Episode 5: What do I do if…I want to protect my family wealth?

00:00:05 David Lee, Host

Hello, my name is David Lee and welcome to Podcasts by Brodies. Brodies’ experts operate in many areas of the law every day and their clients have a number of questions before, during and after their time working with the lawyers, whether navigating new or more familiar situations together.

In each episode of our series, “what do I do if...?” we talk to experts from various fields to understand how they help clients when they're faced with a whole range of different scenarios.

The latest series of podcast episodes features Brodies personal and family team, and today we're examining the question, “What do I do if I want to protect my family wealth?”

I'm joined by Hayley Robertson who is a partner in the personal and family team at Brodies and by Jeff Simpson, a chartered financial planner with Hymans Robertson Personal Wealth. Welcome to you both, and Hayley to start with you, why is protecting family wealth such an important issue for Brodies’ clients?

00:01:08 Hayley Robertson, Partner, Brodies LLP

Well, most of our clients have worked hard, whether for their own family, businesses or for employers, and therefore it is crucial for them to make sure that their own personal affairs are considered and made a priority.

00:01:24 David Lee, Host

OK, and what are the trigger events? What are the reasons why clients might come to you and say, "I want to do this?" What is the now? What is the immediate trigger?

00:01:35 Hayley Robertson, Partner, Brodies LLP

There can be a number and one that we see quite often and one that certainly sparks discussion in this area would be the potential sale of any business and similarly retirement, generally, that is often a trigger point where people start to consider the next phase in their lives.

Perhaps not quite positively, ill health, whether of a family member or friend or themselves, often triggers people to look at their own plans and as people get older in their own old age and potential concerns for care in future can also be triggers.

00:02:11 David Lee, Host

OK, and when you are advising someone on this, Hayley, how do you advise them in terms of why it's important to do it now rather than later, not necessarily waiting until that crisis point? Why is it important to do it sooner rather than later?

00:02:31 Hayley Robertson, Partner, Brodies LLP

It’s a very good question and I think it's human nature for us to put off, to think that you've got time to think that you’ll do it maybe next week or next year. Whilst none of us have this crystal ball that we may wish for in life, that really is a reason that we don't know what is ahead.

I think as well for busy people it is very easy to put your own personal fears to the bottom of the pile and to focus on other things. So I think it is really important to do it early enough so that you can make sure that whatever your plan is, it's a plan that not only is in line with your own wishes and your future plans, which will of course develop in in the coming years of life, but also that is appropriate, taking into account your family’s personal and financial circumstances, which will also alter as families grow.

00:03:25 David Lee, Host

And there are reasons for doing that, Hayley, for both tax issues and for peace of mind, you know, is it important to focus on both?

00:03:34 Hayley Robertson, Partner, Brodies LLP

Absolutely, and again, depending on what point in your life, depending on what your trigger is and what your priorities and aims are at that time, that can differ but very much, the two would often go hand in hand.

Doing it as early as possible means that usually there are way more options available and also gives that opportunity, particularly from a tax mitigation perspective - the longer you have broadly, the easier and the more obvious it is to be able to take advantage of the reliefs that are there and to plan.

00:04:09 David Lee, Host

OK, thanks very much Hayley, Jeff, we'll bring you in here.

We sometimes hear the phrase “intergenerational wealth planning,” what does that mean and how does that kind of play out across families?

00:04:21 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

So by “intergenerational planning” we tend to mean the plans that a family would put in place to ensure that their assets are passed to the appropriate people or charities or bodies wherever they decide.

And it is the planning process that is the most important thing in that, that's what we refer to when we say, “intergenerational planning.”

00:04:42 David Lee, Host

And when we're talking about that when we're talking about family wealth, is it mainly the post war baby boomers at the moment who are most focused on this kind of passage of family wealth?

00:04:53 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

I think that they are quite a key part of society because so much wealth sits with them.

They are the wealthiest generation that the UK has ever seen, so they therefore control more wealth than any previous generation has.

