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Top Tips on how to pass wealth on to your loved ones

By Carl Drummond, Wealth Planner 

Inheritance has always been a sensitive subject, not just because of the financial complexities of it all, but also the emotion and family politics involved. Indeed, many of my clients are afraid of confronting family members about their intentions, which can create years of discord.
Sanlam recently conducted a unique, in-depth study of the attitudes of donors (those gifting the inheritance), beneficiaries (those receiving the inheritance) and those who will be handling the transfer (financial advisers, lawyers and wealth managers). Our report – The Generation Game - found a growing divergence between the generations – specifically around their expectation of the financial benefit involved, and how that money should be spent.

It’s good to talk

Our study showed that 38% of under-45s who are expecting to receive a substantial inheritance have never discussed it with the potential donor (usually their parents). While it’s not an easy conversation to have, it’s an important one, not least because potential beneficiaries could be making longer-term financial decisions based on an unrealistic expectation of what they might receive. Worryingly, our study also found that 34% of under-45s said that they are counting on a windfall to help them out financially in later life, and 31% admit to putting saving off precisely because they know they are receiving an inheritance.
Meanwhile, potential donors are concerned about how their wealth will be used when it eventually passes down. Two-thirds of over-55s are concerned that the younger generation are not getting adequate financial advice, and 48% are concerned about how the inheritance they are passing on will be used.
All of this points to one conclusion: families need to sit down and talk about this.

5 steps to a helpful family discussion

Before you have a family discussion about inheritance, you need to have a good idea of your financial position and your intentions:

  1. Who do you want to receive your wealth?

It sounds simple enough, but our study has shown that potential beneficiaries don’t always realise they will be sharing their inheritance with others, such as grandchildren, charities or friends. While this may result in a difficult conversation, at least you will be helping your beneficiaries be more realistic about their financial future.

  1. Establish how much you are likely to pass down

This is quite complex, and it’s worth seeking advice from a financial planner. Firstly, you should write down the total value of your assets, where they are held and how they are invested. (As an aside, it may be worth considering consolidating accounts to minimise paperwork and administration for you moving forward.) Then you need to calculate how much you think you will need for the future. Obviously, this is hard to predict as you don’t know how long you will live and how healthy you will be, but it’s good to make some predictions. Lastly, you need to consider how you would fund possible care expenses if the need arises.

  1. Gift now or leave for later?

Once you have been through this exercise, you should have a better idea of how much money you have, how much you will need, and how much you could potentially gift now.

  1. State your wishes

Do you want to have a say on how the assets are spent or used? Are you happy to provide an outright gift with no conditions attached? State your intentions now so that your beneficiaries know what to expect.

  1. Plan to minimise inheritance tax (IHT)

With the help of a financial adviser, work out your IHT position (in total) and on each asset (individually) you have. Once you have this information, you can start considering how you can reduce your inheritance tax by reviewing all the different allowances and options available. You should also fund your expenses from assets that are subject to IHT, as this will help reduce your taxable estate.
Not only can a Financial Adviser help you with each of the steps above, they can also help you meet and discuss your plans with your beneficiaries. They themselves may need financial advice, especially if they are set to inherit a large sum of money.
Either way, in our experience, it’s best to be open and upfront about inheritance. Otherwise, nasty surprises and false expectations can lead to terrible difficulties further down the line.

Please see the full Generation Game report.

This article has been provided for information only and should not be considered financial advice.  

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.