. Do I want to restrict how my legacy is used?
7. Do I want to gift any of my wealth during my lifetime?
8. How can I ensure my wealth is cascaded to future generations as I wish?

How to prepare children to inherit your wealth

Famously, Bill Gates has said his children will inherit US$10m each – relatively small change compared to his multi-billion-dollar fortune, which will be donated to charitable causes. He and his wife, Melinda want their three children to be comfortable, but not enough to make them lazy!

The idea of parents protecting their children from too much wealth is becoming more common. Parents want their children to understand the value of wealth, how it was acquired and how to use it wisely.

Without proper wealth planning, the inheritance you pass on could dissolve rather than provide your children and grandchildren with a solid financial future.

If you believe your own parents have considerable wealth, but they’ve never discussed it with you, it might be a good idea to ascertain whether they are already receiving financial advice or whether they could benefit from a meeting with a financial planner.

Top tips to ensure your children use your wealth wisely

1. Make wealth a family discussion – if your heirs understand how hard you worked for your money, and the motivation behind your investments, they will be more likely to see the value of managing that wealth properly.
2. Share your experiences and educate your children about wealth – start sooner rather than later to develop their understanding.
3. Involve them in meetings with your trusted advisers – many people aged 30–60 do not have a financial planner, including those who expect to inherit large sums.

How we can help you transfer your wealth

If you’re putting plans in place to transfer your wealth to the next generation, we can work with you and your solicitor to make sure your Will is up to date, your arrangements are set up correctly and your instructions are clear.

This might involve setting up trust structures. These can help the person passing on money (the settlor) to maintain control by dictating who will benefit from the trust, when and by how much. Setting up trust structures can also be useful for inheritance tax planning in the UK (see the case study below).

There are other options if a beneficiary wishes their inheritance to skip a generation, e.g. by a Deed of Variation.

When deciding how you want to transfer your wealth to your heirs, you may need to consider highly sensitive situations, such as how to protect your family in the event of a fall-out or divorce. Sadly, this does happen, so it’s important to consider whether you wish to by-pass your son-in-law or daughter-in-law, for example, but ensure funds are available for your children and grandchildren.

UK case study – a successful family wealth transfer strategy

Alice had no children and wanted her brother, Mark, to benefit from her estate. Mark was also reasonably wealthy and planned to leave everything to his children.

Alice realised this could mean paying double inheritance tax – once as she passed her wealth to her brother and again as he passed it down to his children and they paid IHT on his full estate (including her wealth).

We set up a trust, with Mark as a trustee, so he could decide how and when to distribute (or hold back) the money.

Arrange a free wealth transfer consultation

At Canaccord Wealth, we work closely with our clients and their families to ensure their legacy wishes are met. If you would like to know more about transferring your wealth to the next generation, book a free, hour-long consultation.

 If you found this interesting, you might also want to read:

• Your guide to inheritance tax - calculate your potential IHT bill in five minutes
• Pension planning and tax advice
• Passing on wealth

The tax treatment of all investments depends upon individual circumstances and the levels and bases of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing.

The tax treatments set out in this communication are based on our current understanding of UK legislation. It is a broad summary and cannot cover every circumstance and it does not constitute advice.