Brewin Dolphin : Encourages Families to Discuss Inheritance

20 September 2017

FOR SOCIAL & CONSUMER AFFAIRS / NEWSDESKS

Some families appear to be shying away from difficult conversations as almost half (47%) of UK adults say they have never discussed inheritance matters, according to new research from Brewin Dolphin.

A poll of 4,000 UK adults shows that a quarter (26%) of people say they haven't discussed the subject with loved ones because they're not old so it's not a priority. However, age isn't the only factor preventing people from talking about inheritance, as one in seven (14%) say they don't like talking about death and one in ten (11%) say they avoid it because it's a morbid subject.

While more than a third (36%) of people say they don't feel comfortable talking about their legacy, there are some life events that may prompt people to talk to loved ones about this important subject, such as a health scare (52%), a near death experience (46%) and getting older (46%).

There are also some people who hold the key to unlocking inheritance conversations. After their partner or spouse (32%), people feel most comfortable talking to their mum (8%) or a financial adviser (8%) in the first instance.

Of those who have broached the subject, most (36%) have talked about passing on wealth when they die, a quarter (26%) have discussed will writing and one in five (18%) have discussed passing on personal items such as jewellery and photos. One in ten (10%) say they have talked about which belongings they want to give to loved ones whilst alive.

Liz Alley, Head of Financial Planning Operations, at Brewin Dolphin, said: 'Talking about estate planning is an extremely emotional subject as people generally don't like talking about money or death. However, our research shows that around one in 10 people would like to talk about it but haven't found the right time and some people just don't know where to start (7%).'

Keeping it in the family

The survey suggests as people live longer and have healthier lives, many may be torn between the desire to help loved ones whilst also maintaining their own financial independence. Brewin Dolphin asked people to think about how they might use their current and future wealth. Those who have a plan estimate that 65% of their wealth will be needed to cover their 'cost of living'; leaving them able to pass on a quarter (25%) to loved ones in a will and to share 10% with their family as a 'living legacy' while they are alive.

Gifting wealth - whether it is money, property or family heirlooms - is important to Britons with half (45%) hoping to pass on a legacy to loved ones. The research shows that the most common reason over 50s choose to pass on wealth after they have died is because they are worried they won't have enough money to fund retirement or later life care (52%). Other reasons include wanting to help family members even if they're not here to see them receive it (47%) and leaving younger family members something to remember them by (26%).

Those over 50 opting for a living legacy are motivated by the thought of being around to watch loved ones benefit from their wealth (49%) and thinking that younger family members need the money more than they do (23%). One in eight (12%), also see the financial benefits of gifting money while they're alive and plan to do so for tax reasons.

In fact, more people are stepping in and providing financial support to family members this year, compared to last year. For instance, 59% intend to fund family weddings and deposits for first homes in 2017, compared to 52% of people in 2016.

Liz Alley continued:'Transferring wealth while you're alive can have a transformative effect on both yours and your family's life. While we're seeing an increase in people talking to us about estate planning, we want to encourage families to sit down together and talk about their wishes. The conversation doesn't have to centre on money or be upsetting; it can be nice to talk to older family members about heirlooms they want to pass on. We want to help people start these conversations so they don't leave it too late.'

One of the UKs leading wealth managers offers the following tips to help people start conversations about inheritance with their loved ones:

1. The importance of an up-to-date will
Making a will can be a great excuse to talk to your friends and family about your wishes. The research found just four in 10 (40%) of over 55s have an up to date and valid will. With October marking Free Wills Month, take advantage of the nationwide offer to update your will or write one for the first time.

2. Take advantage of the gift allowance
You can give away £3,000 each year and this will not be subject to IHT. In addition, parents can gift £5,000 to each child as a wedding gift, while grandparents can give £2,500. However, the poll shows one in three people don't know how much you can gift each year without having to pay Inheritance Tax (IHT).

Gifting money regularly throughout the year can be a great way to financially help loved ones and can also reduce your inheritance tax liability. Some people will find it hard asking for money, so try and speak to your children and grandchildren to find out if you can help them with something specific, such as a new car or school fees.

3. Let life events help you start a conversation
The research shows that some life events, such as a health scare, could prompt people to talk to their loved ones about inheritance matters. However, there are some positive events, like a birth in the family or getting married that can also make people evaluate their plans. Use these opportunities as a way of talking to relatives about how you would like to pass on your wealth.

4. Talk about later life care
Social care is a hot topic and many people are worried about how they will pay for care when they get older. As a result, people may be starting to plan for this earlier than previous generations. It's important to talk to your family about the care you want so they stay true to your wishes. This could be the perfect time to introduce the subject of inheritance as estate planning and later life care go hand in hand.

5. Talk about family heirlooms
If you find it hard to approach the subject of estate planning with your family then a good place to start could be talking about family heirlooms. People love to hear stories about older relatives, even if they never had the chance to meet them. Talking about items that are important to you or were important to other family members can be a great way to start a conversation about estate planning.

• This information is for illustrative purposes only and is not intended as investment advice
• The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness
• Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
• The opinions expressed are not necessarily those of Brewin Dolphin Ltd.

ENDS

FOR PERSONAL FINANCE NEWSDESKS

Basic facts about Inheritance Tax:

• When someone dies the value of their estate becomes liable for inheritance tax (IHT).
• Everyone is entitled to pass on assets of up to £325,000 inheritance-tax free. This is called the 'nil rate band'. It hasn't changed since 2009 and will remain frozen until 2021. Any excess above £325k is taxed at 40%.
• The new £100,000 residence nil-rate band was introduced in April 2017. It will increase in steps to £175,000 in April 2020. So from 2020 married couples or registered civil partners with children will be able to pass on up to £1m IHT-free.
• The residence nil-rate band is only available when passing on the family home to a direct descendent, so it is important to consider structuring your estate to make the most of these allowances

Estate Planning - top tips:

Joint tenants or tenants in common?

