The UK is preparing for an unprecedented wealth transfer over the coming decades, as ‘baby boomers’ look to pass on their property and money to the next generation.
Combine that with the fact that huge inheritance tax changes are on their way and it’s no surprise that many families are reflecting not just on how wealth is passed on – but why, and to whom.
Mark Stewart is head of personal and family at Brodies LLP, based in Inverness.
Brodies’ partner, Mark Stewart, who is based in the firm’s Inverness office and advises clients on wills and succession planning, discusses what clients are most concerned about when transferring their wealth – from fairness and tax to the risk of family fall outs.
How can I make sure my will and succession plans are fair?
Clients often share concerns about transferring their wealth. Our recent YouGov survey explores the emotional and financial considerations that shape how people approach succession planning – 28% of respondents are concerned about fairness among heirs.
In practice, the words fairness and equality are often interchangeable, but they are quite different.
Equality is normally about economic value – ensuring that each child, for example, receives the same value in assets. While that sounds simple, it is often less clear when there are questions about the current, sentimental, or future value of assets.
Matters can become more complicated when lifetime gifts have been made – for example, helping one child with buying a home – but not others, or in different amounts. ‘Equalisation clauses’ in wills can help to even everything up ‘at the end of the day’.
Fairness does not need to be equal. Where there is a family business, for example, and some children have been involved in its success, but others have not, the business may be passed in accordance with those contributions. Another example is where people use their wealth to improve the circumstances of family who may have been less fortunate in life, compared to those who have fared better.
There is no single rule – your own circumstances and priorities play a major role in what ‘fair’ or ‘equal’ will look like.
Should I be thinking about tax?
Potentially – for some, a significant obstacle in the transfer of wealth is tax. The main taxes to consider are inheritance tax (on death and some lifetime transfers) and capital gains tax (on lifetime transfers).
Be aware that there is much that can be done in tax planning, including making full use of “nil rate bands”, exemptions and reliefs available. Following the recent Budget changes, and the tightening of inheritance tax on agricultural property, businesses and pensions, you may want to revisit and/or accelerate your plans.
Estate Planning
How do I avoid a family fall out?
In practice, parents often have little concern about their own (adult) children – they love them, trust them and hope that transferring their wealth to them improves their lives – but attitudes towards their children’s spouse, or partner, is sometimes a different matter. The concern is that any wealth transferred is later exposed to a claim for financial provision on the breakdown of the relationship or equivalent. The laws across the UK approach this topic in different ways.
Protection can often be achieved through the use of pre- and post-nuptial agreements, and using trusts for lifetime giving or trusts in wills on death.
Family disputes though, can be wider. A misunderstanding or a failure to communicate the succession plan is commonly at the heart of a fall out – notably our survey points to only 10% of respondents having thoroughly discussed their plans with family or beneficiaries.
I would always encourage open communications with loved ones, where possible. Even with that approach however, historical or current disagreements between family members can and do arise.
Mark Stewart is head of personal and family at Brodies LLP, based in Inverness.
For more insights into the hopes, hesitations and expectations of people when passing on wealth, view Brodies’ ‘future of wealth transfer’ survey.
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