The ‘baby-boomer wealth transfer’ is predicted to be the largest in history, with US$4trn expected to pass to inheritors, or be left to good causes, within a generation[1]. So it’s surprising that not many people are putting plans in place to ensure their wishes are met, or preparing their beneficiaries adequately.

The stats are worrying:

» Only 26% of high net worth (HNW) respondents in a recent survey[2] said they had a full strategy for transferring their wealth to the next generation

» Only 35% of HNW inheritors say they have been prepared by their benefactors[3].

As a financial planner, you will know that intergenerational planning extends far beyond inheritance tax planning. Here Sharon Thorpe, Wealth Planning Director at Cannacord Genuity Wealth Management shares questions to ask of clients seeking to leave a legacy and ensure their wealth is passed down as they wish, along with tips to ensure those inheriting wealth are ready for the responsibility.

8 questions to ask those planning to leave a legacy

Clients who have worked hard to build their wealth don’t want it frittered away after they die so it’s important they consider key questions like:

  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, businesses you own, art and jewellery.
  3. Who/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 during my lifetime?
  8. How can I ensure my wealth is cascaded to future generations as I wish?

Alongside the client’s other professional advisers, such as their solicitor, and as part of the planning process you will have made sure the client’s Will is up to date, that their arrangements are set up correctly and the instructions are clear.

This might involve setting up trust structures, which can help the client person passing down their wealth to maintain control, dictating who will benefit from the trust, when and by how much (refer to the case study below).

There are other options if a beneficiary wishes their inheritance to skip a generation, for example through a Deed of Variation.

Highly sensitive situations, such as how to protect the family in the event of a fall-out or divorce should be factored in. Sadly, this can and does happen, so it’s important to consider whether the client wishes to by-pass a son-in-law or daughter-in-law, for example, but ensure funds are available for the children and grandchildren.

Preparing a client’s children to inherit wealth

Famously, Bill Gates announced 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 have 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 planning, the inheritance your client passes on could dissolve rather than provide their children and grandchildren with a solid financial future.

Tips to ensure children use inherited wealth wisely

1. Make wealth a family discussion – if the heirs understand how hard the client has worked for their money, and the motivation behind their investments, they will be more likely to see the value of managing that wealth properly.

2. Share experiences and educate the children about wealth – starting sooner rather than later will help them develop their understanding.

3. Involve children in meetings with you/the client’s other trusted advisers – many children set to inherit wealth do not have a financial adviser, building a relationship early on will help ensure continuity of the management of the family’s wealth.

Perhaps your client’s own parents have considerable wealth, but they’ve never discussed it with them. As a trusted adviser, you can help members within the extended family to have these conversations, and then support them in efficiently planning the transfer of their wealth.

There are many considerations around intergenerational wealth planning – but there are also solutions. Canaccord Genuity Wealth Management can support you in ensuring your clients and their families meet their legacy wishes.

Case study: a successful family wealth transfer

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

Mrs K 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).

A trust was established, with the brother as a trustee, so he could decide how and when to distribute (or hold back) the money.

Additional resources

Canaccord Genuity Wealth Management acknowledge that one of the most important aspects of estate planning is to make sure your clients’ family, friends and favourite causes inherit as much of their wealth as possible.

The Canaccord Genuity Wealth Management IHT portfolio is a simple and efficient strategy for reducing IHT while offering growth potential to boost potential legacies. It invests in a diversified portfolio of established, profitable companies selected from the Alternative Investment Market (AIM). Under current rules, shares in some companies that trade on AIM are treated as ‘business property’ and eligible for Business Relief (BR), formerly Business Property Relief. Once a client has held shares in one of these companies for two years, the shares are no longer counted as part of their estate for IHT purposes. This compares favourably with the seven-year rule that applies to gifts. The client maintains full control and can access their funds at any time should their circumstances change.

It is an actively managed portfolio service, so if we decide any of the underlying investments are no longer suitable, or if they stop being eligible for BR, we can sell them and reinvest in another qualifying company without having to restart the two-year period.

» For your clients – inheritance tax at a glance

» Video: Why recommend Canaccord’s IHT Portfolio Service?

» For financial advisers – IHT services brochure

 


This article was created for the DISCUS website by Sharon Thorpe of Canaccord Genuity Wealth Management (CGWM). If you would like to find out more about Canaccord Genuity Wealth Management, you can visit their dedicated page on this website or see how their services compare to other discretionary offerings via the DISCUS Compare tool.

 

[1] BBC – Generation project [online and available here, Accessed August 2019]

[2] RBC Wealth Management – Wealth transfer report [online and available here, Accessed August 2019]

[3] RBC Wealth Management – Wealth transfer report [online and available here, Accessed August 2019]