Inter-Generational Planning Advice

25 March 2020

There have been tectonic financial changes over the last ten years. These have drastically altered what we consider the norm when it comes to conventional family financial planning and especially the way family wealth is passed down through the generations.

For example, changes to trust taxation and pensions freedoms to name just two that have been the main disruptions.

the younger GENERATIONS

Younger generations are now drawing even more heavily on the ‘Bank of Mum and Dad’ from their finite resources.

Consider for a moment how our families have evolved over the past 300 years. The 21st century is the first century to have 4 generations alive at the same time.

We are conditioned that the usual path is that parents should bequeath to their immediate children.  What people don’t always realise is that in doing so, inheritance tax (IHT) will have taken several tax hits out of the original capital before it is received by the fourth generation.

Bequeathing your estate

Alternatively, families should instead consider bequeathing their estate to younger generations, so that their capital can enjoy the long term benefits of compounding: Einstein called compounding the 8th wonder of the world.

Of all the generations, baby boomers, like me, are thought to be the most fortunate; my university was wholly funded via a government grant so was actually free of charge, and there was no student loan to repay, I have experienced a significant rise in what my home is worth now, as well as having been part of the gold-plated final salary pensions arrangement that can no longer be afforded, and like my fellow baby boomers I also enjoyed a benevolent welfare state.

top tips for inter-generational planning:

  1. Family road map: who do you want your money to go to and how it should be used?
  2. Protection:  those family members who need inheritance the most.
  3. Cashflow planning : agree financial planning strategies using alternative scenarios to stress test gifting ideas.
  4. Business Relief Trusts: consider as part of IHT planning.
  5. Residence nil rate band : fully utilise this allowance.
  6. Trusts / Family Investment Companies: check whether trusts would still be effective for your family structure today.
  7. Pension Planning: take advantage of pension rules to effectively protect the family’s legacy.
  8. Affordability: how much can you afford to pass on without losing control or become financially dependent in the future.
  9. Review : review circumstances regularly at least annually.
  10. Tax changes : keep up to date with tax changes.

We are here to work together with you over you and your family’s lifetimes.

 

Important information

*Tax Advantaged Investments, such as VCTs, EISs and SEISs, should be regarded as higher risk investments. They are only suitable for UK resident taxpayers who can tolerate higher risk and have a time horizon of greater than five years. They should only be considered once other planning opportunities have been fully explored and they should only ever form a small part of your overall investment portfolio. Owing to the nature of their underlying assets, Tax Advantaged Investments are highly illiquid. Investors should be aware that they may have difficulty, or be unable to realise their shares at levels close to those that reflect the value of the underlying assets. Tax levels and reliefs may change and the availability of tax reliefs will depend on individual circumstances. You should only subscribe for Tax Advantaged Investments on the basis of the relevant offer document and must carefully consider the risk warnings contained in that offer document.

The value of your investment can go down as well as up, and you can get back less than you originally invested.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Tilney Group, upon request and on a fee basis. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.

GET IN TOUCH WITH FORTUS TODAY

to help you plan your family finances ON 01604 273782.

More