Inheritance TaxDec 10 2020

How to manage pitfalls of giving wealth to next generation

Supported by
Charles Stanley
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Supported by
Charles Stanley
How to manage pitfalls of giving wealth to next generation
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Amaka Ogbonnah, director at Amneo Wealth agrees. She says: "Not understanding the benefit of thinking generationally when it comes to wealth is unfortunate, and in many instances opportunities are lost but a sense of duty to provide could also be detrimental without proper consideration and advice."

The FCA paper on Intergenerational Differences, published in July, said many respondents identified actions that could be taken by the government to tackle intergenerational issues. 

In particular, on clarifying the government’s long-term approach to funding social care, increasing housing supply, improving the interaction between the benefits system and financial services, changing inheritance tax, tweaking tax incentives to incentivise saving and uptake of protection products and expanding auto-enrolment to cover the self-employed. 

Some also noted that the FCA perimeter incorporates certain activities but excludes others, even when the different activities appear similar to consumers.  

Jessica List, pension technical manager at Curtis Banks, says for the person giving away the wealth, it is definitely important to consider their own needs as gifting too much money could easily leave someone struggling themselves.

Emma Watson, head of financial planning at Rathbone Investment Management says: "A planner can help the parents quantify the answer to the ‘how much is enough?’ question. You shouldn’t take more than you need given the pots not being replenished through earnings. 

"A basic question to answer is whether the parents will want to retain some access to or control over the money or whether they are happy to give it away completely. If the money is being used for a deposit then the outright gift is probably the route that most parents will take."

Scott Gallacher, director at Rowley Turton Private Wealth, says he is often concerned about clients feeling an unrealistic sense of duty, or even family pressure to prioritise their children’s financial wellbeing, at the expense of their own. 

“To some extent this is natural but it can become a worry when people make decisions that obviously jeopardise their own lifetime welfare,” adds Mr Gallacher.

“There is a moral issue – but the issue is not so much about sharing with the next generation, but about the next generation recognising the risks that their parents sometimes undertake in giving away wealth too early.”

Ima Jackson-Obot is deputy features editor of Financial Adviser and FTAdviser

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