A DELICATE PROCESS THAT REQUIRES CLEAR COMMUNICATION AND EFFECTIVE PLANNING
Transferring wealth within a family is a delicate pr ocess that requires clear communication and effective planning. Otherwise, it could lead to a potentially large tax bill and bad feelings in the family.
This narrative was depicted in the hit American HBO series ‘Succession’, which centred on the Roy family, the owners of global media and entertainment conglomerate Waystar RoyCo, and their fight for control of the company amidst uncertainty about the health of the family’s patriarch.
SIMPLIFYING THE PROCESS AND MAXIMISING TAX EFFICIENCY
By engaging in succession planning, you can ensure your assets are distributed according to your wishes, simplifying the process and maximising tax efficiency. Before diving into these conversations, consider these questions: When do you want to transfer your wealth? How much wealth do you want to pass on? Who do you want to pass your wealth on to? How do you want to transfer your wealth?
The question of when to transfer your wealth isn’t limited to bequests in your Will. Some strategies for transferring assets during your lifetime may offer various benefits. However, a well-maintained and up-to-date Will is the cornerstone of effective succession planning. It should reflect your current circumstances, objectives and legal considerations in the jurisdictions where you hold assets.
DON’T COMPROMISE YOUR OWN STANDARD OF LIVING
Professional advice and regular reviews of your Will are recommended – every two to three years or following significant life changes such as marriage, divorce or childbirth. In certain regions, like England and Wales, marriage voids any existing Will unless made in contemplation of the marriage.
To maintain the ‘real’ value of your legacies, consider linking them to inflation. Transferring wealth through your Will ensures you don’t compromise your own standard of living. Alternatively, gifting during your lifetime allows you to witness the joy your beneficiaries derive from your generosity. For those subject to UK taxes, this can also be a more tax-efficient method of wealth transfer.
SHARING WEALTH AND MAINTAINING YOUR LIFESTYLE
Striking the right balance between sharing your wealth and maintaining your lifestyle is critical. The uncertainties of recent years have underscored the importance of preparing for the unexpected. This preparation involves running various scenarios and ‘stress testing’ the financial outcomes through cash flow planning. This can include testing against different investment return outcomes, inflation projections and potential long-term care costs.
Cash flow ‘stress testing’ provides invaluable insights when considering more significant gifts. It shows how much you can afford to give away during your lifetime, accounting for worst and best-case scenarios. This approach acknowledges SUCCESSION PLANNING, A FAMILY AFFAIR INHERITANCE TAX DETERMINING WHO WILL INHERIT YOUR WEALTH IS OFTEN ONE OF THE MOST STRAIGHTFORWARD QUESTIONS TO ANSWER, YET IT’S DEEPLY PERSONAL. THIS DECISION IS USUALLY INTERTWINED WITH CONSIDERATIONS ABOUT TIMING. 10 that predicting the future with accuracy is impossible. After all, who would have predicted double-digit inflation in major economies a year ago?
A TRUST STRUCTURE CAN BE AN IDEAL SOLUTION
Determining who will inherit your wealth is often one of the most straightforward questions to answer, yet it’s deeply personal. This decision is usually intertwined with considerations about timing. For instance, if you’re prioritising the long-term wellbeing of your young grandchildren, a trust structure can be an ideal solution. This arrangement could assist with significant future expenses such as private education, university fees or property acquisitions.
Trustees have the discretion to distribute the funds to the beneficiaries according to the stipulations of the trust deed. Additionally, by becoming a trustee yourself, you retain some control over the process. This option can be particularly valuable if a beneficiary has special requirements, as the trust can be tailored to protect their longterm interests. There’s also the option of allocating part of your wealth to charities with a special place in your heart.
THE MOST EFFECTIVE WAY TO MEET YOUR GOALS
The method of transferring your wealth often becomes clear once you’ve addressed the ‘who’, ‘what’ and ‘when’. Timing is a significant factor in this decision, alongside the practicality of making financial gifts during your lifetime. You must decide whether to make outright transfers or establish a trust structure if feasible. Despite adding a layer of complexity, a trust might be the most effective way to meet your goals.
Importantly, initiating conversations about future financial arrangements with your loved ones is crucial. Achieving the right balance between enjoying your current income and capital while efficiently passing wealth to your family requires careful thought.
Contact Us Form
Please complete this form if you wish to send us your questions or if you would like to request a call back.
We look forward to speaking with you.
Recent GWM articles that may be of interest
Pension puzzle
Research highlights the gender disparity in financial engagement A recent study has identified an alarming [...]
Navigating through divorce
Safeguarding your future financial stability and preserving your wealth Entering into marriage isn’t done with [...]
Life’s complicated. Getting life insurance shouldn’t be
Make sure your loved ones are looked after should the worst happen Significant life changes, [...]
Jeopardising financial stability
Protecting you and your family’s financial future Securing your family’s financial future is a multifaceted [...]
Age is not just a number
The impact of an increased lifespan on your retirement finances Living to the ripe old [...]
What will your legacy look like?
Effective Inheritance Tax planning is a careful balancing act Once a concern only for the [...]