The Great Wealth Transfer – what’s happening and what are the implications

Passing over an Estate can be a costly business. Billions of pounds are left to beneficiaries every year, and wealth transfer affects us all, whether we are planning our legacy or on the receiving end. It can be a complicated business, and getting expert help is essential if we are to ensure that our loved ones enjoy the wealth we have built up when we no longer need it ourselves.

At Continuum, we believe that financial planning must include planning what will happen to your wealth after you have no longer any use for it.

Who gets your money – make sure it isn’t the taxman

If you don’t make the right provision now, your wealth could go in some surprising directions. When a person dies without leaving a valid will the estate must be shared out under the rules of intestacy. A person who dies without leaving a will is called an intestate person. Only married or civil partners and some other close relatives can inherit under the rules of intestacy.

In England and Wales property and bank accounts held jointly will automatically pass to your spouse, but the rest of your estate will not. Only the first £250,000 and half of the remainder goes to your spouse and the rest will split between any children.

If everything goes to your spouse, things are simple – there is no tax bill to pay on your estate. But remember, a partner to whom you are not married will get nothing and nor will grandchildren or stepchildren. A spouse you never quite managed to divorce, will.

If you have no dependants your money will go to the Crown if you die intestate. If you live in the Duchy of Lancaster it goes to the Queen and if you live in Cornwall it goes to the Duke of Cornwall. You might think that they have enough already.

So, unless you are a committed royalist with no family, you need to take some steps to make sure your wealth goes where you want it to.

If you haven’t got a Will – and one third of over 55s haven’t – you need one. Making a will is the only way to be certain that your money goes to those you want to have it.

Inheritance tax

But getting your money headed where you want is only part of the challenge of wealth transfer. Inheritance Tax or IHT is the other. Thanks to the constant increase in the price of property, many more of us will have inheritance tax deducted from the wealth we pass on – at 40% of everything we leave above £325,000 (excluding an allowance for the family home).

Both intestacy and IHT can eat into our wealth. It is an old truth that you can’t avoid death or taxes. But there are some simple steps you can take to reduce your IHT liability.

Intergenerational wealth planning means that more of the wealth we worked for will go to those we care about – and there are four important provisions you need to make to put plans to work.

1. Get a will

A will is the simple way to ensure that your wealth is transferred to the right people. Most of us know how important it is to have a will and keep it up-to-date – but most of us simply don’t do it. Royal London research shows that three in five adults (60%) don’t have a will.

With less of us taking the traditional route of marriage, a will is especially important for cohabitating couples, as the surviving partner does not automatically inherit anything

2. Get organised

A will is a good thing to have, it is also the absolute bare minimum you need. Have you arranged a power of attorney in case you need someone to take over your affairs if you became infirm or incapable of managing them yourself?  Do you have details of your investments, your ISAs, your bank current and savings accounts where they can be found and understood?

Getting financially organised is vital at every stage of life – including when you are planning how your wealth will be shared after you are gone.

3. Get some IHT solutions

There are actually plenty of ways to reduce IHT liabilities. Setting up a trust, arranging gifts, some tactical use of life insurance and pension contributions can all help you control where your wealth is headed.  But the taxman’s rules are complicated. Expert advice on the strategy that is right for you is likely to be essential.

4. Get some help

Making a will can actually be very simple, although it is best to get the help of a solicitor.  But most things to do with IHT tend to become complicated, which means it is essential to get professional advice from experts who understand the complex rules involved. Naturally, at Continuum, we would be pleased to provide the help you need.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The Financial Conduct Authority does not regulate taxation & trust advice and will writing