Inheritance Tax  

How to help clients pass wealth down to next generation

This article is part of
Guide to intergenerational wealth transfer

How to help clients pass wealth down to next generation
Credit: Andrea Piacquadio/Pexels

The topic of wealth transfer is often a difficult one. It requires someone to think about their own mortality as well as reveal their own wealth during their life, which can be a personal topic for some, even among family members.

However, it is crucial that families have frank conversations about their wealth so that the younger generations understand what they can stand to inherit both during their parent’s lifetime and when they pass so they can better plan their own finances. 

Advisers play a crucial role in facilitating this conversation and help to reduce the likelihood of conflict.

Research by Quilter in September showed that almost half (48 per cent) of baby boomers said that they could afford to give money to family members before they die. 

Parents 'owe' their children?

Some of those from the younger generation may feel their parents 'owe' them help, whereas parents may feel their children should save more. 

According to advisers while some beneficiaries feel entitled to an inheritance, others are almost embarrassed for their parents to help them out.

Tim Morris, financial adviser at Russell and Co Financial Advisers, has seen that in recent years, larger gifts are often used to help children onto the property ladder, as house price growth has massively outstripped earnings growth in the last 25 years. 

The average salary today has much less purchasing power compared to 30-40 years ago when their parents first bought a house - thus creating a feeling of guilt and a desire to help. 

In London and the South East, for example, average prices easily exceed £500,000 for a first home.

This is one area Mr Morris says that equity release can play a part in clients' planning. Those who lose their resident nil rate band (RNRB) and are property rich and relatively cash poor can benefit from releasing equity for themselves – as well as their desire to help their children or even grandchildren.

Scott Gallagher, director at Rowley Turton Private Wealth, agrees: “Many children feel that they are ‘owed’ an inheritance and or help with a house - typically seen as an advance on the inheritance. 

"Unfortunately the idea seems to have become more ingrained and many parents also feel they have a duty to leave an inheritance, very often at the expense of their own lifestyle and to children that may very well not really need it. 

“As financial planners we have to respect that feeling, while at the same time trying to emphasise to clients that they may regret prioritising their children’s finances over their own.”

An adviser’s job to start with is to take a holistic look at a client's financial life and use cash flow modelling tools to show their client just how much they can gift to their children during their lifetime.