A growing number of people are worrying about the daunting task of transferring their wealth. According to a recent study, almost half of all Brits (47%) are concerned about changes to the scope of wealth transfer tax revealed in October’s Autumn Budget.
There’s certainly a lot to consider, especially with legislative shifts including plans to bring pensions within the remit of Inheritance Tax. Add to this the widespread protests from farmers angry at the government’s intention to restrict Inheritance Tax allowances for agricultural generational wealth transfer and it’s clear to understand the irritation that many hold for the subject. Of course, this widespread ire isn’t isolated to the farming community; for family-run businesses of all ilks, it’s an unexpected shift in the status quo. So, where do you begin?
It’s thought that up to 70% of wealthy families lose their wealth by the next generation and up to 90% by the third generation, showing how quickly wealth can erode without proper structures in place.
Financial mismanagement, disputes, or excessive tax burdens can make a legacy dwindle. It’s only by addressing these concerns early that families can create a lasting financial legacy.
However, ensuring that wealth is passed down effectively requires more than just drafting a Will. While that’s certainly a prompt, it is not necessarily an all-encompassing solution.
If you’re serious about safeguarding your assets to minimise tax obligations and ensure that your loved ones benefit from your foresight, you should invest in a comprehensive estate plan. This will not only support future generations and help maintain core family values but also help to avoid legal complications and ensure long-term financial security.
A well-crafted estate plan could include:
Taking a proactive approach to tax planning can significantly increase the amount of wealth passed down to your heirs, ensuring financial security for future generations.
Inheritance tax (IHT) is a significant factor in estate planning, particularly in the UK, where estates generally valued above £325,000 (and before further reliefs) are subject to a 40% tax on the excess amount.
To reduce this tax burden, individuals can take advantage of several strategies. One approach is to utilise the Nil Rate Band (NRB) and the Residence Nil Rate Band (RNRB), which provide exemptions that can help lower the taxable portion of an estate. Additionally, lifetime gifting allows individuals to make tax-free gifts within annual allowance limits, gradually reducing the overall estate value.
Estate planners are increasingly advising high-net-worth individuals to use Trusts to preserve wealth while maintaining control over distribution. However, it’s important to know that these structures must be regularly reviewed to align with changing tax laws.
Using Trusts strategically can protect family wealth and minimise tax exposure, but it’s critical to recognise that there is no ‘one size fits all’ solution.
A Discretionary Trust provides flexibility in distributing assets according to the settlor’s wishes and the beneficiaries' needs. This option makes sense if you’re looking to give greater power to trustees to decide how much of an asset to distribute and when it is to be released. Used typically when beneficiaries are young and/or vulnerable, they are a tax-efficient method of protecting assets from risks with a broad range of investment options.
Navigating the reality of estate planning is a complex task that requires expert legal and financial advice. This isn’t simply an optional extra but an essential underpinning to ensure that assets are managed effectively.
In this sense, the best bit of advice I can give you for ensuring multigenerational wealth transfer is to think of estate planning as an ongoing process. Your family’s needs will continue to evolve, and so will the law, but with the right advice and sound wealth transfer strategies with open communication, you can give your estate the best chance for your legacy to endure.
Take action today to provide peace of mind and long-term financial security for your family and assets. Get in touch with our expert advisers to create a tailored estate plan that reflects both your family values and long-term aspirations.