So inevitably they are most at risk when it comes to passing assets effectively, and therefore they are probably the first generation of its time to really be responsible for that passing of assets to the next generation.

00:05:24 David Lee, Host

Are there any statistics Jeff about how much money we're expecting to move between the generations in the in the coming decades?

00:05:34 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

Well, we do know that 70% of the UK's wealth is held by the over 50s. So from a sheer volume point of view, that group of society holds more wealth. A huge majority of the wealth the UK has in total.

00:05:50 David Lee, Host

OK, and let's sort of dig down into some of the more relevant issues in a bit more detail.

So, Hayley, mitigating tax liability first of all. How can that be done effectively to help the next generation?

00:06:06 Hayley Robertson, Partner, Brodies LLP

That usually is the priority you know for clients that we meet. They're very keen to mitigate any tax liability that they may have in life, but also on death, and to be able to help the next generation.

The gifting is often something that is considered and referenced by clients, and I'm sure we will come to discuss this that perhaps later and certainly something for Jeff to talk about is making sure that any gifting that's done is appropriate and is of the right amount i.e. too much is not gifted too soon etcetera.

So that's certainly something that we very much advise on, on a daily basis and it's that helping the next generation, but in a way that is appropriate for them and at the right time and in the right format, again, depending on their own financial and personal circumstances.

But it definitely presents an opportunity and again back to the earlier point; the earlier the better and making sure that that's something that's kept on the agenda because circumstances and particularly families evolve regularly.

00:07:19 David Lee, Host

They certainly do! Then two of those sort of horror phrases when people are thinking about personal wealth; inheritance tax and care costs.

What are the threats? Let's talk about inheritance tax first of all, Hayley.

00:07:35 Hayley Robertson, Partner, Brodies LLP

I guess the headline is, 40% of your estate after deduction of any reliefs and exemptions will be what is passed to the government and that's you know a lot of money, 40% of your estate. So naturally many people are keen to understand more about what the reliefs are and what you can do about it in terms of planning.

And frankly, as part of this discussion that we would have with clients, that opportunity to mitigate the tax, it's also about making sure specific to your circumstances that if for whatever reason, perhaps you hadn't been able to do your planning early, that if an inheritance tax liability of 40% is envisaged on a death situation...it's also about making sure that there are sufficient funds within the estate. So not just planning in life but also making sure that in a death situation there are sufficient liquid assets for the family to be able to find the cash to pay the inheritance tax bill.

Now, obviously the hope is that the bill is much reduced or indeed eradicated but again, that just outlines the importance of a good plan.

Care is similar to concerns about tax. It is something that most of our clients at some point will want to speak about. We would often say to our client that it is perhaps not as big a worry as what people think. It makes very good headlines because I believe that the statistics of the number of people who actually go into care in the UK is relatively small. But nevertheless one must be careful to make sure that any planning that has been done is within the legislation. And also is done in a way where the legislation, and also, the position of local authorities (if care accommodation is required) that it's done again within those realms.

00:09:45 David Lee, Host

OK thanks very much Hayley, there's a lot to think about here.

So when individuals and families are thinking about wealth planning and the legal aspects of it, what kind of lawyers should they be looking for?

What kind of characteristics do you and your colleagues bring?

You've talked there about some of the big things that might be really preying on people's minds, so as well as being a lawyer, is it quite important to give them that kind of reassurance that as you've just said, things are not always bad as they seem?

00:10:20 Hayley Robertson, Partner, Brodies LLP

The starting point is to make sure you go to a specialist trust succession lawyer who also has a very good understanding of the interaction of the various taxes.

I think that is particularly important.

Obviously in Scotland now we have our own taxes that are different to the UK and having an understanding of that difference and of the application. And I think as you say, what's absolutely critical as well as having the actual knowledge, that the practical experience and the experience of dealing with clients and importantly dealing with families.

We see many many families that are made-up in many different ways and often the worries and the concerns are actually very similar. So I think that's the important partnership – it's to find a lawyer who understands the legal side and the tax, but also it understands the intricacies of families, and the need for empathy as well - to understand that often this is not the top of people's priority list.

