Will inherited wealth help or hurt those you love?

[Walkeia]

https://on.ft.com/2JbOQaD

FT article: Will inherited wealth help or hurt those you love?

One of the best articles I have read in a long time from a while back. It's here under investment strategies as ultimately it's something many of us neglect to do (plus i couldn't find the IHT section). For those without a FT login the summary is: failure to speak to our heirs and educate them on finance + money management and pass on our ethos towards money leads to a disconnect between generations. In some cases this leads to a lack of trust and unwillingness to pass down money so incurring a higher than necessary IHT bill. The obligation is on us, the current custodians of the assets not the beneficiaries to redress this - after all the beneficiaries may not have had funds to have gathered experience managing money previously.

It struck a chord with me and felt I would post in case others found it interesting. I had a wry smile that while many of us on these boards spend time on spreadsheets preparing for early retirement / our significant others etc but I certainly have not given enough thought into educating those who stand to benefit and communicating my ethos towards money (whether they choose to adopt this or not is their call but at least they'll know it).

[BusyBumbleBee]

... had a wry smile that while many of us on these boards spend time on spreadsheets preparing for early retirement / our significant others etc but I certainly have not given enough thought into educating those who stand to benefit and communicating my ethos towards money (whether they choose to adopt this or not is their call but at least they'll know it).

Good food for thought here. I have definitely changed my investment style as I get older and the need becomes to a) make sure the other half not only has enough to live well on but can also manage the investments should I go first and b) to make sure that as much as possible can go to the next generations free of IHT and in such a way that they cannot simply blow it on fripperies.

I have managed so far to pass on enough to my children to make sure that they own their own houses outright and can afford to educate my grandchildren well; also to pass on enough to the grandchildren to start them off on their investment careers. I am lucky inasmuch as all my children and grandchildren get on with each other and us and all my children have good, well paid jobs.

So from now on my concentration is on the 6 grandchildren aged between 3 and 15. They all have assets in their own names. Some have a house and the others have ISAs and pensions. Why the difference? Well, their parents have to manage their assets at the moment and they have chosen which assets they can manage best.

So moving forward: it seems to me that I must concentrate on a) building my (and my wife's) pension pots cos they can be passed on the next generation without any tax and if our pensions go into the grandchildrens' pensions the following benefits accrue.

a) they can't spend it until they reach the right age
b) it should grow at least greater than inflation
c) it will obviate the need to put money into their pensions when they are starting off in life (buying houses etc)

As an example - if I am able to let each child have 100K and they can keep it invested at 3% real return per year for 40 years - they would each have a pot of about 300K in today's money. Which would be brilliant.

There are other ways of saving IHT but most of them are much riskier.

As to the main problem of esucating the children and grandchildren - I keep trying and think I am getting there - slowly

[scrumpyjack]

The financial side of IHT planning seems pretty simple really. Give as much away as you can at least 7 years before you die, avoid gifts with reservation, make gifts out of income, keep your pension assets until last as they are outside your estate for IHT, maybe invest in a few suitable AIM shares (though I can’t see that loophole lasting too long) etc etc.

But the more difficult issues are the people ones. Large amounts of money may not be ‘good’ for some individuals, your children may blow it all on things you completely disapprove of, they may be totally uninterested in money and not want it, some may need it far more than others. You give a child a wad, they get married then divorced and half of it is gone!

There was the case of a Norfolk stately home where Lord Snooks gave the ancestral pile to his son, who promptly evicted him!

[Dod101]

I am not at all sure that leaving a large amount of money to the next generation is entirely a good thing but it is a very personal matter. Certainly better it goes to grandchildren in priority to children, but I am also leaving significant legacies to charities, and if you give at least 10% of your net estate to a charity you can reduce the IHT to 36% on the taxable bit and of course legacies to charities are tax free anyway, so a double benefit.

Dod

[PinkDalek]

The financial side of IHT planning seems pretty simple really. ... maybe invest in a few suitable AIM shares (though I can’t see that loophole lasting too long) etc etc. ...

