Inheritance can be a difficult subject to bring up with your loved ones. Yet, sitting down with your family to discuss wealth transfer would help you to gain a deeper understanding of their different expectations and resolve any potential disagreements. In this series on the Great Wealth Transfer, Jonathan Gain, CEO of Stellar Asset Management, looks at how to get the conversation going in a way that engages and benefits all the various members of your family.
Few people feel comfortable talking about money, least of all the ‘great taboo’ of inheritance. Indeed, one study found that a fifth of British people feel that inheritance is the most awkward thing they could ever discuss. So why are families so reluctant to discuss wealth transfer and why might they be losing out as a result?
Leaving it too late
Many people would rather not talk about inheritance because it reminds them of their mortality. The time they finally do initiate these conversations is often when they have had a sudden health scare and are worried that they will not be around for much longer. By then, however, the time to plan may be limited.
By talking to your family now, you can not only broaden your options, but also discuss ways to benefit your loved ones when they need it most. This might be helping younger family members to put down a deposit on a flat, rather than simply passing on the money when they are in their fifties and sixties and are already well set.
Saving your family from a hefty tax bill
Failing to discuss and plan wealth transfer also makes it more likely that your beneficiaries will be left with a 40% inheritance tax (IHT) bill. Giving while you are living could eliminate the IHT. However, it is important to sit down with your family to agree on the best approach. Possible options include a gift or lifetime trust. However, these need to be in place for at least seven years to be IHT free. They also come with a lot of restrictions and legal costs.
A generally faster, more flexible and less complicated alternative to gifts and trusts is Family Trading Companies. By investing in assets qualifying for Business Relief, your family’s capital can be IHT free in two years. From April 2026, the Government plans to impose a £1 million cap on full Business Relief, but the vast majority of Family Trading Companies assets would still be below this ceiling. Sums above £1 million would qualify for 50% IHT relief.
Five ways to set up a great conversation
So how can you overcome the reservations to get the wealth transfer conversation – or more likely conversations – underway? Five priorities stand out:
- Create an emotional connection
A good way to break the ice is talking about what your parents left you and what it meant – this could be a valuable piece of advice or family heirloom as much as money. You can then ask your loved ones what they would want from you – it might be an item with emotional significance or the chance to invest in the future for them and their family.
- Focus on the here and now
Focusing the conversation on life planning rather than what happens when you have gone can help to dispel some of the awkwardness and create a sense of urgency within the various members of your family. Topics to bring up might include how to eliminate IHT or help loved ones at a time of financial need.
- Agree to disagree
By explaining why you have made certain decisions, there will be no surprises Moreover, by sharing your thinking in person, you can gauge the reaction and find ways to resolve any conflicts. Financial goals will invariably differ from one family member to the next. However, you do not have to find a one-size-fits-all solution. One of the great advantages of the Family Trading Companies option is that each beneficiary can be the sole shareholder in a company specifically set up to meet their particular objectives and investment preferences. The big risk is allowing these conversations to turn into a lobbying session. It is your money at the end of the day and you should have the final say. Choosing Family Trading Companies over a lifetime gift or trust would enable you to pass on your wealth in the way that you choose, while retaining control over the assets for as long as you want.
- Prepare your heirs
You might be worried that beneficiaries will not know what to do with their newfound wealth or fritter it away on spending sprees and ill-judged investments. Encouraging them to become involved in your estate planning at an early stage can therefore help to boost their financial literacy and responsibility. A good way to prepare your heirs is to pass on the money a little at a time and see how they react. Using the money to pay off debts or get on the housing ladder are all signs of sound financial sense and a reassurance that further funds will be well spent. However, if the money is gone almost as soon as it is handed over, it might be time to invite them around for some one-on-one guidance.
- Seek out a good adviser
Good advisers are keen to engage with all the different generations within the family, guide them through the discussions and draw out what each beneficiary may want or need. They can also explain the pros and cons of the different wealth transfer solutions and advise on what would work best for your particular family.
