The risk of doing nothing when it comes to estate planning is not spoken about enough, an expert has warned.
Julie Greenwood, strategic partnerships director at Octopus Investments, told FTAdviser’s Late Life Summit yesterday (May 20), if advisers start the conversation about later life estate planning early, their clients will have a much broader range of options.
“We don’t know when anyone is going to pass away, but by starting the conversation it gives you time for gifts and trusts to be effective," she said.
She said the FCA’s new consumer duty has heightened advisers’ responsibilities around price and value.
I think we need to look at all these things with balance. Octopus Investment's strategic partnerships director Julie Greenwood“Sometimes it's not the conversations we have that will get us into trouble; it is the conversations that we don’t have,” she said.
“[It is important to] have those conversations and ensure they are documented and clients at least understand the implications if they chose not to take action.”
She said that will protect the adviser from a complaints view, not just from the clients themselves but also potentially from the beneficiaries who might end up inheriting an estate that is 40 per cent smaller than it needed to be.
“If you are looking at things like business relief, they are a high-risk investment.
“But depending on the client situations, the consequences of losing 40 per cent of the value of the estate [to tax] is also a risk.
“So I think we need to look at all these things with balance.”
There is also a risk to the adviser’s business, Greenwood said, as if estate planning conversations haven’t been had with the client’s family, when the client dies, the beneficiaries may well move adviser.
“If the [spouse] hasn’t been engaged in the financial planning process, they may well change adviser.
“So there is a loss of assets under management, there is a loss of fees, and this ... is a real retention risk for your business.”
Inheritance tax
This warning came as data suggested UK families could be paying out £37bn in IHT over the next five years, according to the Office for Budget Responsibility’s economic and fiscal outlook.
The amount paid for the six months to October 31, which rose by £600mn, shows individuals are not seeking appropriate advice, according to Andrew Aldridge, partner at Deepbridge Capital.
Aldridge said: "It shows how easy it is for individuals and couples to generate a potentially large inheritance tax bill when they die, despite not being what they may perceive as ‘wealthy’.
Women are also much more likely to pay too much in IHT due to a lack of financial planning, research has shown.
More than half (53 per cent) of women plan on leaving an inheritance, but of this group, 55 per cent have not made any financial plans compared with 41 per cent of men, according to Fidelity International.
In a survey of 2,000 UK adults conducted between June 28 and July 2 last year by Opinium, 37 per cent of women said they did not understand the rules around IHT, compared with 25 per cent of men.
sally.hickey@ft.com