• How you own your property can have a significant impact on the legacy you leave and the IHT your heirs have to pay. Joint tenants own equal shares in a property. If you die the other owner automatically inherits your share of the property. This overrides anything you say in your will, so you cannot leave your share of the property to anyone else.
• If you want to be able to leave your share of joint asset to someone else, you should seek advice on whether tenants in common is appropriate, and the alternatives options for your estate if not.

Pensions as an estate planning tool

• Pensions are one of the most tax-efficient ways to pass on your wealth.
• If you die before the age of 75, benefits left in a money purchase pension can be paid as a lump sum or income to any beneficiaries, with absolutely no tax to pay. After age 75, benefits will be taxed at the beneficiaries' marginal income tax rate.
• Your beneficiaries get to choose how they take the benefits
• You should seek advice to make sure you are making use of the allowances available to pay money into a pension. Alternatively, you should consider and seek advice on the best ways to structure your retirement plans so that you can preserve the IHT friendly pension funds.

More complicated planning

• Once you have explored simpler forms of planning you may want to consider more complex schemes that can be very effective in reducing an IHT bill. These include:
• Using trusts as a tool to pass wealth down the generations
• Using life insurance as a cost- effective Inheritance Tax planning tool
• Investing in small companies - tax relief is available to encourage investment in certain small and growing unquoted UK enterprises but such businesses are extremely high risk.

Case study - IHT in action: Fund your grandchildren's schools and university fees - and save on inheritance tax

Margaret and Frank are in their late 60s and want to help pay school and university fees for their grandson Joshua, the child of their daughter Jane and husband Tim.

Margaret and Frank have total savings and investments of about £450,000 and they own their £800,000 house outright, which they plan to leave to Jane.

As well as state pensions, Frank receives a final salary pension of £38,000 a year, which increases annually in line with inflation.

The couple's total monthly pensions comfortably exceed their living costs so that they save about £1,500 a month from this income.

The inheritance tax position

The couple's wealth and assets are over the inheritance tax (IHT) threshold. Currently, this threshold is £325,000 per person (£650,000 for married couples or registered civil partners), or £425,000 per person (£850,000 for married couples or registered civil partners) including the residence nil-rate band.

They are also adding £1,500 a month to their savings from pension income they don't spend.

If the couple simply left money in their wills to help pay for Joshua's education, this could mean 40% IHT being charged on their bequest.

• Were they to both pass away today, their estate would be valued at £1,250,000.
• The total estate subject to IHT at 40% would be valued at £1,250,000 - £850,000 = £400,000.
• That would result in an IHT bill of £400,000 x 40% = £160,000.

Cutting the inheritance tax bill

There are a number of IHT allowances that the couple could use to provide financial help for Joshua's school and university fees and reduce their estate.

Using the 'annual gift exemption', Margaret and Frank could each give daughter Jane £3,000 which would immediately fall outside their estate for IHT purposes.

Using another IHT allowance - the 'small gift exemption' - they could each give Joshua £250 a year to help with his school and university fees. These gifts would also be IHT-free but can't form part of any of the other larger gifts.

Margaret and Frank could make further regular IHT-free gifts from their pension income under so-called 'surplus income' rules. They could give up to £1,500 per month to Jane and Tim, which would give the couple another £18,000 a year towards Joshua's education while reducing Margaret and Frank's estates for IHT purposes.

Importantly, unlike other gifts which would only be exempt from IHT after seven years, the above sums from Margaret and Frank would be IHT-free regardless of when they were to die.

If the money is not needed yet, or exceeds education costs, Jane and Tim could invest it to provide additional growth.

Adding it up

• Annual gift exemption: £3,000 per grandparent = £6,000 a year
• Small gift exemptions: £250 per grandparent = £500 a year
• Surplus income from pension: £1,500 a month = £18,000 a year
• Total financial help for Joshua's education = £24,500 a year
• Potential saving on future IHT bill if Margaret and Frank make gifts for 16 years (from age 5 to 21) = £24,500 a year x 16 years = £392,000
• £392,000 x 40% = £156,800

And that is without engaging in any other form of IHT planning, which could reduce the IHT bill even further.

• This information is for illustrative purposes only and is not intended as investment advice
• The value of investments can fall and you may get back less than you invested
• The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness
• Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
• The opinions expressed are not necessarily those of Brewin Dolphin Ltd.

ENDS

NOTES TO EDITORS
Opinium surveyed 4,012 UK adults online between 11th and 17th August 2017.
YouGov surveyed 10,951 UK adults online between 10th and 16th August 2016.

PRESS INFORMATION
For further information, please contact:
FTI Consulting: brewindolphinconsumer@fticonsulting.com / Tel: +44 (0)20 33195642
Richard Janes richard.janes@brewin.co.uk / Tel. +44 (0) 20 3201 3343

About Brewin Dolphin
Brewin Dolphin is a UK FTSE 250 leading provider of discretionary wealth management. With £39.2* billion in funds under management, it offers award-winning personalised wealth management services that meet the varied needs of over 80,000 account holders, including individuals, charities and pension funds.

We give clients security and wellbeing by helping them to protect and grow their wealth, in order to enrich their lives by achieving their goals and aspirations. Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £32.9* billion on a discretionary basis.

In line with the premium we place on personal relationships, we've built a network of 29 offices across the UK, Channel Islands and Ireland, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients' needs at the core.
*as of 30 June 2017