Article Intergenerational wealth planning provides opportunity

There’s no doubt that wealth is measured uniquely across generations. While one generation has accumulated wealth through buying valuable homes in their twenties, the other seems to be financially unstable at the same point in their lifetimes.

Take ‘Baby Boomers’, for example, generally those born between 1946 and 1965. They own over three quarters of the UK’s property wealth¹, and have accumulated pension wealth through defined benefit pensions.²

This is in comparison to Millennials, those born between 1981 and 2000, that face higher levels of financial insecurity at a similar point in their life cycle to previous generations. Or Gen X (the ‘Sandwich Generation’, born between 1966 and 1980), who appear to financially support both their children, and ageing parents.²

This article seeks to highlight how advisers could benefit from the opportunities presented by the financial legacy of families, ultimately future-proofing their business.

1. Get friendly with your client’s beneficiaries

As an adviser, you can engage in intergenerational wealth planning by encouraging various generations of your client’s family to meet and talk about money.

It can be a tricky situation to manage, but as a trusted third party, you can remind your clients of your impartiality. You can guide these often difficult discussions – discovering what works best for everyone. You can help by explaining what the role of a personal representative, attorney or trustee involves, and what will happen to the client’s pension, investments and protection policies when they pass away.

Be open about money taboos and reservations

Clients may be reserved about talking about their finances in front of their children and grandchildren. They might not be comfortable talking openly about inheritances, especially if there are complex family circumstances. Or, it could simply be awkward to discuss how a client wants their wealth to pass to the next generation, where one beneficiary is to benefit to the detriment of another. Remember that everyone is human, and has their own side to a story – so it’s important to listen to them all.

Plan ahead together

Sharing an agenda and the objectives of the meeting first with your client and their beneficiaries, could help show them what they’ll get from that conversation and what, and if, they need to prepare anything beforehand. It’s likely that these conversations will become emotional and you’re there to help support and keep everyone on track to achieving the purpose of the meeting.

By facilitating these conversations, you present the opportunity to form a relationship with your client’s beneficiaries and gain insight into their own circumstances, values and aspirations.

2. Highlight the value of advice to the different generations

Engaging in these family meetings could help you to highlight the value of a financial adviser to the next generation. In turn, you might retain the beneficiary as a future client and be able to provide future advice to them in relation to their own investments, pensions and protection needs.

Consider young people in your proposition

The younger generation may not value face-to-face advice in the same way as older generations, with online ‘finfluencers’ becoming more popular.³ You’ll have to give some consideration as to how you’re going to develop your future advice proposition to meet the needs of future generations, if it’s to appeal to them.

You can read our articles on what Gen Z wants from financial advice, and how to keep up with finfluencers if you’re looking to expand your reach to a younger audience.

3. The different types of wealth transfers – meeting your client’s wishes

Passing on wealth to those that matter most to your client can involve a number of different considerations – for example: wills, powers of attorney, trusts and death benefit nominations.

It’s important to review these to make sure that they’re still up to date and meet the client’s objectives. If the client hasn’t put these legal documents in place, you can help by explaining what will happen to their finances without them in the event they become incapacitated or pass away.

Make sure wills cover complex modern family circumstances

If a client doesn’t have a will in place, advise them to consider making a will at their first opportunity, but be aware that modern family circumstances can be complex.

If the client doesn’t have a will in place, then their assets will devolve in accordance with the intestacy rules. If a client is unmarried but living with a partner, or if they have a step or foster child that they would like to benefit, then it’s important that the client makes a will to ensure that these parties can benefit. Under the current intestacy rules, they wouldn’t.

A client may want to include trust provisions within their will to cater for a minor child, to pass assets on to the next generation in a controlled fashion or to provide for a disabled beneficiary following their death.

Cover inheritance tax (IHT) planning with your client

These wealth transfers take place in a backdrop of rising IHT liabilities. HMRC received £5.7 billion in inheritance tax (IHT) receipts in the seven-month period from April to November 2024, which is an increase of £0.6 billion compared to the same period in the previous year.⁴ 

The IHT nil rate band is frozen at £325,000 until April 2030, but announcements in the Autumn Budget 2024 saw changes meaning many unspent pension pots contributing towards the value of the IHT estate after April 2027.⁵

Read more about this in our Autumn Budget 2024 analysis.

What if your client wants to transfer wealth during their lifetime to mitigate IHT?

If a client would like to pass wealth to the next generation during their lifetime, they will require IHT advice. There are a number of different IHT exemptions:

1. Small gifts exemption

Allows a client to make as many small gifts as they want during the tax year, of up to £250 per person, so long as these gifts aren’t covered by another exemption.

2. £3,000 annual IHT exemption

If it isn’t used in one tax year, it can be carried forward for one tax year only. If a married couple haven’t used their annual allowance in the previous tax year, then this would mean they could make a joint gift of up to £12,000 in the current tax year.

3. Normal expenditure out of income exemption

For example, does the client have surplus income, such as pension income, that they could gift year on year to make use of the normal expenditure out of income exemption? There are three conditions which the client has to satisfy for the exemption to apply:

• The gifts have to be out of income after tax.
• The gifts have to be regular in nature.
• The client still has to have enough income available to maintain their lifestyle following the gifts.

A client can formally document their intention to make these regular gifts in a letter to the ‘donee’ to provide evidence of their intention to make these regular gifts.

4. Gifts in consideration of marriage

Allows a client to make an exempt gift of £5,000 to their child when they’re getting married or £2,500 to a grandchild or £1,000 to others.

Discuss larger one-off gifts with your client sooner rather than later

A potentially exempt transfer (PET) is a gift from one individual to another or to the trustees of a bare trust or certain disabled trusts. A PET falls outside the donor’s IHT estate after seven years have passed.

It may be better to consider lifetime gifts while the donor is capable of making them and is likely to survive the seven-year period following the gift.

Delivering against your client’s objectives and wishes

Having regular discussions with your clients to understand what they would like to happen to their assets when they pass away will help you meet their wishes.

Where possible, forming relationships with your client’s personal representations, attorney, business partners and beneficiaries can help you be the conduit for the transfer of wealth to the next generation. This will hopefully retain the relationship with these existing and prospective clients meaning that assets under your management are retained or increased.