Personal Finance: Should you gift wealth in your lifetime or wait until after?

Gifting between generations will increasingly become a lifeline for some. But when is the best time to do so? Planning to divide your wealth for a time you will no longer be around is a morbid topic. Although it is crucial to push past the uncomfortable thought and reflect on how your family will utilise your assets and wealth after your passing. There are three places where your assets can end up after your death, whether with your family and loved ones, a chosen charity, or lost to tax.

Larger one-off wealth transfers

Almost half of over 50-year-olds in the UK say they have enough personal wealth that they can afford to gift while still alive. Although many people can afford to pass on their wealth to family members before death, government statistics suggest that only around 35% of people aged 50-69 have been given a financial gift. And only a small minority appear to have a plan for regular annual gifting, with only 15% of 50-59-year-olds having gifted in the last two years. [1]

It’s important to remember that dividing your wealth via gifting before death can be an excellent way to avoid Inheritance Tax, as gifts given 7 years before your death are exempt from any Inheritance Tax deductions. It also allows you to observe your hard-earned wealth enjoyed and used by your loved ones. When cash flow planning, our Partners can model the amount you could afford to gift based on a range of different circumstances. Allowing you to make informed decisions around what you feel is a comfortable amount to gift (now, over time, and into the future).

Intergenerational financial advice

A well-thought-out intergenerational wealth plan can avoid family conflict, reduce heavy Inheritance Tax bills, reserve estate expenses, and ultimately preserve your wealth for many more generations.   Obtaining professional intergenerational financial advice will increasingly become a key part of financial planning for people who are 50+. This generation has accrued significant personal wealth, having benefited from rising house prices, stock market growth, and the higher prevalence of generous pension schemes. Many are now able to generously give their younger generations a financial boost to live comfortably.

Gifting is a lifeline for some younger people

For younger generations, generational gifting can be a lifeline to maintain the wealth of their older generations. Now facing higher house prices and the need to make significant personal contributions to ensure they have a significant amount of wealth ready for retirement.

Gifting between generations will increasingly become a lifeline for some, as getting on the property ladder becomes trickier, and the ever-increasing cost of living shows no sign of slowing down.

Consider the timing of your wealth transfer

Once you have decided on the amount you would like to gift, the next step would be to think about the timing to transfer. This depends entirely on your wishes and your family’s needs, everyone is different. It’s important to consider when you feel most comfortable parting with your hard-earned funds and how the timing fits into your financial plan and your family’s needs. It can sometimes be easier for all parties if the gifts are tied into events or points in time when the funds are needed, such as important birthdays, the birth of a baby, school fees or when your beneficiaries are ready to buy their first home or start a business. This does not mean that the gift has to be given at this time, but it gives the beneficiary a clear objective and timeline.

Careful balancing act to figure out

Wealth transfer to your next generation can be one of the most challenging yet rewarding financial and estate planning elements. Although you should always ensure that helping your younger generations does not impact your retirement and quality of life. Therefore, a careful plan will determine if you can afford to gift and when considering all the various Inheritance Tax and gifting rules. Despite this, there is still a clear ‘gifting gap’ between the number of people who will sadly never be able to gift and those with a lifetime gifting plan. Although there is no doubt that gifting is an excellent way to help you make the most of your financial assets and enjoy watching your life savings help your children and grandchildren.

Wealth transfer planning process

Deciding who, when, why and how your family inherits your wealth is ultimately down to you. Although these decisions have significant financial implications. Life events, market, and regulatory factors can impact the wealth transfer planning process and if a plan really plays out how you wished. Therefore, it is important that your wealth transfer plan remains flexible and is regularly revisited. You can contact one of our Partners today to discuss how you would like to divide your wealth to start piecing together an all-encompassing estate plan.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested.

[1] Research carried out by Quilter and undertaken by YouGov Plc, an independent research agency. All figures, unless otherwise stated, are from YouGov Plc. The total sample size is 1,544 UK adults, comprised of 529 Baby Boomers, 501 Generation Xers and 514 Millennials.

Ross Whatnall

Ross Whatnall is CEO and co-founder of GSB and a highly experienced private client director. Ross holds many insurance and investment management qualifications, including CISI, CII, LIBF and CFA. He started his career in private banking with HSBC in the UK before moving to the UAE in 2013 to focus on serving his private clients.

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