According to Investment News, 66% of people fire their parents’ financial adviser or planner when they inherit their money. This maybe for a number of different reasons – they prefer to use their own existing adviser; they plan to spend all the money so don’t need advice; they think they don’t need advice because they are financially experienced; or maybe they just don’t trust financial advisers!
Thankfully this is not our experience as we try to work with whole families to ensure that wealth passes through the generations effectively and everyone understands the intentions and desires of the people who made the bequests.
If however, we have not been able to involve the next generation because of privacy issues or geographical challenges, it might mean that some of the carefully executed planning arrangements that have been implemented, may be hurriedly pulled apart by family members or their solicitors, ignorant or unaware of the original reasons for such arrangements.
A good adviser often has a better knowledge of their clients’ financial and lifestyle goals than their children. Many clients tells us that their children have busy lives and consequently they don’t tell them very much about their own.
Because we deal with so many very important and in many cases, life changing financial and legal arrangements, clients’ children should not be too hasty in disengaging existing advisers before at least clarifying the position.
We understand that recently bereaved clients’ children may be grieving and wish to resolve any financial consideration as soon as possible, but grief is a powerful emotion and may mean that life changing decisions are hastily made without full possession of all the facts.
UNDOING ALL YOUR GOOD WORK!
The following example which was recently experienced by one of our fellow professionals, shows the impact (both financial and lifestyle) of impetuous and uninformed decisions by Executors and Trustees:
Mr and Mrs Jones had a large estate and were worried about paying large amounts of inheritance tax (IHT.) Their preference was to leave as much as possible to their 3 children (Alex, William and John) and 5 grandchildren. Alex and William’s children were wealthy in their own right but John was estranged from the family because of drug problems in the past. Alex and John have 2 children each and William has a daughter Lauren who has cerebral palsy.
Mr and Mrs Jones had taken estate planning advice and had set up the following arrangements:
- Everything was set up as being owned half each, so when one of them died, their half would pass into a Trust and be ring fenced from IHT and possible nursing care fees.
- There were significant investments into schemes which used Business Relief to ensure that no IHT would be payable on these assets.
- Gifts had been made over 7 years ago into a Trust for the grandchildren.
- They had set up a joint life insurance plan that would pay out on the second of their deaths, into another trust, an amount approximating to the remaining IHT liability.
- Wills and Lasting Powers of Attorney had been updated with Alex and William as the Executors and Attorneys, the 3 children as equal residual beneficiaries, bequests for the grandchildren with special consideration for Lauren.
Alex’s husband was a property lawyer and between them, he and William decided what was best for the family after Mr and Mrs Jones’ death, without referring to the original adviser. Unfortunately, because they didn’t understand the original objectives and had only sketchy understanding of trust and tax law, they made some decisions that will have a significantly detrimental effect on the whole family.
They cashed in the Business Relief assets to invest in ISAs which they thought was a good idea – unfortunately this brought all the money back into THEIR taxable estate when it could have remained exempt. This will cause future problems for Alex and William when they come to deal with their own estate planning, which could have been avoided.
They cashed in the life policy after Mr Jones’ death because they thought the premium was too high for Mrs Jones. However, had they continued this as was intended, when Mrs Jones died 5 months later, the policy would have paid their full IHT liability. As it was, the estate paid over £450 000 in IHT.
Mr and Mrs Jones had also written a Memorandum of Wishes which set out how they wished their Executors to act on their death, especially in relation to John and Lauren. Sadly this document became detached from their Wills and was only discovered after the estate was settled in a way that did not reflect their wishes. In particular, they had wanted John and his children to be included in all their “after life celebrations” but this was not carried out and John remains estranged from his siblings.
It is easy to see how better communication could have saved a significant amount of money in tax and perhaps brought the family back together.
Our comprehensive planning advice is wide ranging and many aspects will be essential to the success of generational wealth transfer. This may include: providing a comprehensive list of assets and liabilities (including account numbers); a record of all current and anticipated income sources: a record of all other professional advisers; full details of all life policies and pensions (together with beneficiary information); full details of Wills and Powers of Attorney; information about any trust arrangements and Inheritance Tax saving schemes; ideas for efficient inheritance by beneficiaries, depending on their financial circumstances.
Unpicking some of these long held financial arrangements could prove to be costly to children and beneficiaries and definitely not in their best interest.
We therefore suggest that clients direct their children to us in the first instance and discuss at least their broad plans (if not the detailed monetary amounts) with their family to avoid future succession problems. We are very happy to facilitate such a valuable family financial conference if we have not done so already.
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