If you are in your thirties or forties, passing on your wealth is likely to be the last thing on your mind. You may also be reluctant to discuss inheritance with your parents and grandparents. Yet, with inheritances set to make up 14% of a millennial’s average lifetime earnings, it is better to start planning now rather than leaving the timing and direction of wealth transfer to chance.
In this in our series on the Great Wealth Transfer, Jonathan Gain, CEO of Stellar Asset Management, looks at how to start creating an enduring multigenerational financial solution, which can not only benefit you and your family now, but also long into the future.
The UK’s baby-boomers are set to pass on more than £5 trillion to their millennial and Gen Z children over the coming 30 years in what has come to be known as the ‘Great Wealth Transfer’. Given the staggering amount of money involved, it is surprising how few families discuss how to make the best use of and manage these funds.
Putting your money where it is needed most
So why should you start the wealth transfer conversation now? If you are a baby-boomer, the first key reason is the risk of the money going to the wrong people at the wrong time. The default is leaving your assets to your kids when you die. But your children could be near retirement themselves by the time they receive their inheritance (UK millennials will have to wait until they are 61 on average).
It may therefore make sense to skip a generation by passing the wealth to your grandchildren so they can use it when they need it most – paying off student debt or getting on the housing ladder, for example. You might also think about transferring the wealth when you are alive rather than gone, so your beneficiaries are not left to pay 40% of it in inheritance tax.
Safeguarding your wealth
The big risk is squandering away the inheritance or losing it through poor investment choices. A 20-year study in the US found that around 70% of affluent families had lost their wealth by the second generation, and 90% by the third. The losses are often put down to what has come to be known as the ‘generational wealth curse.
In reality, the problems are more likely to stem from lack of guidance and support. Further research in the US found that more than half of beneficiaries are unsure about how to manage their future inheritance.
Talking to your parents’ financial adviser could help. However, research in the UK suggests that surprisingly few advisers engage with beneficiaries or try to get to know about their ambitions and expectations. This disconnect is often compounded by a reluctance to hire and train the younger advisers who younger clients would prefer to work with. Despite the fact that nearly 60% of financial advisers are aged over 50, three-quarters of practices have no active policy to hire younger advisers.
Five ways to take the stress out of wealth transfer
So looking across the generations, what would be my five tips for planning ahead and making the most of the intergenerational wealth transfer opportunity?
- Get your documents in order
Start with the basics. Get all your bank records, property deeds and other important documents ready to share. Even if you cannot get everything together in one go, you can still save a lot of hassle by sharing the key log-ins with your partner and next of kin. You can then begin planning ahead, making a will and engaging with your family. - Start the conversation
Sit down with your family. Find out what each of them wants from the inheritance and how to plan for this. You might be reluctant to talk to your family about wealth transfer. However, the sooner you start the conversation, the more you can avoid conflicts and surprises. - Recognise that everyone wants something different
Some family members might want to invest the money, others spend it. If you have a family business, some might want to take it forward, while others will want their share without staying involved. As we explored in an earlier article in the Great Wealth Transfer series, setting up a Family Trading Companies for each beneficiary would allow you to tailor the solution around their particular life goals and investment preferences. - Eliminate inheritance tax liabilities
The other big advantage of setting up a Family Trading Companies is eliminating inheritance tax liabilities. The key is investing in assets that qualify for Business Relief, such as hotels, housing developments and commercial forestry, as they are currently exempt from inheritance tax after two years rather than the seven for a trust. From April 2026, 100% IHT relief will only be available on qualifying assets valued at up to £1 million, with the remainder attracting relief at 50%. However, the vast majority of Family Trading Companies assets would be below this £1 million ceiling. A further benefit of Business Relief qualifying assets is that the investments are not counted in your pension allowance, which could be especially attractive if it looks like you might reach the ceiling before you retire. - Find a good adviser
A good adviser will want to engage with your family and help all of you plan ahead for wealth transfer. They will also be investing in the younger talent and new ways of engaging with clients needed to serve clients, across different generations.
