I was recently reading publication by The Society of Trust and Estate Practitioners – Home Page STEP (“A comprehensive approach to wealth planning”) which advised that a “great wealth transfer” over the next twenty years “will see $84 trillion plus move between generations”.
Quite the tidy sum and one that will require carefully thought out planning before the move takes place, not only because for starters, those generations will have differing priorities and ideas.
What I thought would be a helpful, would be to briefly summarise the sorts of things you should be thinking about if this potential wealth transfer is something you have been thinking about.
The best place to start is with the basics – write a Will and prepare Lasting Powers of Attorney. We have already written handy guides on these two subjects, so I am not going to focus on those topics in this blog, but as part of your planning, these two things definitely need to be done, and make sure you do so with a solicitor.
The potentially more complicated side of things is lifetime planning – how to balance your own needs alongside your desire to provide/protect wealth for the next generation and your motivations. For example, are you determined to ensure as far as possible that no inheritance tax (IHT) should be paid in the event of your death or are you slightly more relaxed than that?
IHT definitely needs to be considered – the basic position is that individual IHT allowances can be a maximum of £500k depending upon whether you own the home you live in, whether you have children and what the extent of your wealth is. If you are married or in a civil partnership, as those allowances can be transferred between spouses, a married couple can benefit from allowances totalling a maximum of £1 million on the death of the survivor of them.
If you are thinking about gifting during your lifetime, either outright to loved ones, or in to a trust for them, those gifts will impact the above IHT allowances, and could also trigger a lifetime IHT charge, so accurate advice is essential before any gifts are made.
Your age and health will also be a factor to consider, as most substantial lifetime gifting outside of the annual exemption and customary, regular or small gifts will still be considered as part of your estate for a period of 7 years from the date of the gift and therefore subject to IHT. Taper relief can apply, but will depend on the size of the gift made, and may not be as straightforward a calculation as first appears. Early planning is ideal if this an option for you, but that does need to be weighed up against things like your future earning capacity and the need to plan for your own (often unknown) future needs – not an easy thing to do without the right guidance.
Finally, what do you want to provide for the next generation – some freedom to have fun, some security to rely on when the fun runs out, or absolute protection for not only the next generation, but generations to come?
A trust might be the best way for you to make your desired provision, or you may have a trust set up already that ought to be reviewed or updated – careful planning, and advice from not only a solicitor but a financial advisor and an accountant is key, as not only do we need to be aware of IHT but also Capital Gains Tax and income tax implications.
A trust also inevitably requires commitment to paperwork – from initial advice, to the document itself and HMRC administration, so not something to enter in to lightly, but also things not to be put off by, as a trust can be a really useful tool in the wealth planning journey.
Wealth planning is not a simple area by any stretch, but one that we can navigate you through with experience and straightforward guidance, starting with an initial meeting that would last at least an hour with one of our highly experienced and STEP accredited solicitors.
If you would like to discuss your current circumstances or plan for the future, please contact our Wills, Trusts and Probate team at info@brethertons.co.uk or call 01295 270999 (Banbury Office), 01869 252161 (Bicester Office), 01788 579579 (Rugby Office), or 01242 472747 (Cheltenham Office) we can make sure that your loved ones are protected.