Wealth Management: All you need to know about multi-generational preservation

Question: Are you confident that you have a multi-generational wealth plan to decide what happens with your assets or estate when you pass away? No matter how you have earned your wealth, as little as possible must get lost to tax. Your wealth should be intended for you and your loved ones to enjoy or passed on to your intended beneficiaries.

Without a detailed estate and multi-generational wealth plan before you pass away, it will be an exhausting and time-consuming process for your family and loved ones to decide how to distribute your assets – without any knowledge of how you intended to spread inheritance.

Putting in place an estate plan gives you control over what happens with your wealth when you pass away. This important financial step is relevant, no matter how much wealth you have. It allows you to ensure you can look after people who are important to you in your absence, ensure everyone in your wishes gets an equal share of your assets, and ensure minimal inheritance tax is lost.

An estate plan ensures you map out a detailed plan, which is clear around how you would like your assets and wealth distributed.

Documentation will be put in place to ensure that your assets are transferred how you wish. Your estate consists of everything you own. Including:

  • Savings
  • Investments
  • Pensions
  • Property
  • Life Insurance
  • Personal Possessions

It is also worth noting that all debts and liabilities are subtracted from the total value of your assets.

How to develop an effective estate plan

Ensure you have a Will in place

The most crucial document within an estate plan is your Will. Most importantly, a Will places the control in your hands. You decide who will benefit from your wealth and who is entitled to what. You can also choose who will be in control of your affairs when you pass away. If you do not put a Will in place before your death, the intestacy rules then dictate who benefits from your wealth and assets – will these rules follow your wishes? If not, you can appreciate the importance of your Will, ensuring you have control even when no longer here.

A law also sets a hierarchy of who should look after your assets after death. This may not be the person you wish for and can lead to problems. The individual selected may be young, in poor health, on the other side of the world, or indeed many other factors.

Put in place a Lasting Power of Attorney

You will need a Lasting Power of Attorney (LPA) for your financial affairs, property and health. This document is essential to set out your wishes as to who should assist you in each of the above areas. You can decide who should deal with what areas, maybe not put it all on one person’s shoulders, or to set out any guides and limits.

Planning with Inheritance Tax

If you have an LPA and your Will, it is important to consider Inheritance Tax. When you die, the value of your assets and estate will likely be liable for Inheritance Tax. This tax is potentially charged at up to 40% of the value of everything you own, which comes under the Nil-Rate Band Threshold. This is the value of your estate NOT charged with the UK Inheritance Tax.

Gifting assets before you die

The amount currently set by the Government is £325,000, frozen until the end of 2021. In 2017, it was declared that if you leave your home to a direct descendant, the total value of your estate before tax will then increase with the addition of the Residence Nil-Rate Band (RNRB).

The 2020/21 tax year marks the Residence Nil-Rate Band sitting at £175,000. Another thing important to consider when calculating an estate plan is that the process isn’t simply passing on wealth when you die but also about making the most of your assets while you’re still living. By gifting your wealth to younger generations while still living, you can enjoy watching your wealth be used and dramatically lowering your Inheritance Tax bill.

Consider using gift allowances

You can give away £3,000 worth of gifts each tax year. Therefore, a gift from one person to another is considered a Potentially Exempt Transfer (PET) for Inheritance Tax. If you survive for over seven years from the date of a gift, no inheritance tax is payable. You can also give your children regular cash flow from your own income. Another way of gifting money is to gift up to £250 to as many individuals as you wish, as long as they have not already received one of your £3,000 gifts that year.

None of these gifts is subject to Inheritance Tax.

Investing in Inheritance Tax exempt assets

Experienced investors can also minimise Inheritance Tax Liabilities by investing in Inheritance Tax-exempt assets. Schemes in this area are at higher risk and may not be suitable for all investors. We always recommend getting financial advice before investing. An example of these investment types is the Enterprise Investment Scheme (EIS). Although most EIS-qualified investments have 100% Inheritance Tax relief from Business Relief. This is due to the trades for EIS purposes aligned with Business Relief.

Using a Trust with life insurance

You should always write life insurance into your trust. This is the best way to ensure you shield your family’s financial future if you pass away. A life insurance policy is viewed as a significant asset. The reason we always recommend writing this into your trust is so that you can dictate how your beneficiaries receive the lump sum.  Any proceeds from the policy can then be paid directly to your beneficiaries, not to your legal estate. This will, therefore, not be considered when Inheritance Tax is calculated.

Keeping your wealth within a pension plan

Unlike many other investment types, defined benefit contribution pension schemes are usually Inheritance Tax-free. This is not considered part of your taxable estate, so keeping wealth in a pension fund can be a very tax-efficient way to pass on your wealth.

If you die before you turn 75, your pension will be tax-free. Although if you die after your 75th birthday, tax on the pension pot will be payable at the beneficiary’s highest income tax rate.

Multi-generational wealth for future generations

We’re all in the same situation, being that we can’t take our wealth and assets with us when we die. An estate plan is paramount to ensure your wealth is preserved and best used for future generations.

You have worked hard to achieve your success, and you want to be sure you protect it for future generations. We can help you develop a long-term plan to preserve your hard-earned wealth and leave behind a multi-generational wealth legacy.

Contact us today to discuss your multi-generational wealth strategy.

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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