Have you ever been embroiled in a lengthy and contentious battle over a deceased family member’s estate? The breakdown in relationships and emotional stress begin to take their toil, not to mention the legal fees that escalate beyond control. As we shall see, the outcome does not always align with the wishes of the deceased. How you manage your generational wealth today will have significant affects not just for your children but also for your grandchildren, so let’s take a look at what you need to do.
Generational Wealth in simple terms
Consider the grand sum of all of your wealth. It may include cash savings, pensions, property, land, shares or Elizabeth Taylor’s jewellery collection. It is pretty much guaranteed that at some point in time these will be left to your beneficiaries, such as your spouse, children, siblings etc. The legacy of wealth you leave behind, not including the happy memories, will be your Generational Wealth. This wealth may in turn, be passed on through subsequent generations.
When did you last update your will?
Writing a will is the obvious starting point for protecting your generational wealth and ensuring your assets are distributed in accordance with your wishes. Creating a will is cheap, easy and quick, giving you protection and great freedom to designate your beneficiaries. It would be sensible to assume that having a will in place will be a case of ‘job done’, however there is far more to it than many people think.
Heath Ledger, the famous Hollywood actor, had indeed written a will before he died from a prescription drug overdose aged 28. However, the will was written before the birth of his daughter which meant she was not included in it. This could have led to a complicated legal battle had it not been for the fact that she was mentioned as a beneficiary on his life insurance policy. But that’s not all.
On the will, Heath Ledger’s residential address was in Western Australia. At the time of his death he was living in New York. Although this was not a big complication, updating his address on the will to New York would have resulted in a lesser tax bill for his beneficiaries. The lesson here is to keep your will up-to-date and accurate, reflecting any changes that may affect the distribution of your estate. Sometimes though, even that is not enough.
Where there’s a will, there’s a relative
Most people are familiar with the idea that a will can be contested, but none more so than the widow and children of the Godfather of Soul, James Brown. Upon death, James Brown left an estate worth around $100 million with clear instructions that half of his assets should go to his grandchildren while the other half should go to the disadvantaged youths in South Carolina and Georgia. Despite this being detailed in his will, his widow and children successfully challenged it to win half of his estate.
In today’s world a will may not be enough to secure the fulfilment of your wishes and may even cause complications for your heirs that you had maybe not foreseen. Complications such as the two words that many people do not consider until much later in life, inheritance tax.
Inheritance tax and generational wealth go hand-in-hand like two sides of the same gold sovereign. If well-constructed measures are not put in place during your lifetime, a sizeable chunk of your hard-earned assets could be placed in the care of HMRC. While taxation is a necessary component of our society in the UK, inheritance tax is worth your consideration if you are wanting your heirs to benefit from your wealth. So what can you do?
Reducing inheritance tax
50 is about the best age to begin planning for inheritance tax. By this age you should hopefully have gained a fairly solid understanding of who should inherit your wealth and who will use it sensibly. Reducing inheritance tax will involve either reducing the value of your estate and preventing it from growing in value, or owning assets that qualify for relief from inheritance tax such as business or agricultural property.
Reducing the value of your estate can be achieved predominantly through gifts, trusts or poor investment choices. However, we would not condone the latter. It is possible to gift assets during your lifetime without paying tax if they stay within your annual allowance and you remain alive for a minimum period of time afterwards. In addition various trusts can be set up, depending on your specific circumstances.
The beauty of a trust lies in its separation of legal ownership from beneficial ownership, meaning that the assets within the trust can be managed and released in a controlled way and over a period of time. The individuals who are appointed as the legal owners of the trust, the trustees, must manage the trust in accordance with your wishes as set out in a document called the Trust of Deed. For example, in the real world this means the assets can be held until the beneficiaries reach a certain age.
The three key points
- Point one – make sure you have a will.
- Point two – keep your will up-to-date and relevant.
- Point three – understand the tax efficient options that are available to you.
We are passionate about making you a successful and prosperous investor and have something to show for it at the end of your journey. Something that you can be proud of and pass on. As part of our Advanced Training we teach an entire course dedicated to Asset Protection that covers wills, inheritance and future-proofing. However always seek professional advice before making any decisions as the consequences can be significant. Making the right decisions today can make a huge difference to you, your children and your grandchildren in the future. Be smart and make educated decisions.