THERE can be little doubt that recent experiences of living through a pandemic have focused our minds on all of our futures and, as such, the legacy we’ll leave for the next generation.
When it comes to inheritance and estate planning, we have come a long way from “you can’t take it with you when you’re gone,” as a new ethos is emerging around transferring wealth to (adult) children within a parent’s lifetime.
Much has been written about the wealth creation of the Baby Boomers and plenty of column inches have been devoted to the stresses between the generations: the “OK Boomers” born from 1946-1964, versus “Generation Rent”, young adults born after 2000, who have seen their dreams of house ownership limited due to rocketing house prices.
The emerging focus of today’s inter-generational wealth transfer is around older generations wanting to help their offspring, both at a time when they need it most and when the parents are still around to see their children enjoying it.
Of course, as with most money matters and parenting decisions, there are different schools of thought and moral standpoints. Many parents we speak to feel conflicted by the traditional view that money should be earned through hard work, for fear that it could otherwise be a little easy come-easy go. We also hear parents expressing concern about losing control of gifts made to family during their lifetime – which, with the option of a discretionary trust, doesn’t always have to be the case.
Others will query whether, without the chance to learn through experience, how will the next generation learn to plan and invest wisely, let alone be around long enough to enjoy the benefits of compounded growth?
So, considering all of the above, how can we better prepare for the new era of early wealth transfer? While no two families will ever be the same, there are a few things which are common across the piece and are worth considering as you approach the topic.
Firstly, it is highly unlikely that the financial objectives and risk appetite of a 30-something will be the same as those of a 60-70 year old. It’s therefore important to discuss and agree not only the intended purpose of the funds, but the broad principles of planning and investment, as this will likely lead to a smoother handover.
Obviously, talking about the future is not an easy conversation, but, as is said about voting, do it early and often; the earlier the discussion begins, the better. A useful route into this conversation could be to engage the younger generation in topics in which they tend to be interested. If they have a passion for a particular industry – or for sustainability and ESG investments - then this can be a great place to start.
For those children receiving non-cash assets (e.g stocks, shares or investments), an understanding of objectives, risk and strategy is key if you wish to keep them invested and, again, this requires a grown-up conversation. It can be worth paying for the services of a professional or even initially involving a mediator such as a family friend, to open up the conversation with your family and help explore the options available.
Passing wealth to the next generation can be hugely beneficial but doing so also requires an understanding of the tax implications, liabilities and restrictions: so make sure to do your research or get advice and take the guesswork, and the potential pitfalls, out of it.
A recent survey by Barclays revealed a high level of confusion and uncertainty, particularly amongst the over 45s, on how inheritance tax works and the various allowances. It also exposed a worrying gap between people’s understanding of what they’re leaving to the next generation, and the reality.
If you were thinking of holding on to your wealth until after you’re gone, perhaps consider the expression that it may be better to give with a warm hand. Like most things in life, planning, care and execution are the keys to success. If you’re at all unsure, particularly where large figures are involved, take the time to understand your position, and consider seeking the advice of a professional. The golden rule is - don’t leave it too late.
None of us likes to think about our own mortality, but there is something rather heart-warming about living in the knowledge that your kids are better set-up for the future.
:: Jonathan Sloan is head of Barclays Wealth & Investment Management in Belfast.