Some people find it difficult to talk about it, and it's understanding all of that and then putting it across in a manner that suits them and is appropriate for their own family and their circumstances.

00:11:35 David Lee, Host

So we'll come onto the financial planner side Jeff, and we've talked there about the considerations about getting the right lawyer.

What are the considerations when someone is looking to find the right financial planner?

00:11:48 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

That's a good point, I think. Trust is key. Trust is really key to that relationship. Mirroring what Hayley's just said about trust with a lawyer.

But trust is inevitably earned over time, it takes time to build up trust with somebody.

So where that time doesn't necessarily sit in place and usually getting a referral from something you do trust is a really key starting point. So clients will often speak to Hayley, or their accountant and ask them for a referral that they know or have worked with somebody in the past.

And aside from trust, really, you're looking for somebody in my opinion, that's well qualified. I would say chartered as a minimum. I think in our industry now "chartered" is that benchmark point that shows that somebody takes their role seriously and they've taken a lot of exams to get to that level.

And then mirroring what Hayley said experience is really key because it is a really tax and legislative heavy part of advice and understanding the legislation and the tax and how they interplay is really vital.

And then working closely with a lawyer and accountant is also key because a lot of the time what an advisor will suggest putting in place may have an effect on what an accountant or a lawyer is thinking about putting in to place.

So having that ability to work with somebody understand what they're doing and how that affects somebodies life is really, really vital.

00:13:12 David Lee, Host

So that dynamic between the professional advisors is really important Jeff?

00:13:18 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

Definitely, because intergenerational planning takes time, sometimes a long time to play out.

And invariably it changes over the years – somebody's opinion and views change over the years and therefore you have to be able to work together as a team, because if part of that team changes something, it could have a negative effect on the other parts of the plan that somebody else has already implemented.

So it's really key that people work together.

00:13:45 David Lee, Host

Yeah, OK and let's go back to that kind of family team. Very often, as Hayley said, there's a particular trigger in life that will lead an individual or a couple to come and look for advice.

How open do people tend to be in sharing that kind of financial plan with the wider family?

And what are the benefits and pitfalls of that openness and that transparency?

00:14:16 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

That's an interesting question, actually, I think it depends on the family.

Some families are naturally very open and will discuss and disclose everything, others aren't, and it depends on the family dynamic it depends, in my experience, on the on the wealth as well.

If the wealth is significant, sometimes families feel that they need to be a bit more closed about it.

It can also depend on the age of the children involved.

If they're young, then maybe disclosing large amounts of assets doesn't really have any positive outcome, potentially, so it's important to protect them from themselves as much it is to protect the family assets.

Most of the time people will be open, but it might take time for them to be open, and there is an appropriate time when they will bring in their family.

00:15:06 David Lee, Host

And what are the options, Jeff, if somebody is wanting to pass on wealth to the next generation, what are the main options to do that?

00:15:15 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

So they sit into multiple groups, but really the main options are to gift money to family and it can be a gift directly to family or friends, it could be gifts to charitable bodies even, but their options are to gift money so you lose control, but you very invariably gift that money to somebody else.

Or what we're finding more common now is to use some form of legal structure to control how that gift plays out and when the most appropriate time for that gift is to occur.

So that might be a trust or a company that's settled to ensure that the gift occurs at the right time to the appropriate people.

00:15:52 David Lee, Host

OK and Hayley just coming back to the legal side of things.

What are the potential legal pitfalls that families make when it comes to gifting that can actually rebound on them in a negative way?

00:16:04 Hayley Robertson, Partner, Brodies LLP

Unfortunately we sometimes see clients who perhaps have taken advice, but maybe not from a specialist or done the famous Google search, and often we see clients who come to us were perhaps not actually instructed necessarily to deal with their planning and their estate and succession planning, perhaps we were consulted in relation to their will or power of attorney and as part of that we would always ask, more widely what their plans are.

