Intergenerational Wealth - We must talk about the ‘M’ word… Money

A survey conducted in 2019 by Lowell, a company which helps consumers and businesses manage their credit position, surveyed 2,000 people about their attitudes towards discussing certain topics. The survey found that religion, mental health, and infertility were all more socially acceptable topics than finances and debt.

And yet, it is estimated that the value of inheritances is set to double over the next 20 years.3  If we extend the time horizon, it is estimated that £5.5 trillion is expected to pass to the next generation over the next 30 years.4   The recipients of this windfall are expected to be other ‘baby boomers’ and people in the younger Generation X (40- to 54-year-olds) or Millennial age groups, those aged between 25 and 39.5 Let’s just focus on the recipients of these inheritances for a moment.

Data from the Office of National Statistics5 paints the following picture:

• Inheritances from spouses of the recipient had the highest value, on average, and were mainly distributed among those aged 55 years and over, 
• Those aged 55 to 64 years were the most likely to receive an inheritance and also received the largest inheritances on average, and 
•  Individuals with the most income and wealth were likely to receive the largest gifts and loans, on average.

The family dynamic

No surprise in the recipient typically being a spouse, and the spouse also being a baby boomer, as people tend to (but not always) partner with someone of their own age. It should be remembered; we do live in an era of increasing divorce rates across the different age groups and subsequent re-partnering and second families. So, choosing who you leave your money to, and how much, is often more complicated than it used to be. The potential for family fallouts is greater. All the more reason to talk about the subject early. 

As our life expectancy has increased over the years, the age of the recipient of an inheritance has also increased. The baby boomers receiving the inheritance are those people who have enjoyed the greatest increase in the value of their assets, money going to money.

Those leaving the money will no doubt want to ensure that their beneficiaries, be their family, friends and/or charities, enjoy their windfall. They will also probably wish to minimise the tax man’s take on their bequests in a legal and ethical way. Figures from HMRC for the 2021/22 tax year show £6.1bn was collected in inheritance tax, an increase of £729m on the previous year7. The receipts from Inheritance Tax have been increasing year on year for some time and look to increase further still. Inheritance Tax is often referred to as the voluntary tax as there are simple measures to mitigate it, which are often overlooked.

At the risk of raising the elephant in the room…

What would be the benefit of taking the risk, and breaking the taboo of talking about money, either as a parent with your children or a child (and their siblings) with their parents?  Research from AKG and Canada Life6 shows that 38% of parents have already passed on significant financial gifts to their children. The reasons included to act as a house deposit or to purchase a house outright, as well as to fund a car or other major purchases.
Remember the ONS data I highlighted previously, money going to money.  Does the recipient really need the money?

Many 55–65-year-olds have benefited from rising asset prices, (e.g. houses) during their lifetime. Many have enough savings, investments, and other wealth, so may feel that their children or grandchildren need it more than they do.

Instead of thinking of your money as something you leave to your next of kin when you die, why not plan early, and support younger family members who have an immediate need for financial support?  

Having the conversation now

If you are thinking of leaving money to specific people, are you sure they really want or need the money, or is there somebody else in the family who could benefit more?  Similarly, if you think you may be in line for an inheritance, but feel your children or grandchildren would benefit more, perhaps now might be the best time to – talk about money. You might be able to see the recipients enjoy the money you have provided for them.
Whether you are the benefactor or the possible beneficiary, having the conversation now can make sure the money goes to the right person, at the right time and in the right way.
As the old BT advert said – it’s good to talk. 

Please get in touch now to talk about any of the points covered in this blog post.

Embarking on financial dialogues, especially around inheritance, requires tact and clarity. "Beals Mortgage and Financial Services Ltd" stands by to assist you in unwinding the complexities of wealth distribution. Engage in prudent, early conversations with loved ones, optimizing asset transfer while minimizing tax implications. Together, let’s ensure your wealth transference is strategic, compliant, and beneficial to those you hold dear, fostering transparency and financial well-being in your family’s future.

Tax treatment varies according to individual circumstances and is subject to change.
Estate planning/Inheritance Tax is not regulated by the Financial Conduct Authority

References:

2 - https://www.thedebtadvisor.co.uk/brits-find-difficult-talk-money-mental-health
3 - J Leslie & K Shah, Intergenerational rapport fair?: Intergenerational wealth transfers and the effect on UK families, Resolution Foundation, February 2022: https://www.resolutionfoundation.org/app/uploads/2022/02/Intergenerational-rapport-fair.pdf
4 - Passing on the Pounds report, Kings Court Trust, 2017. Source: Inheritance Economy (kctrust.co.uk)
5 - Office for National Statistics - Intergenerational transfers: the distribution of inheritances, gifts and loans, Great Britain: 2014 to 2016 Source: Intergenerational transfers: the distribution of inheritances, gifts and loans, Great Britain - Office for National Statistics (ons.gov.uk)
6 - Talk Money Week: Over a third of parents gifting money to children (canadalife.co.uk)
7 - https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary#iht-receipts-and-taxpaying-estates

Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 04 July 2023