Estate Planning is seen to be a heavy subject that a lot of people tend to put off, it can seem daunting and complicated. As your clients' adviser you can help put them at ease, introduce the subject to them and help them identify how estate planning can be beneficial for them, particularly as circumstances change in their lives and in the wider economic environment.
There are some aspects to consider with clients and their circumstances that can open the door to a range of estate planning conversations.
What to do with inheritance?
The average age of inheritance is 47 and more than 11.6m people received an inheritance between 2011 and 2021 with average pay outs of £65,600.*
Around 34 per cent - around 3.9 million people - have invested or saved some or all of the cash, and 1.7 million have paid off their mortgage. A further 1.1 million have used the money to buy their first home thanks to an inheritance and nearly one in 10 have even put some or all the cash into their pension.*
As the cost of living has risen sharply, wealthy parents are also looking to give away some of their assets earlier. Not only to support their children financially, but to also begin planning for inheritance tax. This could require consideration of a Gift with reservation of benefit or a Potentially exempt Transfer
All of this ideally requires conversations to help advise clients on how to potentially allocate their inheritance and use wisely – conversations that should happen with you, their adviser or broker.
Inheritance tax impact from rising estate values
Rising inflation, combined with frozen inheritance tax allowances, is also impacting families across the UK.
A record £3.5 billion of inheritance tax was paid between April and September 2022.
The nil-rate band has been frozen for more than a decade. This allowance, and the residence nil-rate band, are fixed until at least 2028.
PwC calculate that if the £325,000 nil-rate band had instead rose in line with inflation every year since 2009, it would stand at £478,078. This would have allowed a further £153,078 to be left to loved ones tax free.
Inflation has also seen a 40-year high in the last year and the value of estates has risen to such that one in 42 homes is now worth more than £1 million – the need for effective IHT planning becoming even greater.**
It may be worth reviewing your clients financial situation and discussing with them their current position and if they need to consider any potential IHT implications.
Growth of blended families
Households of blended families has increased with over a third of households now raising children from other relationships. So it stands to reason that there will be demand for legal and financial advice.
Couples in blended families often face complex estate planning challenges, such as the dilemma of providing for their partner should they die first whilst also ensuring their own children will inherit their estate. They may have assets which they have brought into the relationship that they wish to ringfence for their own children.
As far as ‘blended’ families are concerned, the situation is likely to be complex. Without professional advice, blended families face the risk of costly legal disputes and the breakdown of family relationships. A professionally drafted Will can help reduce this risk and ensure that the right balance is achieved between providing fairly for all the children of the family and the surviving partner.
In a blended family situation, failure to make a Will can lead to the children of either party being disinherited.
As families merge then new financial planning is often required, including wills, LPAs, trusts and IHT considerations.
By understanding your clients and their current circumstances you have the opportunity to support and advise them in a range of scenarios. Estate Planning can quickly become a natural part of your conversations with opportunities for you and future security for the client.
Get in touch with our team to have a chat about how you can introduce estate planning into your offering to better meet your client needs. Call 01522 500823.
*wealthadviser.co
**www.ftadviser.com