I've today commenced a topic on the Office of Tax Simplification Inheritance Tax Review over at Taxes (Practical Issues):

viewtopic.php?f=49&t=18387

[Parky]

A subject which occupies a fair bit of my thinking these days, but before I retired not very much. As my children both have young children, the time we spend together is precious, and serious discussion of inheritance matters is very limited, and usually confined to issues of where my financial information is stored. Like Busy Bumble Bee my childrens' houses are paid for, thanks partly to previous gifts, so grandchildren future support is now on the agenda. Despite the fact that Trusts are out of fashion, I have set up a trust for my children and "remoter issue" (as the lawyers call them, i.e. all my future descendents), which gives complete flexibility as to who gets the money and when, rather than trying to decide now what will be required in 15 to 20 years. I have to say that the regulation and taxation of Trusts has given me some headaches, but I seem to be on top of it now (until the next change comes along).

[scrumpyjack]

I have gone for bare trusts for my grandchildren as I have an aversion to the hassle and high tax of any other sort of trust. At least with bare trusts the dividend income can accumulate tax free (up to the personal allowance) and each grandchild has their own CGT allowance. One just has to hope they don’t splurge it at 18 but that’s risk I think is worth taking.

[TahiPanasDua]

We have 2 sons now in their early 40s.

The elder is very normal, has a decent profession and a happy family life.

The younger, however, has a lifelong tragic history of irresponsibility, addiction, unemployment and profligacy. He is currently receiving psychiatric help after a suicide attempt. A near full house of problems you might think.

For years I have struggled with the prospect of him blowing his inheritance in jig time. He will not have made enough contributions even for an old age pension. I am near to capitulation. Most options I am aware of can be circumvented by a determined mind. We can't change people's character no matter how earnest the wish.

Anyone got any suggestions? Thanks in advance.

If only our worries were confined to IHT, CGT, etc.

Apologies to anyone who thinks I am I am turning TLF into an agony column.

TP2.

[DrBunsenHoneydew]

We have 2 sons now in their early 40s.

The elder is very normal, has a decent profession and a happy family life.

The younger, however, has a lifelong tragic history of irresponsibility, addiction, unemployment and profligacy. He is currently receiving psychiatric help after a suicide attempt. A near full house of problems you might think.

For years I have struggled with the prospect of him blowing his inheritance in jig time. He will not have made enough contributions even for an old age pension. I am near to capitulation. Most options I am aware of can be circumvented by a determined mind. We can't change people's character no matter how earnest the wish.

Anyone got any suggestions? Thanks in advance.

If only our worries were confined to IHT, CGT, etc.

Apologies to anyone who thinks I am I am turning TLF into an agony column.

TP2.

Trust Fund of some sort?

[scrumpyjack]

If he is eligible for a Vulnerable Persons Trust that would be an excellent solution because it has none of the tax disadvantages of other trusts and his money can be protected. Taxwise it is as if you gave the money to him but it is protected by being held in trust. For the future it should be much less of a target for a left wing government!

see https://www.pruadviser.co.uk/knowledge- ... d-persons/

[TahiPanasDua]

If he is eligible for a Vulnerable Persons Trust that would be an excellent solution because it has none of the tax disadvantages of other trusts and his money can be protected. Taxwise it is as if you gave the money to him but it is protected by being held in trust. For the future it should be much less of a target for a left wing government!

see https://www.pruadviser.co.uk/knowledge- ... d-persons/

Thanks Scrumpyjack.

I had a look and it is interesting. I am not sure if he would qualify as a vulnerable person but it is definitely worth some research.

TP2.

[PinkDalek]

If he is eligible for a Vulnerable Persons Trust that would be an excellent solution because it has none of the tax disadvantages of other trusts and his money can be protected. Taxwise it is as if you gave the money to him but it is protected by being held in trust. For the future it should be much less of a target for a left wing government!

see https://www.pruadviser.co.uk/knowledge- ... d-persons/

Thanks Scrumpyjack.

I had a look and it is interesting. I am not sure if he would qualify as a vulnerable person but it is definitely worth some research.

TP2.

It may not assist but the Office of Tax Simplification Inheritance Tax Review I mentioned earlier has this on page 76:

The definition of a disabled person is too restrictive

11.23 The OTS has heard that it is difficult to fall within the strict criteria for a disabled person’s trust 4. In most situations where an individual wants to use a trust to protect the beneficiary, a different type of trust is used because the definition of a disabled beneficiary is too restrictive.


The 4 leads here https://www.gov.uk/trusts-taxes/trusts- ... ble-people

Source: https://assets.publishing.service.gov.u ... b_copy.pdf

[SentimentRules]

I fail to see the point in worrying about kids or grandkids in wills. Do what you can for them while your alive.

