The great wealth transfer

For most parents, passing on wealth as inheritance is planned - yet there’s divided opinion about when that money should be passed down to the next generation.

Parents are keen to hand over money to help grown-up children in the here and now – rather than much later in life receiving this money as inheritance – new research from Barclays Wealth Management has shown¹.

Everyone surveyed said they intend on passing an inheritance onto their children, with almost two in five (37%) anticipating gifting more money this year to help their children with the rising cost of living. The study showed that the money is intended to help their children more with immediate living costs, as opposed to bigger purchases like property.

However, the oldest of the millennial generation would prefer their parents to use their cash to fund their own, comfortable retirement, rather than receive it as an inheritance.

A third (32%) of adult children would rather their parents kept it all to themselves.

So how do you decide what’s best? Here we weigh up the pros and cons of giving now and giving later.

Passing on wealth now

Pros:

• You can help loved ones financially at a time when they really need it.
• By reducing the value of your estate you can reduce the amount that HM Revenue & Customs (HMRC) can claim when it eventually comes to assessing inheritance tax (IHT).
• There are lots of exemptions which allow you to do this.

Cons:

• You might leave yourself short. With cash required to go further than ever before, almost a third (31%) of the parents of millennials are worried about supporting their own immediate living costs.
• With people living longer, you might simply need more to live on during retirement – even without thinking about long term care.
• One in five (19%) are considering downsizing which can be a good solution but a property half the size doesn’t cost half the value of your home. The numbers might simply not add up.

Passing on wealth as inheritance

Pros:

• It is important to plan for a long retirement, and so you’ll have peace of mind that you will have access to all your savings should you need them.
• It’s likely you’ll need money for long term care. By hanging on to much of your savings you avoid having to burden family with care bills on your behalf. Indeed, of those older generation parents that are worried about funding their whole retirement, over a third (36%) are specifically concerned about funding the cost of care.

Cons:

• You might end up with an estate with a high value which ends up with large inheritance tax bill liability for your family.

Decision time – it pays to talk

Working out how much you can afford to give away during your lifetime isn’t easy with finances being stretched in all directions.

Getting professional help can help with some of the difficult decisions to making sure you can help loved ones and won’t find yourself struggling further down the line.

Whatever route you choose, juggling financial priorities makes communication and forward planning even more vital, but this does not always happen.

Two in five (38%) of parents in our study admit to not speaking to their children about their inheritance plans.

Clare Francis, Director of Savings and Investments at Barclays Wealth Management, said: “Even though most children would be very grateful if their parents are able to pass on some inheritance while they’re still alive, they wouldn’t want them to have money worries in the future as a result. This is why it’s not only important to plan, but also to include your family in any conversations – it can make such a difference and help remove some of the pressure many parents feel when thinking about how and when they’ll pass on their wealth.”

Speak to your Wealth Manager or contact us if you would like to arrange a meeting with a Wealth Planner to discuss your options.

Your Wealth Planner can help you understand the effect of tax on your wealth and offer tax-efficient wrappers for your investments. They’ll be able to guide you towards making the right decision for your financial planning needs. Your planner can't offer tax advice – you should seek that independently. Please bear in mind that tax rules can change in future and their effects on you will depend on your individual circumstances.

This article does not constitute personal financial, tax or legal advice. Each person’s circumstances are different so if you are unsure about investing, you should speak to your Wealth Manager.

The value of investments can fall as well as rise. You may get back less than you originally invested.