Generational wealth planning

artyboy

dunstonh said:

I was talking to an IFA (about something unrelated) and he said that the largest portion of their work now is generational wealth planning, as so many people are now caught by IHT.

Tax allowance use and succession/generational wealth planning is probably the main areas for most.

I wondered what this usually involves, especially for 1m to 3m wealth, rather than the super wealthy.

as HH says higher up, you cannot beat gifting and spending.   Use of trusts is complicated and frequently over-used by people who don't need them.

Gifting and spending is our default option. IHT on pensions may well accelerate that process.

We were thinking of expatriating at one point, but that was when Portugal was feeling generous, sadly no longer.

The exam question here though, I think, is at what absolute level of wealth might it actually be worth engaging an IFA with a specialisation in this area?

I have no desire to create complicated trust structures or whatnot, but when a government has at a stroke taken an extra 7 figures in tax off our estate (all other things being equal), then it's not unreasonable to explore all options.

(ok yes, so you're going to tell me that I've answered my own question with that last comment, but I'm still curious as to what the wealth threshold is that you think specialist advice would be a given...)

DT2001

10 years ago FIL had an IFA that identified a potential IHT liability (no RNRB as introduced about 2017). Some funds were put into trusts (2 flexible and 2 discretionary gift trusts) and the rest into a primarily income producing portfolio. Excess income was paid on a regular basis to one child and grandchildren. The key consideration is the ability to redirect the excess income to at home care costs, if needed and ensure some capital is available to fund care home fees if necessary. There is a reasonable level of guaranteed income so it has been possible to achieve this whilst keeping below the £1m. They don’t live in the south east.

OH will not inherit as any share of the estate will jump a generation.

We are in the midst of selling a second property and then downsizing. Once completed, gifts will be made to reduce our assets to a level where our withdrawal rate is very conservative. Our children are all under 25 and funds will be to help with getting on the property ladder. I have faith that they will not fritter the gift - the alternative is lose 40% minimum (SIPPS in place). Excess income will be gifted when our expenditure starts to decline. Our estates will almost certainly pay IHT but we are not wanting the tax tail to wag the dog, so to speak. 

There are options but I think the simpler plans are better (unraveling a couple of trusts, with excellent guidance from forumites, and grappling with chargeable events gains and top slicing is time consuming and potentially incurring professional fees. 

michaels

I have mentioned to my parents that given our financial position that skipping a generation would likely avoid one round of IHT.

Currently our plan is to downsize to help DKs onto the housing ladder but if timing works then inheritance might do that for us.

Cobbler_tone

michaels said:

I have mentioned to my parents 

Mine are the sort you don’t mention it to. The sort that you’ll have a sh*t storm to address when they are gone. The type you have ‘that’ discussion once. They are just old school but think they have a will which should be straight forward.
I’m going to give my kids money next year and tell them if there is anything left it’ll be a bonus. They have one property to share at the given time.

HappyHarry

Jaco70 said:

dunstonh said:

I was talking to an IFA (about something unrelated) and he said that the largest portion of their work now is generational wealth planning, as so many people are now caught by IHT.

Tax allowance use and succession/generational wealth planning is probably the main areas for most.

I wondered what this usually involves, especially for 1m to 3m wealth, rather than the super wealthy.

as HH says higher up, you cannot beat gifting and spending.   Use of trusts is complicated and frequently over-used by people who don't need them.

When you refer to ‘spending’, just to be clear, you are referring to holidays, cars etc? Not appreciating assets like property? 

Holidays are popular, as is spending more on entertainment and services - cleaners, gardeners and so on. Once that step is taken then planning to spend funds on care becomes easier - it's not a straight move from independent living to a care home, there are many supporting services along the way which cost money.

Trusts come under gifting - really you are just gifting money to a trust rather than directly to family. Once the decision to gift has been reached - and it's not an easy decision - I find that most clients prefer to gift directly to their beneficiaries rather than mess about with trusts. 

Most of my clients start seriously considering IHT planning in their 70s or even early 80s, and so their children are probably beyond the point where there are huge concerns about money being frittered away.

GunJack

Jaco70 said:

I was talking to an IFA (about something unrelated) and he said that the largest portion of their work now is generational wealth planning, as so many people are now caught by IHT.

I wondered what this usually involves, especially for 1m to 3m wealth, rather than the super wealthy.

I'd suggest £1M if you have DB pensions and don't live in a high property value area IS super wealthy......

Triumph13

michaels said:

I have mentioned to my parents that given our financial position that skipping a generation would likely avoid one round of IHT.

Currently our plan is to downsize to help DKs onto the housing ladder but if timing works then inheritance might do that for us.

By all means mention it, but there is no need for them to change their will.  When the time comes, you can just do a simple deed of variation to redirect your share to your kids.  That's what I did with my late father's estate and it was much the easier route.

GenX0212

Bostonerimus1 said:

Personally I think having DC pension accumulations outside of IHT is bizarre and is probably a hang over from when they didn't exist; when everyone had DB pensions inheritance just wasn't an issue. I'd include DC pensions in the taxable estate, but increase the tax free threshold by maybe 500k so that most estates still avoid IHT. Also some tapering of the tax rate might be good as the 40% cliff edge is a bit brutal.

Hi Rachael!  

Actually maybe not a bad idea?!

silvercar

Triumph13 said:

michaels said:

I have mentioned to my parents that given our financial position that skipping a generation would likely avoid one round of IHT.

Currently our plan is to downsize to help DKs onto the housing ladder but if timing works then inheritance might do that for us.

By all means mention it, but there is no need for them to change their will.  When the time comes, you can just do a simple deed of variation to redirect your share to your kids.  That's what I did with my late father's estate and it was much the easier route.

I followed this plan. Told stroppy parent to by-pass us and go to grandchildren. They decided that wasn't right, especially as sibling wouldn't want this; though no harm in following the request for me alone. I just shrugged and said I could always do a DoV, they weren't impressed and got a lecture about following parent's wishes and if we were left the money we should have it, as that was what parent wanted. Won't matter when the time comes as they won't be around to lecture us.

Wind forward a few years and sibling's husband is no longer in the circle of trust, not that he has actually done anything wrong, but a resentment has grown between him and my parent. So now suddenly skipping a generation is in favour.

Albermarle

Jaco70 said:

Triumph13 said:

Trust is the key word.  As in 'Do I trust my kids, or do I need a trust?'

Probably not a straightforward question, but what is an example of a trust ?

Some would say a trust is a good way to fill the lawyers pockets with the high fees ! Certainly some seem keen to promote them. 

As already mentioned, for the 'Mass Affluent' they can bring complications, without necessarily bringing the supposed benefits. 
I think as you go to the Multi Millionaire level, they become more useful.