1. If they succeed, they don't need your wealth really. Go enjoy it yourself.

2. If they fail , well any wealth passed on [might be] mismanaged or abused anyway. [Maybe even come to some harm in the process]. Better off leaving them nothing. The kindest act.

So instead of leaving it for somebody else to go pi** up against the wall, do it yourself.

Vulnerable, an exception obviously

Moderator Message:
mild editing, please be thoughtful, regards, dspp

[Dod101]

I am not very concerned about leaving money for my family (children or grandchildren, although that would be good ) but I think that all of us have a responsibility to leave sufficient funds to fund late life care if that is required. How much is needed for that? Well who knows. Enough to allow the family to find a good place and not have to worry how it is to be funded. We have I think a wider duty to society to take responsibility for this as well. Maybe my views on inherited wealth are coloured by the fact that I received no inherited wealth to speak of and I think it is up to all of us to look after ourselves.

Dod

[SentimentRules]

It's usually the wasters that inherit so that's a good sign.

We need to get climate change right for now anyway. All take responsibility. Or there won't be later life care to worry about.

[tjh290633]

It's usually the wasters that inherit so that's a good sign.

We need to get climate change right for now anyway. All take responsibility. Or there won't be later life care to worry about.

I see that I am twice your age, so perhaps have a different perspective on life. My father died at 48, leaving a house with 6 years of mortgage still to run and a widow's pension of 10 shillings a week, but little else. My mother coped by taking in lodgers, and I was near the end of my national service, with 4 years of university to come. Fortunately I got the full value of my State Scholarship, and was able to work in the long vacation, with reserve service as well contributing. She passed away at 64, having developed rheumatoid arthritis, which limited what she could do.

Consequently my main concern was to make sure that my wife would be adequately provided for, in case of my premature death. This took various forms, but included term life assurance to cover the time while the children were in education, mortgage protection cover, and a variety of saving plans, most linked in some way to the market and often with some life cover.

Having got the children off our hands, retirement was the next stage, for which I had a mixture of occupational pensions and the accumulation of a portfolio of mostly income generating equities. I realised long ago that higher yielding shares gave me better returns than aiming for pure capital appreciation. With no need to draw all the dividend income, this allowed reinvesting of the surplus dividends which was done with the objective of increasing that income. The side effect is to increase the capital, which it has done satisfactorily.

Apart from being to save specifically for my grandchildren, so they might be able to complete their education without too much of a debt burden, and perhaps having a leg up for that first step onto the housing ladder, my main concern has been to be able to fund care, should I or my wife need it in the future. My son's mother-in-law is in care, and the cost of what I consider to be a decent care home is over £1,000 a week. Although a lot can be obtained from the sale of the family home, the availability of a good flow of income from pensions and investments can extend the time which can be funded considerably.

You do not have to deny yourself pleasurable activities to achieve these aims. You just have to have objectives and stick to them. Hoping that something will turn up does not work. It might do, but you cannot depend on it. Try and be in control.

TJH

[ReformedCharacter]

It's usually the wasters that inherit so that's a good sign.

Do you have children yourself?

RC

[SentimentRules]

No kids

Can understand all that. I decided after I got divorced, to stay single. I am much happier that way for whatever reason. So I guess circumstance shapes our many different paths and perspectives.

Completely agree. Waiting for something to turn up... rarely does.

[SentimentRules]

TJH

Many methods make money. And I'm delighted yours has done so well for you.

At my age I'm just a product of a different approach to markets. Entered them when attitudes were in their infancy with regards to every stock just being a price. Up or down. Not caring about dividend. Or the company. Only using div say, as a tool to piggy back 10% into an ex div and dump it day before etc.

But I have adapted to have one major element that you have. Not be at a desk all day in markets. Live life.

[JohnB]

I'm puzzled by the attitude that the world is split into only 2 camps, the competent who need no help, and the feckless who will waste any gifts. Clearly there is a wide spectrum of personalities and circumstances. As money can't be destroyed, the question is really whether its up to the state to inherit your wealth and redistribute it, or for you to do so directly. As most rich people aren't close to poor people, the state probably does a better job (pace they won't generally send it abroad), but I'd expect anyone to care more about those near to them than far away.

Being partisan over how you give money to family members can generate huge tensions that go beyond the sums involved. Better let some waste is than hate you.