Sometimes we do come across circumstances whereby some planning has been put in place and the planning doesn't work for inheritance tax purposes. That is never a great thing to have to deliver to a client, especially a new client or a new relationship, but of course it's very much part of our job and our role to make sure that those clients are advised accordingly.

The sort of classic pitfall is the thinking that you can gift your house that you live in.

So a couple, you live in your house, you can gift it to your children, but continue to live in the house.

And unfortunately, people think that that works from an inheritance tax perspective, but it doesn't work because of the technical reservation of benefit rules, so that that's one example. It's one that we do come across from time to time.

There are ways around that and we can help with the advice if someone is in that scenario, but that certainly wouldn't be something that we would be ordinarily advising from an inheritance tax planning perspective.

00:17:50 David Lee, Host

OK and Hayley as well, what about doing nothing?

What about deciding not to gift anything, not to pass anything on?

If people look at their financial plan, do sometimes people just do nothing, does it just sit there?

00:18:05 Hayley Robertson, Partner, Brodies LLP

It's a good question and actually my answer to that is doing nothing is absolutely fine if you've taken advice and you've thought about it and actually often you know when we see clients that is the answer.

Perhaps they have already taken advice, perhaps they're midway or further than that into their plan that is actually working. It's all on track. Nothing has changed legislatively or from a tax perspective or personal family circumstances. So actually being able to say to the clients, “everything is fine, you don't need to do anything” that's great.

Where people don't do anything is but it's not a situation where they have followed advice or they have a plan - often people again back to the whole and being too busy putting off for another day.

And also something that we do see from time to time is clients who think that their own circumstances are just too complex, whether it's because of a family problem, you know business or other reasons.

Often people just think it's too complicated or don't want to deal with it now or wait until things you know are better.

And of course, we've seen it all before. It isn't too complex and you know, we do this day in, day out, we probably have seen it all and so often that type of client or that type of prospective client and feels great reassurance, once they actually come in and speak to you, you know it's reassuring to tell them that it's not abnormal, it's you know, perfectly normal and we can help.

00:19:43 David Lee, Host

I won't ask you, whether any clients say if you advise them to do nothing whether or not that means the bill will be significantly reduced, but we won't go there!

So Jeff, what about getting the balance right between how much you want to gift, how much you want to retain, how comfortably you want to live in your older age to put care in place if necessary.

It must be difficult to get the balance right, yeah?

00:20:08 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

Yeah, it is difficult, and it's a question that there's never really any right answer.

What we tend to try and do is look at it scientifically and use cash flow modeling and certain tools to try and make sure that the answers that we give are at least based on some sort of formula or scientific reasoning.

So we're not just picking a number out there what we try and do is run scenarios, model different scenarios to try and ascertain some form of split between what they might or might want to give away what somebody might need to keep to ensure that they can maintain their standards of living.

Because most of the time when plans are set up, they are quite hard to unwind, so it's really quite key from our point of view to ensure that people are really going into things wide open and understand what they're doing and that they appreciate that things might change in the future, so there's a degree of flexibility with their planning and that's really important to us.

00:21:06 David Lee, Host

And I guess moving on from that is because things do change you have to keep that plan under review?

00:21:11 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

Absolutely, that's really quite vital.

We know that there's nothing more certain than death and taxes, but the interplay between the two is quite difficult to understand, and we know that politicians will change their mind and tax rules will change and people situations will change fundamentally, and what they might have done five years ago might not be relevant anymore.

So keeping it under review and ensuring that people can have the flexibility to change their minds in the future is really important, and people feel that's really important when they're thinking about gifting.

00:21:43 David Lee, Host

And is there a classic period of time Jeff, when it's sensible to do a review, is it an annual review, is it two years, is it five years? What would you advise?

00:21:51 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

We tend to prefer annual reviews because naturally that fits in with investments that we might be reviewing for clients.

If we're talking about a will that might be less frequently, but generally whenever I'm reviewing a client situation, it will be in conjunction with Hayley and it'll be part of an annual meeting.

