Generational wealth planning

If you’ve built significant wealth, you might be keen to ensure that you leave something to your children or grandchildren. A generational wealth plan creates a path for you to pass your estate to younger members of your family, to help them achieve financial freedom through their lives. If this is one of your goals, it’s important to plan carefully so you don’t adversely affect the wealth you have.

For example, research suggests that a vast proportion of wealth can be lost when passing it on, especially if inheritance tax and poor financial management take their toll. Understanding some of the steps to take, and when to use helpful tools including trusts, can mean you better protect your wealth through the generations.

How to pass generational wealth down

When it comes to passing generational wealth down there are two key approaches you might want to consider. The first sees you sharing your wealth during your lifetime by way of gifts and financial support along the way. This might take the form of supporting children with house deposits, funding particular life goals such as travel, passing on jewellery and art, or creating an investment portfolio or savings plan which you regularly contribute to.

Any gifts which you make during your lifetime are subject to the ‘seven-year rule’ which says that you must survive for seven years to avoid them being included in your estate for inheritance tax. The exception to this rule is if your executors can show that you’ve been able to gift any excess income over your “normal” expenditure.

The other option is to leave your wealth to your children as part of your estate when you die. This might make sense for some of the assets you hold – for example if there is a family home or other property involved. You might also feel that leaving a legacy in this way happens at the ‘right’ time when your children and grandchildren are at an age where they can appreciate an inheritance. It’s important to fully understand the inheritance tax implications here, and the effect that a potential 40% charge to tax might have on your estate.

Remember too that one of the key factors in seeing a successful transfer of generational wealth is to ensure younger generations have a good sense of financial literacy and understand how you built that wealth, and how they can help protect and invest it in the years to come.

Setting up a trust

Trusts can be a very helpful way of passing on wealth in a structured way. It’s useful to consider trusts like a locked box of treasures which can be opened in certain circumstances, such as when a young person reaches a certain age. Different types of trusts exist, so working with an expert adviser can help you to choose what’s best for you and your family’s circumstances. For example, you may wish to create a trust which holds a sum of money for each of your grandchildren to use when they reach the age of 18. Setting up a trust like this whilst you’re in your 60s gives more scope for you to survive past the seven-year rule and ensure that your grandchildren receive a sizeable amount when they are at an age to use it sensibly for university or a house purchase.

Write a Will

The cornerstone of any good generational wealth plan is an up-to-date Will. A Will is one of the most important documents you’re ever likely to create and details your wishes about what you want to happen to your wealth and your estate when you die. If you don’t have a Will, your estate will be divided by the law of intestacy, which may not fit entirely with your plans. As part of the process of Will writing you will be asked to name the beneficiaries who you to want to inherit your estate. Working through this with an expert can help you explore some of the scenarios to think about, to ensure your wealth is protected through the generations.

Building multi-generational wealth

When it comes to ensuring that you’ve built up sufficient wealth and can afford to leave a generous legacy to younger members of your family, it’s important to consider your investment portfolio. There are of course lots of options to build a diverse range of investments which fit your thoughts about risk and return.

A robust portfolio will focus on risk mitigation and can be structured around your plans for generational wealth planning. You may want to consider investing in stocks and shares, property and other more personal items including art and fine wine. It’s also important to consider tax-efficient ways to grow your portfolio.

Working with an expert financial planner can help you develop your investment plans and review them along the way. Involving your children and grandchildren in this process can also be a powerful step in financial education, enabling younger generations to truly understand your decisions, and the process which is involved in building lasting wealth.

Transferring your wealth

Discussions about money can be far from easy. Research has shown that many people still find it uncomfortable to have family conversations about money and are reluctant to do so. However, by creating opportunities to have clear, open and honest conversations, it’s more likely that younger generations will understand and appreciate the financial legacy left to them, understand how it was built, and what they need to do to help protect it.

Passing generational wealth with Progeny

We’ve worked with families across generations, and across the world, so can help with all aspects of financial planning during your lifetime, and beyond. We can also act as an executor in your Will to ensure your wishes are carried out and your family are well supported during a difficult time. Contact us today to find out how we can support you and your family.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.