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Intergenerational planning – much more than cutting your IHT bill

Jan 10, 2019, 09:15 AM
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Date : Jan 11, 2019, 11:35 AM
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Intergenerational planning and cutting your Inheritance Tax (IHT) bill are often viewed as one and the same. Although they can go hand in hand, according to this guest blog by Equilibrium Asset Management.

Intergenerational planning is not just about IHT planning. It’s about making sure that the right people get the right amount of money at the right time. This sounds very simple but can lead to some very difficult, emotion-filled decisions.

Inheritances are happening later and later in life as we all live longer. I regularly have clients receiving inheritances well into their 60s, or even their 70s. This means money can be received at a time when spending habits are already ingrained, and often simply isn’t needed. Does this set the example that money should be accumulated indefinitely rather than use today?

Families are increasingly under financial stress due to rising house prices, stagnant wages and childcare costs. This pressure can build and lead to working longer hours, sticking to a job that is not enjoyed and ultimately having less time doing the things most valued, spending time with the important people around us. Sometimes even a little financial help in the form of a gift from a relative can relieve this stress.

Gifting is a subject that often comes up with many of our clients. Below we look at some of the barriers that regularly come up and consider some solutions:

  • Beliefs – Every generation has a different attitude towards money, which might need to be discussed to reduce potential conflict.
  • Fear – You need to be confident that any gifts will not affect your own (or your partner’s) financial security. Having a robust financial plan and an understanding of your position could help to make this decision.
  • The kids – When the subject is broached the kids often say, “Thanks, but why don’t you spend it? You deserve it!”. Your children might not necessarily understand all your circumstances. Tell them you have a financial plan in place and are financially secure to be able to do what you would like to.
  • Independence – Generally parents want their children to be independent and make their own way in life. Giving too much too early is a concern but by the time their mid-30s come around they usually have a trajectory, you can see. Would you want your child in a job they hated for 30 years, only to get a large inheritance after retirement?
  • Divorce – According to the Office of National Statistics (ONS), there were 114,720 divorces in England and Wales in 2013*, so losing half of a gift to divorce can be a valid concern when forming your financial plan. Here at Equilibrium Asset Management, we can help you to protect the gift, for example with the management of the gift within a trust or through a loan.
  • Everyone is equal? – If you have three children they each may have wildly different financial circumstances, although it’s often the case you would prefer to treat them equally. When some of our clients have been faced with this situation in the past, often the best way to solve this is through open discussion and debate. Talking about money around the dinner table, although often perceived as ‘impolite’ could be one of the best things a family can do. The conflict often resides in the mind of the parents and not the children.

However, it is important to note that depending on the size of the gift there may be inheritance tax liabilities. There are limits on how much you can give tax-free and it is important to consider any tax implications at the outset.

Every family situation is unique and whatever problems you may see, we have the experience to help clients think of ways to overcome them.

Making sure that the right people, get the right amount of money at the right time is certainly not easy. Then again, truly worthwhile things rarely are.

To see how Equilibrium Asset Management may be able to help you get in touch with them on 0808 156 1176 or at askus@eqllp.co.uk

The information provided in this blog is based on the opinion of Equilibrium Asset Management and is for general information purposes only. It is not and should not be construed as financial advice.

*Source: http://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/divorce/bulletins/divorcesinenglandandwales/2013  

*Source: http://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/divorce/bulletins/divorcesinenglandandwales/2013

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