How well prepared are your family to succeed in inheriting your wealth?

Passing on wealth comes with its own particular set of worries. Everything from tax due to how the bequest is structured, and how it is divided, can create uncertainty without the right preparation.

Aside from the wealth itself, there are important emotional and psychological considerations. A question worth asking yourself is: are all your relatives fully equipped to take on the responsibility of managing your inheritance?

Reaching a confident answer could take longer than you think. As ever, it’s better to plan well ahead, difficult though it may be, but it will give you peace of mind that you have left your loved ones not only your assets but also equipped them to manage them sensibly.

You will also have helped to make them more familiar with what they need to be thinking about to make the most of what they will own.

Gifting allowances and key measures such as the ‘seven-year rule’, is just one prompt which may cause you to think more seriously about starting to pass on your wealth at an earlier stage than you might realise.

A potential pressure point which could loom is young adult children – or whoever you pass on wealth to – might not be sufficiently psychologically or practically prepared to take responsibility for their inheritance unless these following steps have been thought through.

Prepare practically

Deciding how and when control is passed to the next generation, right alongside considerations about the legal and tax implications, is one thing. Making it easier to understand and absorb another. Giving yourself time is likely to help everyone.

Getting children and grandchildren involved early on – even if it is understandably sensitive – is a way of easing them into what will often be quite unfamiliar territory. It’s helpful to break it down into three manageable areas of focus.

Financial education in expectation

Financial education goes beyond ensuring your family know how mortgages and pensions work. While important, making sure they understand properly your values and what any inheritance is likely to entail in terms of what they’re able to handle or when to take advice, can help to set the scene.

Sharing your view for their future with what you have bequeathed, is a deeply personal step to take and shouldn’t be underestimated. Is philanthropy part of your legacy? You might want to ensure your wealth is spent wisely and lasts for as long as possible. Or both.

Just two areas which can colour decision-making, such as risk or asset choices in structuring inheritance. Sharing your thinking means everyone can grasp more clearly what lies ahead and your intentions for how they should both manage and benefit from it.

Familiarity builds confidence

Your heirs ought to be aware, at this stage, that they will come into money. They also need to appreciate how this wealth is managed.

This may mean telling them how it was generated in the first place and its ongoing management to forge a meaningful connection for these next steps. When you feel they are ready, including them in conversations and meetings with your financial adviser is a practical way to make them feel more involved in the process.

Once they know more about your assets and investment strategy, it becomes a more nuanced relationship. For example, the implications for overseeing properly a buy-to-let (BTL) portfolio are quite different from owning a business or being part of a global investment vehicle. Do what you can to increase understanding and awareness and build confidence in a shared vision for the future.

But it’s not all one-way traffic: what are their own ideas, preferences or goals? You might have a very healthy BTL income but if your child has zero interest in ever managing it, this could have significant consequences. Bluntly, you might have to consider whether passing the portfolio on as it is, or converting it to cash, equities or other products, could make more sense.

Reasoning helps understanding

It can really help loved ones if you share your reasoning for the decisions you’re taking. For example, why you opted for a pension lump sum, where assets are located and how and when you intend to pass them can all matter.

Offering your rationale can help them to build on the knowledge of what is coming their way and how they’re expected to deal with it. It becomes more than just a set of instructions and instead represents a shared aspiration.

Passing on your wealth is one of the most important decisions you will ever make for your portfolio so, by definition, it is not easy. In a sense, the tax, growth and everyday management ahead should be the least of your worries as these are in the hands of your adviser.

It’s the emotional, psychological, and practical implications for your family which should not be underestimated. They can take comfort in the fact that you are able to factor in these aspects by taking the first steps in good time.

Get in touch:

Passing on wealth involves more than managing tax. It can also mean thinking about how your beneficiaries might approach the responsibility, and whether they have the understanding and confidence to make informed decisions. Starting these conversations early may help reduce uncertainty and support a smoother transition over time.

Please contact your Foster Denovo Partner or email advise-me@fosterdonovo.com or call 0330 332 7866 for more information.

Please note:

This article is for information purposes only and does not constitute advice or a personalised recommendation. It is based on our understanding of current and proposed legislation, which may change.

Your property may be repossessed if you do not keep up repayments on your mortgage.

The tax treatment depends on the individual circumstances of the investor and may be subject to change in the future. We recommend that the investor seeks professional advice on personal taxation matters.

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