Leaving an inheritance to your children and grandchildren could make a big difference to their quality of life. Yet without careful planning, it could also cause bitter disputes that damage family relationships.
The sooner you act, the better your chances are of ensuring the legacy you leave is a positive one. Here are some steps you could take now to avoid conflicts in the future.
Clearly set out your wishes
As a first step, make sure you’ve provided clear instructions that reflect your wishes and that all your paperwork is in order. Check you have an up-to-date will; keep important documents well organised; and maintain a list of your assets, including your pensions, savings, investments, bank accounts and property. These should be updated periodically and certainly when there are big life changes – for example, if one of your children gets married.
Communicate with one another
Communication is an extremely important way of avoiding conflict. Money and death are difficult topics to discuss, but being open about your wishes helps to ensure everyone is on the same page. An honest conversation could also help your loved ones understand why you’ve made the decisions you have and, in turn, avoid arguments further down the road. Having a professional in the room may help the conversation go more smoothly and ensure any technicalities are clearly explained.
Discuss ways of equalising assets
One of the biggest causes of inheritance disputes is one or more parties feeling they haven’t received a fair share. It can be a particularly thorny issue if there is one large asset in an estate that is illiquid or not easily split, such as a property or other physical asset.
One potential solution is to earmark a pension fund for children who don’t stand to inherit the family home or a similar type of asset. As long as the pension is passed on within two years of death, it will generally not be liable for inheritance tax (IHT). This could be discussed with all relevant family members ahead of time to make sure there are no objections. A nomination should be provided to the pension administrator, as your pension beneficiaries are not determined by the terms of your will.
Another option is to take out a life insurance policy. This will pay out a set amount to your chosen beneficiaries when you pass away. Provided the policy is written in trust, it won’t form part of your estate for IHT purposes.
Consider making lifetime gifts
Making gifts while you’re still alive may prove more efficient from an IHT perspective than if you pass on assets after you’ve died. It also enables you to see your loved ones benefit from your wealth.
If you are considering making lifetime gifts, make sure you don’t underestimate your own financial needs, including potential future care costs. Otherwise, you could risk leaving yourself short of cash. A financial adviser can help you determine how much you can afford to give away, taking into account factors such as how your predicted costs may change over time, your estimated longevity, and the effects of inflation.
Explore the use of trusts
If you want to exercise a degree of control over how and when your assets are passed on to your family, using a trust could be an option to explore. With a discretionary trust you can give guidance to the trustees as to how you would like your assets to be used. For example, to provide capital to your grandchildren to help them pay for education, buy a new home or set up a business.
Trusts can be complex and have important tax implications, so make sure you seek advice before going ahead.
At times like this, getting some financial advice can help you make better decisions. We can help start the conversation and guide you through what may be an emotional process. By speaking to us early on, we can help you manage your estate’s IHT liability and build an estate plan that works for you.
The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy.
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