The results of our recent YouGov survey shine a light on how few people have had meaningful conversations with their loved ones about inheritance. While it’s understandable why many choose to delay or avoid these discussions, the benefits of open, early communication around wealth transfer can be significant – for both emotional harmony and financial planning. Stewart Gibson, partner in our personal law team reflects on the findings:
Most families aren’t talking about it
It is disheartening, if not necessarily surprising, to a private client solicitor that only 39% of adults in the UK, and only 35% of adults in Scotland, have discussed their inheritance or wealth transfer plans with their family or beneficiaries. Only 10% say that they have discussed those plans in detail. There can sometimes be an understandable reluctance to involve family members, particularly those who are young, in estate planning discussions. This is often for fear of revealing the extent of your wealth, and jeopardising in those family members the same work ethic which created the very wealth which you are planning to protect.
The value of early conversations
However, where it is felt appropriate to discuss matters with your family, this can bring considerable benefits. At the obvious (and perhaps trite) end of the scale, it can help to reduce the risk of disputes among family members after death. If everyone knows where they stand in terms of your succession plan, and the reasons for that have been explained to them, this can reduce the likelihood of disagreements at what is already an upsetting, and often fraught, time for the family. Discussing matters in advance can also give families the gift of time: time to plan, which can be invaluable in tax mitigation; and time for younger generations to learn about the family’s wealth. This helps them to understand how the wealth is structured, how it interacts with (and, where relevant, facilitates) their lifestyles, and the steps which their family have taken, perhaps for many generations, to preserve it for them. This can not only give children and other family members the practical skills they need to be able to manage the family wealth when you are gone, but it also ensures they have the necessary legal paperwork in place – and an understanding of that paperwork – to ensure that they can do the same for the next generation. It will also help them get to grips with multi-generational wealth planning structures, such as Family Investment Companies or Family Limited Partnerships, and learn from you how those structures work, and why you chose to implement them for your family.
Why waiting too long could cost you
Interestingly, while the overall figure is 10%, only 7% of adults in the UK aged 50-54 have discussed their inheritance or wealth transfer with their children in detail. That rises to 14% for the over 75s, suggesting that families are often waiting until their 70s or later to start having these conversations. Having these conversations earlier, and taking sensible steps to mitigate tax early on, can contribute to considerable tax savings. By way of very simple example, an asset given away more than 7 years ago will not be liable to inheritance tax (‘IHT’) on death. However, if the asset was given away less than 7 years ago, it may be subject to IHT. The rate of IHT may effectively be 40%, even for assets given away more than 3 years ago such that they could in theory benefit from taper relief, if the total of such gifts is less than the long-frozen IHT nil rate band of £325,000.
A happier family – and a smarter plan
Open, honest, and well-informed discussions with your family – and your professional advisors - at the earliest opportunity, therefore, maximise your chances of transferring your wealth to your beneficiaries in a tax efficient way. As always, taking professional advice at an early stage puts you in the best possible position. For all of the reasons set out above, involving your family in those discussions may contribute to an even more tax efficient estate plan and, more importantly, to a happy family.
Explore the full findings
Our Future of wealth transfer survey offers a unique insight into the hopes, hesitations and expectations of people across the UK when it comes to passing on wealth. To see more data and expert commentary, view the full survey here.
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