Playing leapfrog - Howorth FPPlaying leapfrog - Jonny HoworthThis month’s featured blog ‘Playing leapfrog – inheritance planning in 2017’ comes from:

Jonathan Howorth
Principal at Howorth Financial Planning Limited
Contact: 07527 004 058

Money is set to skip a generation, as families act to counter the unequal spread of wealth between young and old.

Over £400 billion in wealth being held by Britain’s grandparents is set to cascade down to the benefit of grandchildren in the coming years, according to a new report from Royal London. The data was collected by YouGov, which surveyed over 5,000 people from three generations. As well as highlighting the vast wealth inequality between generations, the report also reveals a significant difference in the ways different age groups think about giving or receiving an inheritance.

An overwhelming majority of those aged 25–44 want to see their parents and grandparents spending freely and enjoying their retirement. This is a powerful challenge to the idea of a generation of ‘millennials’ resenting the lifestyles of older generations.

But the report finds that older generations are much more focused on preserving their wealth with the aim of passing it on. Grandparents, in particular, have a strong desire to leave an inheritance, especially to their children but also to their grandchildren.

The report notes people most likely to inherit housing are those with elderly parents, and are therefore usually middle-aged themselves. For this reason, they’re likely to possess their own housing wealth and be aware of the challenges facing their own children. A majority – particularly those aged 55–64 – are planning to pass some or all of any inheritance straight on to the next generation.

Although less wedded to the ideology of leaving inheritance, the report claims “they clearly feel under pressure to do so and plan to do so”.

A friend indeed

To address the challenge of distributing wealth more appropriately within the family, some beneficiaries will choose, or are obliged, to make posthumous changes to the Wills of deceased family members using a ‘deed of variation’. However, the potential complications and upset involved mean it should very much be viewed as a last resort.

Better lifetime planning can prevent such problems; indeed, transfers of wealth between the generations do not only happen after death.

Parents and grandparents with the financial means are increasingly considering transferring assets to children within their own lifetimes – and while they still have the opportunity to see those recipients benefit. This may be to help them gain a foothold on the housing ladder, clear debts, or build a retirement fund.

The report shows that roughly two thirds of 65–74-year-olds had given a lump sum gift to their children; gifting often intended for a specific purpose – house purchase, other large purchase or special occasion suggested.

One third of those aged 75 or over had given lump sums directly to their grandchildren; often earmarked for education, but it may also reflect an element of Inheritance Tax planning by the donor.

What does this mean?

The UK is entering an unprecedented era in which people are retiring with much greater wealth than their predecessors. That wealth is largely being preserved through retirement and will in due course find its way down through the generations. It therefore makes sense for more individuals to consider estate planning as part their overall financial planning strategy.

Making a Will helps minimise tax and ensures your estate is passed on in line with your wishes. However, there are a range of additional measures you can take whilst still alive to pass wealth on.

You can ensure that your wealth goes to whom you intend by seeking the proper advice; inheritance planning doesn’t need to put your own retirement security at risk.

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Jonny is a Carthy client and a well-known face on the networking scene in Staffordshire. If you’re interested in seeing how our networking advice could help your business call us now on 01785 248 939.

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