in your interest
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THE INVESTOR
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The second generation reaps the
benefit and the third generation
squanders it.’
Nowadays, she adds, changes
in attitude towards debt and asset
accumulation have made people
increasingly materialistic. Family
wealth endures for a shorter time,
often having dissipated by the second
generation. But spending is not
the only risk to family wealth: tax,
divorce, and unwise or uninformed
decisions made by vulnerable
beneficiaries can all have a big impact.
Inheritance
Tax, which
is levied at 40% over the nil rate tax band
threshold, currently set at £325,000, is a major
threat to reducing the legacy for loved ones.
But the erosion of wealth caused by the
divorce of beneficiaries can be more significant.
The impact of settlements or court orders
determining the distribution of assets following
divorce can mean one half of a couple losing half
their wealth.While it may be possible to protect
inherited wealth from settlements, that requires careful planning
and anyone aiming to do so should seek expert advice.Without this,
divorce can significantly deplete family wealth and may also force the
sale of assets that have been in the family for generations. Subsequent
marriages and divorces can also introduce newmembers to the family
– such as stepchildren and stepgrandchildren – who may also need to
be provided for.
A further threat to wealth is the large losses that can be incurred
through paying off creditors, for example if a family business falls
on hard times, or because the next generation has not been properly
educated on how to manage an inheritance. It is therefore essential
to understand the options and to build a flexible plan for the future, to
ensure that assets are preserved and protected until the next generation
is old enough and wise enough to manage the family estate themselves.
‘Wealth should provide reassurance, not cause worry,’ says
Loydon. With careful planning and the right will, it is possible not
only to minimise taxation but also ensure the protection and growth
of funds to benefit a family for decades to come.
‘There is a wide range of measures that can be put into place
to help individuals and families achieve the goals they have in mind.
Trusts still play a major role in succession planning, but it’s about
structuring them properly.There may also be other simpler planning
methods individuals can use,’ Loydon says.‘There is a lot to consider,
including what you want to achieve for your family or family
business, and how your money will be invested and your assets
protected. Providing the flexibility to allow
your plans to adapt to changing circumstances,
needs and legislation is imperative.’
The sooner this process is started,
the greater the chances of success. Early
preparation means there is time to establish
plans properly, implement what’s required
and, where necessary, to start preparing heirs
to deal with the management of wealth. For
some it might be sooner than anticipated; for
many they don’t learn until it’s too late.
Loydon says:‘Every day I work with families whose needs are
different, with different beneficiaries at different stages financially
and different attitudes and abilities towards managing money. But
one thing most families share is the common goal to do the best for
themselves and their successors.There is no one right answer, but the
impact of taking no action can be devastating.Take advice, start a plan
and leave a legacy…don’t let your family wealth line the pockets of
those you don’t choose to.’
Balance sheet
No matter the level of your wealth, leaving a lasting legacy for future
generations of your family is not guaranteed without careful preparation. It is therefore
essential to understand the options and build a flexible plan as soon as possible.
Leave a legacy…
don’t let your family
wealth line the
pockets of those you
don’t choose to
the cost of inheritance
Inheritance Tax is levied at 40%
for all assets over the current nil
rate tax band of £325,000
Thirty million UK adults are living
without a will
1
In the tax year ending April 2013,
£3.1bn of Inheritance Tax was collected
by HMRC, up from £2.9bn in 2012
2
40% 30m £3.1bn
1
2
