In Focus: Intergenerational Wealth  

Protection and later-life planning go hand-in-hand

Oliver Rayner

Oliver Rayner

It makes sense for advisers to put life insurance in place for wealthy clients who want to pass on an inheritance.

Often, financial advisers overlook life insurance when it comes to considering the best way for wealthy clients to pass on inheritance.

And they might have a point. Protection is best considered as a short to medium term solution to taking care of accumulated wealth and assets, as well as families who might otherwise experience a sudden change in lifestyle.

Protection is the optimum way of smoothing over all the financial bumps that life throws at people along the way before they reach that chosen and happy retirement point. 

Many individuals planning their future inheritance spend their lives accumulating wealth and planning to leave behind a financial legacy for the generations to come but often they have not really thought about the financial impact that death in their 40s or 50s would cause.

Protection is a key part of wider financial planning but it is often overlooked by IFAs for clients who have property portfolios, a large pension or investment funds or perhaps even shares in a successful company.

But what security do these things really provide, is the question that financial advisers should be addressing.

Sadly, things don’t always go to plan. And thanks to the pandemic, we’re all hugely aware of that.

Financial advisers trying to plan a healthy inheritance pot should be asking clients, what would happen if you had to crystallise a pension or cash in your investments 15 or even 20 years early?

What if you had to sell properties during a recession? What if the share value of your business dropped? Unbelievably, all too often IFAs have got clients with strong investment portfolios, but they haven’t advised protecting them, leaving them vulnerable in the worst case scenario.

An early or unexpected death can force all of these events to happen and although it is unlikely to wipe out every asset they have, it will significantly reduce the legacy to be passed onto the next generation.

With effective protection planning the short and long term risks are protected because families will have the peace of mind that, should the worst happen, the funds are in place to protect the family as a whole against the financial losses that would happen as a result of previously created assets being used to maintain lifestyle.

The other key areas that protection can really help wealthy clients is to help mitigate their inheritance tax liability. During 2020, the HMRC received over £5bn for the fourth year in a row from the estates of individuals that hadn’t managed to reduce their liabilities at the time of death.

I wonder how many of these individuals could have prevented losing thousands if not millions of pounds to the taxman had they had the right protection in place?