Keeping it in the family

Over £400 billion in wealth is currently held by UK grandparents[1]. While once this would have simply flowed down from one generation to the next, major social shifts are changing the course of this cascade.

Between ‘baby boomers’, ‘generation rent’ and ‘boomerang children’ the contrasting fortunes across different generations make intergenerational wealth transfer more complicated – but also more important – than ever before. And financial advisers have a crucial role to play. 

‘Baby-boomers’, those born in the post-war era and who are now approaching or in retirement, are often considered the richest generation, thanks in large part to property wealth. Receiving an inheritance could potentially create or increase their own inheritance tax (IHT) issues and, it seems the majority facing this situation plan to pass some or all of their inheritance straight on to their own children[1].

Another potentially more simple option is for elderly grandparents to let inheritance skip a generation, passing immediately to their grandchildren. That being said, inheritance within families can be a thorny issue, requiring careful handling and clear communication.

Despite their wealthy reputation baby-boomers may also have a lot of demands on their money. Elderly parents may need support with costly long-term care while their own children may require financial support as a result of high rents, student debt and a lack of wage growth.

Children are also getting help with major life events such as a house purchase or wedding.

Each of these scenarios highlights why it’s increasingly necessary for families to consider how they can work together to best utilise wealth during their respective lifetimes, as well as upon death. And this is of course where good financial advice comes in. Many advisers already consider relatives and the different generations of their clients’ families as part of holistic financial planning, in some cases providing advice and services to them too. Demand for this type of advice looks set to increase as that £400bn wealth cascade prepares to make its way down through the generations.

In late 2019 we asked advisers whether and how the increase in intergenerational wealth transfer is affecting how they work with clients in retirement. Several highlighted scenarios where good communication between and with the different generations is vital:

“It’s probably having more effect on their children; we are trying to get closer to them from a business perspective but it’s useful to both the clients and their offspring. That’s probably the main change and we’re introducing a light-touch service to deal with children who are roughly in their 40s and 50s. Rather than just see assets walk out the door when a client dies, this lets us get a feel for what the children want and helps us build a picture of the wider family and even get a sense of their involvement in any long-term care issues that might arise.”

“We work with a number of families. Sometimes we work with a child who will refer us to a parent, or vice versa. The main thing is to ensure you’re talking to at least the two generations where there is a wealth transfer. It’s important when talking about IHT and estate planning that both sides are aware of what’s being done and what needs to be done.”

“We find that quite a lot of our younger clients are unsure about whether to factor in a potential inheritance from their parents. Those who do factor this in are less likely to appreciate the way in which long-term care costs can decimate the value of a parent’s estate. And, to add further complications, this is actually almost impossible to asses unless the parents’ estate values are known and, ideally, they are party to the financial planning process.”

• A platform for life - the range and flexibility of assets and tax wrappers available via your platform will help determine how easily you can adapt to a client’s changing priorities over time. A client’s needs can become more complex as they approach retirement, so it may be important for your platform to offer access to a wide range of third-party wrappers to meet these more complex needs. The availability of Alternative Investment Market (AIM) investments that qualify for IHT relief may also be a priority.  
  
  
• Family linking – if you’re advising individuals in family groups, you want a platform which not only facilitates this but makes it easy. The key here is in the detail, as Mark Polson of the lang cat commented in his recent research on the subject, ‘Offering family linking is one thing. Offering administrative processes that make it clear family linking is a core part of the offer of the platform is quite another.”

• Family groups can include: spouse/civil partner, children, parents, grandparents and grandchildren
  
  
• Family Group facility allows our Annual Platform Charge (as detailed in our Charges Document) to be based on the value of the consolidated client portfolios of the Family Group, with charges applied proportionately to each member of the group
  
  
• Self-serve valuation reports are available per family group.
  
  
• Advisers can view a summary of all their family groups, including individual group members.

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