Introduction
Talking about money isn’t easy for most families, but it’s a crucial conversation especially when it comes to planning how wealth will be passed on to future generations. While we often avoid discussions around intergenerational wealth, particularly regarding inheritance and taxes, it’s vital to approach these conversations head-on. By doing so, you ensure that your wealth is transferred smoothly, your family’s financial future is secure, and any potential inheritance tax (IHT) burdens are minimised.
Intergenerational wealth transfer isn’t just about passing down assets; it’s about preserving family values, maintaining financial security, and ensuring that your loved ones are equipped to manage the wealth responsibly. In this article, Luke James Chartered Financial Planner at Lucent, guides you through the key steps to begin and maintain meaningful conversations about family wealth planning, how to overcome generational differences, and why professional advice can be an invaluable part of the process.
What is Intergenerational Wealth?
Intergenerational wealth refers to assets both financial and non-financial that are passed down from one generation to the next. This includes everything from savings, property, and investments to family businesses, heirlooms, and even the values that guide financial decision-making. It’s not just about the financial aspects, though wealth transfer is often a major part of the conversation; it also involves legacy how you want your family to manage, use, and enjoy that wealth over time.
When we talk about intergenerational wealth planning, we’re looking at more than just the transfer of assets. It’s about ensuring that those assets are used in a way that reflects the family’s shared values and long-term vision, while also reducing tax liabilities and avoiding conflict.
Triggers for Discussing Family Wealth Planning
Knowing when to start the conversation about wealth transfer is half the battle. Often, these discussions are triggered by general conversations when on a family holiday or key life events. Retirement, for example, is a common catalyst for wealth planning conversations, as it prompts individuals to think about how they’ll provide for their future and that of their family. Similarly, the birth of grandchildren, a significant inheritance, or even a major health scare can prompt families to begin planning ahead.
Tax changes, particularly with regard to inheritance tax, can also be a good trigger to reassess estate plans. If the inheritance tax threshold changes, or if there are new tax breaks or exemptions, it’s wise to review your wealth transfer strategy. Regular reviews and updates to your plan are essential to ensure that it remains relevant in light of evolving circumstances.
Our advice – don’t wait for a trigger, be the trigger! Not everyone gets a trigger moment when they can discuss these things, sometimes life happens and it’s too late.
How Can You Start a Conversation Around Succession Planning?
Starting the conversation about succession planning can feel like an awkward challenge, but it doesn’t have to be. The key is to approach the topic with respect, openness, and a clear sense of purpose. It’s essential to lead with the understanding that these discussions aren’t about controlling the family’s wealth; rather, they are about ensuring everyone is on the same page about what happens to it in the future.
Begin by asking simple questions about how each family member feels about the idea of wealth transfer and inheritance. You could start by addressing any concerns that your children or other family members might have. Use natural life events such as retirement, major milestones, or anniversaries as opportunities to bring up the subject in a casual, non-confrontational way.
If the conversation feels too difficult to initiate on your own, it might be worth involving a professional, such as a financial planner or estate solicitor, who can facilitate the discussion and provide a neutral perspective. A professional can help guide the conversation and ensure that all aspects of succession planning, including potential tax considerations, are covered. On top of this we are completely unbiased, this isn’t emotional for us and that can help us lead the conversations.
"Opening the conversation about wealth transfer is often the hardest part. But starting early, with clear intentions and an understanding of family dynamics, sets the foundation for successful wealth planning and inheritance tax minimisation."
Keely Woods – Chartered Financial Planner
The Family Dynamic
One of the most challenging aspects of intergenerational wealth transfer conversations is navigating family dynamics. Siblings, children, and extended family members may have differing views on wealth, inheritance, and financial independence. These differences can complicate the conversation and, if not handled well, can lead to disagreements or conflict.
As the wealth creator, it’s essential to take a proactive role in ensuring everyone feels heard and understood. Be transparent about your wishes and be prepared for differing opinions. Encouraging open, honest communication while also respecting privacy and personal boundaries is key to creating a plan that works for everyone.
Addressing potential family conflicts early on, whether about fairness or how assets should be allocated, can help smooth the process later. By making sure each family member is involved in the conversation, you can avoid misunderstandings or resentment after the wealth transfer.
