Over a third of UK adults aged 50+ say they intend to make a succession plan – but haven’t yet. Our recent Future of Wealth Transfer survey, with YouGov, sheds light on the risks of delaying, and the common issues we see in practice when intentions don’t turn into action. From families with young children to individuals over 75, this article explores why having a plan in place now – however simple - is better than none at all.
A nation of good intentions?
What is quite striking about the response to this question is that over a third (35%) of people surveyed do not have a plan in place, but intend to. This chimes with another finding from the survey, that 69% think it is a good idea to have a family discussion about wealth planning during lifetime. We are – or at least we say we are – keen to make plans and talk about them.
When good intentions aren’t enough
In reality, though, putting plans in place is often easier in theory than in practice – as is talking to the next generation about financial and succession matters - and this plays out in the statistics.
As advisers, whilst frequently involved in the planning stage during lifetime, we do also find ourselves involved in dealing with the aftermath where no plans have been made – sadly often not revealed until death or a loss of capacity has occurred, at which point it is often too late. As a result, we see all too clearly the traps that individuals, and families, sometimes fall into as a result of a lack of planning, including:
- Assets passing elsewhere than to the intended beneficiaries (e.g. due to the lack of a will – or more commonly the lack of an up to date will)
- More tax being paid than should be (e.g. due to a failure to take advantage of tax-efficient structures and/or lifetime gifting)
- Disputes between family members (e.g. due to a lack of open communication and discussion about intentions during lifetime)
- Assets passing outside the family (e.g. due to a failure to consider structures that can help with asset protection risks like divorce and bankruptcy)
- Expensive foreign legal and tax issues arising (e.g. due to a failure to plan for the succession to foreign assets and/or take appropriate advice on how best to own and pass on assets abroad – and here I include between the different jurisdictions of the UK being England & Wales, Scotland and Northern Ireland)
Older adults – planning time may be running out
Two groups of people stand out, in particular, amongst those surveyed who say that they intend to put a succession plan in place but have not done so yet.
Older people: Somewhat surprisingly, more than a fifth (21%) are aged over 75. By that time of life, it would generally be expected that plans were in place – or a conscious decision had been taken not to take action. As those of us advising clients know, as time goes on the options for planning tend to reduce. The effectiveness of the planning tends to reduce, too, due to the fact that a gradual reduction in wealth as a consequence of regular gifting is generally more tax-efficient than a sudden step taken later in life. Better late than never still rings true, but the opportunities for planning are so much greater if action is taken earlier. An important additional consequence of planning later in life, as we and our disputes colleagues know only too well, is that gifts and wills made shortly before death (or incapacity) carry a significantly enhanced risks of challenge by disappointed beneficiaries or family members who do not see eye to eye.
Parents of young children – don’t wait too long
People with young children: It is also worth noting that more than half (54%) have children under 18. One of the earliest prompts for many individuals making a will is the birth of a child, due to the wish to appoint legal guardians, so it is to be hoped that these individuals have a will, at least. It seems likely that the reason for a lack of formal succession plans in this area is the age of the children, meaning that most people prefer to wait until they are older, perhaps until their path in life is clearer, before making a plan and talking to them about it. The risk, of course, is that something happens to the parent before any form of plan has been made, leaving guardians acting on behalf of the children with no clear guidance on what the parent's wishes would have been. The key to unlocking this situation, in my experience, is to put in place a flexible plan at an early stage that sets out the broad intentions and appoints responsible adults to make decisions for the children until they are at an appropriate age to do so themselves. Many legal structures are more flexible than you might think, meaning that this outcome is entirely possible with a clear and well-drafted succession plan, which can evolve as children grow older.
Turning intention into action
The risk of not having a succession plan in place, but intending to, is that intention never becomes reality. It is a common story that making a will, gifting assets to children, making a power of attorney, deciding who will take on the family business after you, is at the bottom of most people's 'to do' lists. Putting something in place, even if not perfect, is generally better than having nothing in place at all. At Brodies we try to make the process of wealth planning as straightforward as possible, and we work with many other professionals who adopt the same approach.
Explore the full findings
Our Future of Wealth Transfer survey report 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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