And we'll talk about why the plans that we put in place the year before and will ensure that they're still appropriate.

We'll check that the cash flow modeling assumptions are still relevant and things haven't changed significantly.

Somebody’s situation might have changed in 12 months; they might have had another grandchild; they might have changed their view on where they might live. So all these things are worthwhile at least discussing and potentially modeling again and making sure that the plans that somebody wanted to implement are still relevant.

00:22:39 David Lee, Host

OK and and Hayley just a bit about the nitty gritty.

What needs to be in place legally to make sure that someone can carry out their wealth wishes effectively and in the way they want them to?

00:22:53 Hayley Robertson, Partner, Brodies LLP

Yep, the critical question.

So the first thing before we would consider looking at succession or state planning is actually what I would term the building blocks, the foundations and that really is quite simple and that is a will.

But making sure that if you have a will it does what it should do, it's still in line with your wishes and your family circumstances and importantly is as tax efficient as it can be.

Often a will is the best place to deal with inheritance tax planning and care cost planning as well.

And the second building block / foundation is a power of attorney.

Again, death is certain and power of attorney is hopefully not needed, but if it is, particularly if there are business interests or joint assets, it really is absolutely critical that a power of attorney is in place, whether that's through incapacity in the form of dementia, Alzheimer's or just an accident so not through old age, but through something that isn't anticipated.

And beyond those two main - the will and the power of attorney being the main documents that every adult should have - separate to that but equally as important, we must also make sure that clients have appropriate pension nominations in place.

Pensions can now be inherited and there's much more flexibility for beneficiaries in terms of actually inheriting the pension following the change in legislation and the pension freedoms, a number of years ago. That's absolutely critical and that doesn't form part of your will, that is something separate to your will- related but not part of your will.

And then similarly, if you are still in employment, so you’ve perhaps not reached retirement age, any death and service provision that you have for your employment, making sure again that any nomination letter is up to date and prepared.

And I suppose the final thing, as well is any life policies, where Jeff certainly can help and assist here, making sure again that it's appropriate - the amount of any life policy that the amount that your life, their lives are insured for.

Or making sure that it's written into trust again to make it as inheritance tax efficient as possible and making sure that the trustees that you have appointed are still alive and remain appropriate.

00:25:32 David Lee, Host

OK, so Jeff, there's a lot to think about here, not just what Hayley’s gone through in terms of the documentation, but in terms of those family relationships in terms of choosing the right advisors, etcetera. A lot to think about.

What's your high level advice to someone who is looking at this for the first time? How do you advise them so they don’t become bogged down in the process and don't get too tensed up about it? Where do you start?

What's that high level advice you give to them?

00:26:03 Jeffrey Simpson, Chartered Financial Planner, Hymans Robertson Personal Wealth

I think the starting point for any planning is to think and discuss with your family about what is the most important outcome.

Have that list of outcomes set out at the very beginning so that you can make sure that the whole plan that you've decided upon with your family and you're allowing your accountant and your advisor fit into your objectives and starting with that, it is always my view the most important thing. Once you've got that objective set out, then you can discuss that with your advisors and they can formulate the most appropriate plan.

So really, starting with the outcomes that you want to achieve is in my view, the most important thing.

00:26:44 David Lee, Host

But what about from your perspective, Hayley, last big piece of advice?

00:26:48 Hayley Robertson, Partner, Brodies LLP

Yeah, I think collaboration is key here in terms of your financial planner and accountant.

And I think that is the key to making sure that not only do you have a plan now that works for you and your family, but one that will continue to work and that you can amend and tweak as life continues.

00:27:09 David Lee, Host

OK, thank you very much Hayley and thanks very much, Jeff. You've been listening to Podcasts by Brodies, where some of the country's leading lawyers and special guests share their enlightened thinking about the issues and developments having an impact on the legal sector and what that means for organisations, businesses and individuals across the economy and Society of the UK. If you'd like to hear more, you can subscribe to Podcasts by Brodies on all your favorite podcast platforms and for more information and insights, please visit www.brodies.com.