Make no mistake these conversations are going to happen at some point. Your decision is whether you want them to happen while you are still here and able to do something about it?
Building a Foundation of Trust
Trust is at the heart of any successful family wealth transfer plan. If family members don’t trust one another—or don’t trust the wealth management plan—it can undermine the entire process. Building trust starts with transparency and clarity. Ensure that everyone understands the reasoning behind your decisions and the financial strategy you are employing.
This is also a time to communicate your broader goals for the family legacy. Is it about keeping the family business running? Or perhaps providing financial support for future generations to pursue higher education? Sharing your vision for the wealth can help build a strong foundation of trust.
Trust can also be maintained by encouraging ongoing conversations. Don’t leave it to just one discussion; wealth transfer is an ongoing conversation that should evolve with the family’s changing needs.
Encouraging Ongoing Conversations
Wealth transfer conversations should never be a one-off event. To maintain family harmony and ensure that everyone is aligned, these conversations should be regular, ongoing discussions. Revisit the plan periodically to account for changing circumstances—whether financial, personal, or related to family dynamics.
Involving younger generations in these discussions early on helps them understand the value of wealth, how to manage it responsibly, and how they can be a part of the legacy. The more they understand, the better equipped they’ll be to handle the inheritance, reducing the risk of conflict when the time comes.
Having these conversations regularly also makes everyone feel a lot more comfortable discussing these topics. Generally, these conversations become more productive over time.
Older Generation Concerns
Older generations often face specific concerns when it comes to discussing wealth transfer. One of the most common worries is the loss of control over their assets. Parents may worry that passing on their wealth too early could result in family members mismanaging it, or they might be reluctant to part with assets they’ve worked hard to accumulate.
Additionally, there’s often a fear that the conversation about inheritance could cause friction between family members, especially if there’s any perceived inequality in the distribution of assets. Acknowledging these concerns and addressing them head-on, while ensuring that everyone has a chance to share their views, can help alleviate the stress associated with these discussions.
Read our article 16 tips on how to discuss estate planning with your parents
Younger Generation Concerns
On the flip side, younger generations may have their own concerns about receiving wealth. The responsibility of managing an inheritance can feel overwhelming, especially for those who haven’t been taught about financial management or the complexities of estate planning.
Younger family members may also feel uneasy about the perceived expectations that come with inheriting wealth. They may worry about the pressure to maintain the family legacy or about potential family conflicts that could arise after receiving the inheritance.
It’s important to acknowledge these concerns and create a space where younger generations feel comfortable asking questions and discussing their feelings. This open dialogue can help ensure that they are prepared to manage their inheritance responsibly.
Will Seeking Professional Advice Help?
Wealth transfer and succession planning are complex topics, and seeking professional advice is often a wise decision. A financial planner, estate solicitor, or tax advisor can provide expert guidance on the most effective strategies for managing wealth transfer while minimising inheritance tax (IHT) liabilities.
Professional advice also ensures that your wealth transfer plan is legally sound and tax efficient. A well-structured estate plan, including wills and trusts, can help protect your assets, prevent family disputes, and ensure that your wealth is passed down according to your wishes.
"Seeking professional advice isn’t just about managing wealth; it’s about ensuring your family is equipped to carry forward your legacy, handle tax complexities, and have the tools to sustain wealth for generations."
Ellie Pemberton – Financial Planner
Summary
Managing intergenerational wealth transfer conversations isn’t easy, but it’s essential for preserving family wealth, ensuring that your financial legacy is passed down smoothly, and reducing the burden of inheritance tax. By starting these conversations early, fostering trust, and seeking professional advice, you can create a wealth transfer plan that works for everyone involved.
The key is to keep the dialogue open and ongoing, so your family can make informed decisions about how to manage, use, and enjoy the wealth you’ve worked hard to build. With thoughtful planning and communication, you can ensure a smooth transition for the next generation and beyond.
Disclaimer: This article does not constitute financial advice. We recommend that you speak to a qualified financial planner for advice tailored to your individual circumstances and goals. Financial markets may go up or down, and you are not guaranteed a return on your investment. Past performance is not necessarily a guide to future performance.
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