Wealth is often a sticky subject for families, but it’s also important for children and relatives to understand things like inheritance tax planning. There are countless options and potential opportunities to prevent any loved ones from struggling with a substantial tax bill, which they haven’t prepared for.
Parents can also find it challenging to balance out their wish to support children without fostering a sense of financial dependency – or gifting wealth during their lifetime while preserving sufficient funds to maintain their desired retirement lifestyle.
Here, Chase Buchanan shares some advice for making financial planning an accessible topic for all family members and explains why these conversations can be highly valuable.
Introducing Family Financial Planning
Many families have a support structure, whereby older relatives provide a well-needed financial cushion – but this can quickly become unstuck when we talk about long-term financial planning. The conversations about inheritance, wills and assets can certainly require forethought but are also an excellent way to design a whole-family financial plan with substantial advantages.
Here are some of the reasons we recommend making financial planning an open discussion:
- Paperwork – when someone passes away, trying to find documents, communicate with banks and take control of assets can be very difficult, emotionally and practically. If everyone knows where important records are kept, the process can be less fraught and avoid costly delays.
- Power of Attorney – we’ve talked before about appointing a trusted person to hold Power of Attorney, which can be a key way to protect your wishes and rights if you aren’t able to make decisions. You cannot implement this permission retrospectively, so putting an agreement in place well before necessary is a safeguard against the unknown.
- Planning – inheritance tax is just one of many considerations. Thinking about big life events, plans, retirement age, property ownership, and tax liabilities provides a cohesive structure where all family members can agree to a strategy that meets everyone’s objectives.
Other factors surround topics such as insurance – if you become unwell or a relative dies, you’ll want your family to know whether you have policies in place, especially if they require renewal.
Creating a Financially Aware Family Culture
If you’re not used to addressing these topics, there are some useful ways to ensure you approach the subject with confidence.
First, any initial communication should be at a time and place where everyone is relaxed and comfortable sharing their thoughts. Family celebrations, for example, aren’t often conducive to serious consideration. Many families also find that financial planning needs to change over time – which is normal, and so an open dialogue can broach any hurdles that arise along the way.
Personal finance and wealth can be highly geared, so we’d recommend making the discussion free from criticism. It is common for family members to have different attitudes to handling their money. Rather, family financial planning starts with big picture goals, explaining your perspective, and then deciding on the best strategies.
Financial stability is profoundly impactful, so reviewing plans early on and far before families must make any time-pressured decisions will ensure that younger family members understand why responsible finances matter. Even young children can learn about budgeting, perhaps by having an allocated allowance they need to choose how to spend, or by being aware of their savings account and seeing how it grows over time.
A comfortable future begins with awareness and financial literacy, so exposing children to small financial decisions can prepare them for a lifetime of sound wealth management.
Inheritance Financial Planning for Families
Thousands of families avoid talking about finances – even if parents or grandparents have considerable wealth or work closely with an accomplished financial planner.
That can cause no end of distress, with potential scenarios such as:
- A beneficiary finding out about inherited assets only after a loved one has passed.
- Lack of understanding about inheritance tax and how to manage this exposure.
- Presumptions about assets passing to next of kin, which may be incorrect.
- Exposure to tax liabilities for cross-border assets owned by expats living overseas.
- Confusion around inheritance rights for unmarried couples and blended families such as those with stepchildren.
- Misunderstandings about the right to dispute a will – often creating considerable legal costs and disruption.
Clear, honest talks about inheritance tax enable beneficiaries to understand what they can expect to inherit and start working on a tax-efficient approach to ensure that this doesn’t cause hardship or undue financial pressures.
For example, UK Inheritance Tax is now likely to impact many more families, with the thresholds being frozen and property prices continuing to rise. Heirs have both privileges and responsibilities, so equipping them with understanding is important if they stand to take over family wealth, inherit a business, or become the owner of a property.
Expert Family Financial Planning Advice
Family financial planning benefits all involved, ensuring that family wealth is managed well and in line with any philanthropic or charitable objectives that you wish to be continued through the generations. While inheritance planning conversations can be complex, they are also a way to potentially avoid tax liabilities of hundreds of thousands of pounds.
Chase Buchanan is an expert wealth management adviser, working with expats and British nationals worldwide, with a network of offices in key locations including Canada, Malta, Spain, Portugal and our UK Administration Centre. We can provide confidential, bespoke advice whether you have already begun to review your family financial plans or need professional guidance to identify the right strategies to support your relatives for the years to come.
We have published a series of complimentary guides to assist our clients in understanding some factors to consider when making important decisions around Education Fee Planning, Health, Income and Life Protection and Retirement Planning. Please contact your nearest Chase Buchanan office for more information about any topics discussed here or for a tailored consultation about your family financial plans.