Estate Planning: A Quick Guide

It's never too late to pass down your wealth wisely.?

As life expectancy continues to rise, it is vital that wealth transfer takes account of the needs of the person donating the assets as well as the recipient.

What would Warren Buffet do?

In a previous blog we spoke about the importance of preparing the next generation for wealth. However, it is also important that the interests of the generation transferring the wealth are protected once they have handed over assets by making sure they retain sufficient assets to fund their lifestyle.

If you are unsure how much to give your children/grandchildren and when, you might consider the advice of Warren Buffett who suggests that the ideal amount of money to leave a child is ‘enough so that they would feel they could do anything, but not so much that they could do nothing’.

An early inheritance

According to Jocelyn Davis, an estate planning specialist at Tilney, people tend to avoid lifetime gifting because of the fear that they might need the money themselves. In this scenario, cash flow modelling can be used to establish exactly how much money they need for their own future and how much they need to keep back as an emergency fund.

High net worth individuals should consider options such as family investment companies or family limited partnerships. As solicitor Stewart Gibson from Brodies explains, the former freezes the value of assets in the estate and can also offer significant income tax benefits, while the latter operates more like a traditional gift, but it is not limited in value and allows the wealthy owner to retain control over the assets.

Families at war

One of the most common causes of wealth loss is disputes between siblings and other family members over inheritance. To minimise the risk of disputes, the precise transfer of wealth (physical assets as well as cash) should be clearly identified.

This does not necessarily mean that assets need to be allocated equally. You may decide that a child with special needs should receive a larger amount to cover the additional living expenses they will face, or that a son or daughter with a complicated personal life should have their inheritance placed in a trust.

Matter of trust

Older people who are dealing with mental and physical conditions while financially supporting children and grandchildren can become vulnerable to incapacity, bad decisions and abuse.

Financial advisors are obliged to protect the interests of their clients, particularly as people live longer and become more susceptible to conditions such as dementia. They are obliged to communicate any concerns over mental incapacity to their client or the person with lasting power of attorney.

This person has legal permission to make decisions on behalf of the wealth advisor’s client in relation to financial and other assets.

KEY CONSIDERATIONS:

• Don’t underestimate the level of assets required to maintain an acceptable standard of living
• Consider all your options for transferring wealth efficiently
• Be specific about what each beneficiary should receive and when
• Think carefully about who you would trust to exercise lasting power of attorney

With ARQ , prepare for life’s next phases and unexpected events.

Disclaimer: This is not financial advice, simply a financial opinion