Intergenerational wealth plan – 3 important reasons to create one now

By HarperLees

According to inews, National Treasure Bill Nighy has been tipped as an Oscar winner for his latest role. In the film Living, Nighy plays Mr Williams, a lonely and overworked civil servant in 1950s London who decides to live life to the full while dying of cancer.

It’s a wonderful reminder of how important enjoying life is. As a client of HarperLees Financial Planning, you’ll know that we aim to help you achieve this by ensuring that your wealth works as hard as possible to provide you with the financial freedom needed to achieve it.

Sadly though, death cannot be avoided, and how you pass on your wealth is something you need to prepare for as early as possible. Having a strategy in place provides greater control over your gifts and ensures your wealth is passed on as smoothly and tax-efficiently as possible should the worst happen unexpectedly.

If you’re a client, we will probably have discussed intergenerational wealth planning with you already. If, on the other hand, you know someone who may benefit from an intergenerational wealth plan, discover three important benefits of creating one.

1. You can give with a “warm hand”

Research by Aviva makes for interesting reading. It found that many over-55s would rather gift money to loved ones while they’re still alive. An intergenerational wealth plan is a strategy that allows you to do this.

This might mean that beneficiaries receive your money when they need it most. For example, if they have a growing family and a mortgage, receiving cash now could be far more helpful than receiving it in the future after the children have left home and the mortgage is paid off.

An intergenerational wealth plan also allows you to gift at an earlier age, safe in the knowledge that you are not going to run out of money later on in life. For example, research by pension specialists Just Group revealed that 60% of parents failed to consider care costs when gifting cash.

Creating a strategy allows you to gift in the knowledge it will not put you in a financially vulnerable position later in life.

2. A wealth plan provides greater control

As you are passing your wealth to friends and family while you are alive, you have much more control. For example, you might choose to gift money in several smaller lump sums instead of one large one, or include conditions on how your cash should be used by the beneficiary.

One time you may want to include conditions is when leaving money to beneficiaries you feel may not be particularly responsible. For example, you may worry that a grandchild might use a significant lump sum to buy the car of their dreams instead of using it to buy their first home or to fund university.

With an intergenerational wealth plan, you could discuss how the money should be used with the beneficiary. Additionally, you could create a legal framework that ensures the money will be used as you would want it to be.

Being able to explain your decisions to loved ones not only provides peace of mind, but it could also prevent them from falling out. According to a MoneyAge article, the number of challenges to the distribution of inherited estates in England and Wales rose by 37% in 2021 when compared to 2019.

With this in mind, explaining your rationale could ensure your wishes are not challenged later on.

3. You could leave more money to loved ones

As IHT is typically charged at 40%, it could significantly reduce the amount your beneficiaries receive. That said, HM Revenue & Customs (HMRC) allows a certain amount of wealth to be in an estate on death, before IHT is charged.

Known as the “nil-rate band” (NRB), in 2022/23 you are typically allowed to have £325,000 if you are single or £650,000 if you’re married. Subject to stipulations, you may also be entitled to the residence nil-rate band (RNRB), which could boost these amounts to £500,000 or £1 million respectively.

While this is good news, you should remember that the NRB has been frozen until 2028, which could increase your estate’s exposure to the tax. This is because the value of property and investments could continue to rise while the threshold remains the same.

According to the Telegraph, the freeze could result in the average household IHT liability skyrocketing from £165,875 in 2010 to £283,000 in 2027/28 – an increase of 70%!

That said, HMRC allows you to gift money to reduce your IHT liability, which could boost the amount you then leave to loved ones. As IHT is only liable on any assets above your NRB, creating an intergenerational wealth plan to make gifts could be a shrewd move.

By reducing the value of your estate you could significantly reduce your IHT liability, and if it can reduce it to within the NRB, you will typically negate any tax charge.

Gifts you are allowed to make include a total of £3,000 that can be gifted to an individual or split between many people, or an unlimited number of gifts of up to £250 each. While there are other gifts you could consider, any larger gifts will probably require a potentially exempt transfer (PET).

This allows you to gift any amount to anyone you choose, although you must live for seven years before it falls outside of your estate. If you don’t, IHT will typically be charged on a sliding scale depending on how long you live for and other gifts you have made.

By creating an intergenerational wealth plan as early as possible you could increase the likelihood of success. Starting your gifting strategy at the age of 65 is much more likely to succeed than starting it when you’re 85.

Get in touch

If you or someone you know could benefit from an intergenerational wealth plan, we would be happy to discuss it further with them. While we would be happy to get in touch with them if they’re happy for us to do so, they can also contact us by emailing or calling 01277 350560.

Please note

This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.