5 powerful reasons to create a financial plan with your family

With humans currently living longer than ever before, a build-up of wealth has been created among older populations that the next generation is set to inherit.

This has come to be known as the “Great Wealth Transfer”, with Barclays reporting a record £5.5 trillion is set to be inherited over the next 20 to 30 years.

With so much at stake, making sure you have made the right preparations for your assets to be inherited by the ones you love has never been so important, so read on to discover five reasons you should create a financial plan with your family.

Creating an intergenerational plan could help to protect your wealth

In the UK, Barclays expects that 300,000 young people will inherit around £327 billion through gifts or inheritance over the next decade alone.

Often, this transfer doesn’t just happen automatically, and you need to have the appropriate measures in place to see that the money goes where it’s intended.

This is why making a plan that confronts how you intend to manage your finances with your family is a great way to prepare an inheritance for when you pass.

Despite 72% of over-60s planning to gift their wealth to children upon their death, according to Schroders Personal Wealth, just under 80% have no actual plan of how to do so. Clearly, creating an intergenerational financial plan is a priority that many never get around to completing.

You can buck this trend by making sure you have a financial plan that includes all generations – both older and younger. Intergenerational planning can have multiple benefits that range from helping your children onto the property ladder, to reducing the amount of Inheritance Tax (IHT) your beneficiaries may have to pay.

1. Give yourself more control

Making a plan with your family concerning your estate can give you much more control over how the funds might be used.

Before anything else, the process of formulating a plan encourages you and your family to talk about what eventualities may arise. As well as this, it gives you the opportunity to express how you would prefer the funds to benefit those you love.

Of course, you can’t stipulate this after your passing, which makes it all the more important to open dialogue sooner rather than later while creating a plan that outlines how your beneficiaries might use the money.

This could be teaching them how to manage any investments you gift them, warning of expensive purchases, or even helping your children onto the property ladder.

With a plan or discussion to push your giftees in the right direction, you could have much more control over how your estate is used both now and after you’re gone.

2. Reduce the amount of Inheritance Tax your estate faces

A thorough plan that’s made far in advance can also mitigate the amount of IHT your estate may be liable for.

The rewards of appropriately preparing your estate in the event of your death are all too clear when you consider the 40% IHT your beneficiaries might pay.

You’ll likely pay IHT if the value of your estate is more than £325,000 – or £500,000 if you plan to leave your home to a child or grandchild.

The nil-rate band has been frozen at these amounts until 2026. So, your assets or investments could increase in value and potentially bring your estate over the nil-rate band, even if you didn’t have a liability previously.

Creating a family financial plan can ensure a smoother transfer of wealth, and potentially reduce the amount of IHT you pay.

3. Starting your preparations early can make the process much easier

While you may think it’s too early to plan for the events following your death, some aspects of your intergenerational plan are indeed time-sensitive.

Considering how to limit the value of your estate when you pass away, regarding how to stay under the nil-rate band, is a prime example of this.

Not making plans could result in an unpleasant and unexpected 40% tax on the inheritance left to your beneficiaries that could have been entirely avoidable.

Creating a plan far enough in advance could allow you to take action.

For example, gifts made more than seven years before your death can qualify as potentially exempt transfers (PETs) and so fall outside the value of your estate. As it’s more likely you will live for seven years after gifting at 50 than at 90, it pays to start planning early.

4. Gift to your beneficiaries when they need it most

By creating a financial plan with your family, you could open up new possibilities of ways to give while you’re alive which could allow young ones to make better use of the money.

Later in life, your children or grandchildren may have a degree of financial stability meaning the money you gift – or you leave on death – may not be as useful as it could have. Your children may be retired themselves by the time you pass away.

In this case, gifting earlier could allow them to make better use of the money, like becoming a homeowner or using it to help manage the costs of a young family.

5. Reduce the potential for disappointment or disputes

Planning as a family means your children and grandchildren often know exactly what they can expect to inherit and when.

Without opening the discussion, your beneficiaries may have misguided expectations of what they are set to receive, which could lead to arguments further on when they could be surprised or disappointed with their inheritance.

Similarly, if your children or grandchildren expect a gift in the near future or start making fiscal plans around this belief, it could cause arguments among your family or put them in financial liability if you don’t intend to gift to them any time soon.

Talking about the inheritance you intend to leave can help to clear these areas up for your family members and manage their expectations in regard to when and how they will receive your gifts. This way, everyone knows where they stand and arguments after your death can be avoided.

Get in touch

If you’re considering making an intergenerational financial plan or are concerned about how to prepare an inheritance, we can help you to assess the different options available to you and your family.

Please contact our email at enquiries@blackswanfp.co.uk or call 020 3828 8100.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.