In today’s complex economic landscape, managing and transferring wealth across generations has become a significant challenge. Intergenerational wealth management can help families devise effective strategies to protect their assets and achieve their financial goals.
What is Intergenerational Wealth Management, and why is it important?
Intergenerational wealth management involves the meticulous planning and execution of strategies aimed at preserving and growing a family’s wealth across multiple generations. It entails family members, often from different generations, collaborating to plan their shared financial future. This involves being open about their respective financial statuses and being willing to share details about income, savings, investments, pensions, property, and business interests.
Planning for intergenerational wealth is crucial for various reasons. It helps in reducing tax liabilities when transferring money or assets from one generation to another. It also ensures family members can start accumulating wealth early, whilst also ensuring older family members maintain their living standards during retirement. Additionally, it provides a chance to see family enjoy the wealth passed on at the time it is gifted.
The Need for More Families to Consider Intergenerational Wealth Planning
In recent years, there has been an increase in estates subject to Inheritance Tax (IHT). IHT receipts have been steadily rising, with IHT netting the government £6.1 billion during 2021/22, an increase of 14% from the previous year. This increase is partly due to the static threshold for paying IHT, which has remained at £325,000 since 2009.
How to Build Intergenerational Wealth
Building intergenerational wealth requires agreement among all involved family members and openness about their financial affairs. Once the shared financial goals are broadly agreed upon, it is crucial to consult an independent financial planner. Good financial advisers have the knowledge and skills to create strategies that will help preserve wealth, plan for the future, and reduce the tax you pay when money or assets change hands.
Some things to consider:
Start Planning Early
Starting the planning process early opens up more options. Younger generations will have more time to implement wealth creation strategies, such as building up savings and investment portfolios.
Make Use of IHT Exemptions
A key method of passing on wealth to younger generations is by making use of Inheritance Tax exemptions.
Consider Children’s Pensions
Children’s pensions, also known as Junior SIPPs, are an effective way of ensuring younger generations can enjoy a comfortable retirement.
Explore Other Ways of Passing Money to Children
Other ways of passing money to the youngest generation include children’s savings accounts, Junior ISAs, and NS&I Premium Bonds.
Passing On Pensions
Different pension schemes have different rules about passing on your pension when you die.
Use of Trusts
In some circumstances, trusts can be a good way of reducing Inheritance Tax liability whilst retaining control.
Use Family Investment Companies
Family investment companies can be used to reduce tax liabilities, maintain control of assets, and pass shares to future generations in a tax-efficient way.
How Ruby Financial can help
A suitably qualified Financial Adviser plays a vital role in facilitating effective intergenerational wealth management. Ruby Financial can provide expert advice, assist in long-term goal setting, and help families ensure their wealth lasts to reach and exceed those goals.
Our Advisers will listen to your family goals, not just list family assets. They willask discovery questions about your family goals and needs, demonstrating their investment and interest in your long-term family goals.
Transparency is key
We understand that transparency is critical in family financial discussions. Younger generations are increasingly asking for transparency to understand better how to preserve and protect family wealth.
Intergenerational wealth planning can deliver financial benefits for your extended family and help you focus on your financial goals while developing a plan for achieving them. However, to make intergenerational wealth planning work for the whole family, it’s important to start as early as possible and get advice from an expert financial planner. Intergenerational wealth management is a complex but essential process that requires careful planning, transparency, and the right advisory team. By following the guidance given by Ruby Financial, families can successfully manage their wealth, ensuring financial security and a lasting legacy for future generations.
