More often than not, people want to do the best by their family. Whether you’re a grandparent, parent or child, you probably want to ensure loved ones are financially secure and getting the most from life.
That said, ensuring this can involve awkward conversations, as finance is an emotive subject. One issue that can be particularly difficult to discuss is inheritance planning, as you’re adding in the thorny issue of mortality as well.
Despite this, talking to your parents or children about passing on wealth is best done as early as possible. Known as intergenerational planning, it can reduce an estate’s liability to Inheritance Tax (IHT) and provide peace of mind.
Read on to find out why this is, and five ways to have a better conversation about it with loved ones.
Give with a warm hand not a cold one
Intergenerational planning means creating a long-term strategy for passing wealth to beneficiaries while you’re still alive. According to MoneyAge, research shows that 31% of investors with adult children intend to give a “living inheritance” this year.
A major advantage is that it could provide the person making the gift with more control. For example, if you are concerned a beneficiary will be irresponsible with the money, you can state exactly how the gift should be used. This is obviously difficult to do if you’re no longer around!
It could also be an effective way to deal with an IHT liability. As IHT is normally charged at 40%, it can significantly reduce the amount you leave to loved ones.
Because intergenerational planning usually means gifting wealth when you’re younger, it provides more time to lower the value of your estate. This could significantly reduce or negate your liability to IHT.
Gifting when you’re younger may also mean that beneficiaries receive your money when they need it most. For example, if they have a young family, it could help them buy a bigger home.
As you can see, intergenerational planning can be an excellent way to pass wealth to family. Even so, talking about it can be challenging. So, with this in mind, let’s consider five positive ways to make the conversation easier.
1. Be prepared
Before you start a meeting with your family, understand what you want to discuss and have all the relevant information to hand. This could include wills, information on investments, life cover and savings.
That way you’ll always have the facts and figures you need, which means you’ll be able to make your case as effectively as possible and answer any questions that are raised.
2. Pick the right time to talk
No one wants to feel ambushed, so make sure you agree to talk to your family at a time that suits them. This way everything can be discussed without interruptions, ensuring nothing important is left unsaid.
3. Consider how to start the conversation
Discussing mortality can be difficult, which is why it’s important to think about how to start the conversation. Getting it wrong could result with family members becoming upset or angry, which may result in vital pieces of information being withheld.
One way you could approach it is to refer to a topic that’s been in the news, such as the rising cost of living. This allows you to start off with something that’s generic, which increases the chances of other family members engaging in the conversation.
4. Keep the discussion constructive
If emotions begin to run high and a meeting becomes confrontational, you might want to consider stopping it. Giving others time to calm down and digest the information could help them come to terms with what was said.
Agreeing to finish the meeting at a later date could provide a better outcome for everyone concerned.
5. Think about the questions you ask
Consider what information you’ll need, why you need it and the questions you should ask. Being able to justify a question if it’s challenged could help family members understand why the meeting’s taking place, and get them on side.
Depending on whether you’re talking to parents or children, you may want to consider the following:
- Have you made or updated your will? Wills are the cornerstone of estate planning, and should be kept updated.
- Do you have a Lasting Power of Attorney? Without one, families could face a costly and lengthy legal process to deal with a loved one’s finances if they lose mental capacity.
- Do you know how much IHT your estate is liable to? In April 2022, the amount you’re allowed to have in your estate before IHT is due was frozen until 2026. This might mean a greater liability to the tax.
- What would you like to do with the money? This is one for beneficiaries, as it could help you understand whether stipulations need to be attached to any gift you make.
Get in touch
Intergenerational planning and IHT is complicated and getting it wrong could carry financial risks. Speaking to a financial planner ensures any strategy you’re considering is the right one for you and your family, and that it’s as tax efficient as possible.
If you would like to discuss intergenerational planning or reducing your estate’s liability to IHT, please email us on admin@stonegatewealth.co.uk or call 01785 876222.
Please note
This article is for information only. Please do not take action that is based on anything you read in this article until you have sought professional advice.
All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
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