Successful professionals are often fully aware of the need to consider how best to pass on their wealth to future generations. You may have already made detailed plans to transfer assets by setting up tools such as trusts, partnerships or charitable donations. Yet, many financial planners have seen that wealth transition can fail – not because of poor planning but poor communication with loved ones.
Often the head of the family will have paid attention to the logistics of preparing assets to be passed down but spent little time preparing heirs for their future inheritance. Family members can be ill-equipped to shoulder new-found responsibility and surprise post-death gestures can generate negative standpoints based on a lack of trust.
Money remains a difficult subject to broach – particularly in Britain – as there is a sense of secrecy and people can be influenced by experiences and beliefs that may have been ingrained since childhood. Some of the trickiest conversations can be between generations, where there can be widely different understandings of the value of money and how it should be spent.
Yet without clear discussion on the current position and future progression of wealth within the family, estate holders are simply storing up trouble for the next generation to discover after their death. At this time, those who have inherited wealth may be too emotional to contemplate significant life decisions.
Consider how you might pass on a family business. Your heirs would expect to be well prepared to move into the organisation and the chances of failure would be high without such education. There is little difference when inheriting other assets.
Inheritance problems will be exasperated in the coming years – research by the Centre for Economics and Business Research estimates that ‘intergenerational financial transfers’ worth in the region of £5.5trillion will occur in the UK over the next 30 years.
It is the ‘Baby Boomers’ – often cited as the wealthiest generation with final salary pension schemes and property value successes behind them – who are now planning how best to help the next generation.
According to the Office for National Statistics, 20 per cent of over 65s in the UK are millionaires compared with just seven per cent a decade ago. Individuals over 65 are the age group to have experienced the greatest increase in their household wealth in the last ten years with a rise of 96 per cent – ten times the increase enjoyed by those aged between 25-54.
Individuals aged between 35-44, known as ‘generation X’, watched their proportion of UK household wealth fall by five per cent in the same period. Millennials, aged between 25-34, faced a 2 per cent fall. If it is the younger generation most in need of financial support, they cannot afford for inheritance transfers to be poorly handled.
With life expectancy rising, we might spend three decades in retirement. This means that the transfer of wealth might not happen until beneficiaries are in their 50s and 60s. This may not be the ideal time to receive inheritance but understandably people can be unwilling to give away money or assets they might still need.
However, with careful consideration, there should be sufficient funds to enjoy the type of retirement you had envisaged while ensuring you can help your children and grandchildren at the same time. Also, you may discover that you can help them with key milestones now, when you are still around to see them enjoy it.
You may be concerned that children may become negatively affected by the idea that there is wealth in place and therefore little need to work hard to achieve it. Worse still is the notion that the family’s assets will be squandered once received. Nevertheless, these scenarios can only be improved by educating future generations and establishing clear lines of communication to discuss possible intentions and likely outcomes.
We have helped hundreds of medical families to see the value in having a structured review of each person’s assets. In doing so, and in being as honest as you can be with each other, we can normally create a clear path ahead which allows the older generation to continue to live their life to the full while younger members get the kick-start they need.
Talking about inheritance is your first step to helping your offspring and acting sooner rather than later can pay dividends. To talk to one of our team about intergenerational wealth planning, please contact us on 020 7636 7006.