The future and planning for the inevitable; A family’s most difficult conversation

Merely talking about the topic of inheritance is enough to make any British person squirm. With family finances largely regarded as a taboo topic in our tight-lipped culture, it should come as no surprise that we tend to shy away from talking to our loved ones about taxes, wills and, indeed, the inevitability of death.

If, while reading this, you are coming to the realisation that your family has never talked about inheritance, rest assured that you are not alone. According to a 2016 report, a mere five per cent of people in the UK have sought Inheritance Tax advice in the past. What’s more, recent consumer research has revealed that a staggering 59 per cent of UK citizens have never asked for financial guidance either from experts or non-expert sources such as family members or colleagues.

With the inheritable wealth of those currently in their 20s and 30s set to double over the coming two decades, however, there has never been a better time to start having difficult family conversations about finances.

If you’re reluctant to bring up the subject of inheritance with loved ones, we’ve put together a brief guide to help you through the process and remind you why it is so vital. Whether you’re a grandparent, a parent or a young person in line to inherit family wealth or investments, you owe it to yourself and others to be open about the future.

So why is talking about inheritance so difficult?

It may seem like an obvious question to ask, but it is one worth unpacking. Most obviously, the prospect of a family member’s death can be highly upsetting, a feeling people would rather avoid.

The topic of inheritance is also bound up with family politics and can be highly contentious. Indeed, there are plenty of channels available for people to send their wealth after they are gone. Often, there are plenty of tough decisions to be made when it comes to deciding how much money to leave relatives, as well as who to trust with prized possessions and family heirlooms. When someone dies, therefore, their family members are often left comparing how much wealth has been left to their other relatives.

Thinking about how wealth will be portioned out can be difficult for families, but it is important to realise that being open and honest about the structure of a will can actually help avoid any future disputes. Explaining the apportionment while the will-holder is still alive can help explain any apparent disparities.

What are the benefits of discussing family wealth plans?

Other than defusing family tensions, discussing wealth plans can also help ensure that family members make the most of their relative’s wealth after they have passed away. Considerations that need to be made include:

Tax issues

Many people overlook the issue of Inheritance Tax, but it affects more people than you might think. Indeed, making plans to mitigate Inheritance Tax by altering the way in which you own your property or how much money to put into a pension plan could leave your relatives considerably better off. To make sure that you approach Inheritance Tax in a smart way, it is a good idea to talk through issues such as pensions and properties with an independent financial advisor.

Financial support

In today’s tough economic times, many people are choosing to offer their loved ones financial support to fund major expenses such as tuition fees, wedding costs, and deposits for getting on the property ladder. This can alleviate a good deal of the stress experienced by young family members and encourage their future prosperity.

Later-life care

Another difficult topic to broach is that of later life care. However, ensuring that people get the care that they want in their later years should be a priority for any family, and is tied in with the topic of inheritance. It is important to discuss how later-life care will be covered, for example, as this will avoid any family disputes or financial worries.

Some practical advice from the experts

How to initiate conversation and overcome psychological barriers

As we have clearly established, initiating family conversations about finances is a tricky barrier to overcome. One way to break it down is to link the topic to exciting development within the family. A new baby, for instance, or a recent marriage are joyful events that offer a gentle way into discussing financial issues.

Another tactic is to seek a wealth management firm to help guide conversations and offer invaluable financial advice. As Paul Huggins, an Independent Financial Advisor at Huggins Wealth Management explains, “Once families realise that their money can either go to HMRC or to their loved ones, the subject of inheritance becomes much easier to broach. What’s more, wealth management experts can answer complicated questions quickly and accurately, making the process much less stressful than it would be otherwise.”

A financial advisor’s view on Inheritance Tax

Inheritance Tax can seem complicated to the uninformed and can significantly affect how much a person’s family members receive after their death.

According to Huggins, “Wide-scale home ownership and rising property values have meant that more people are being subjected to Inheritance Tax every year. In many cases, this tax is lawfully avoidable.

“There are a number of ways that families can plan for Inheritance Tax while staying within the law. Indeed, tax planning is lawful - tax avoidance certainly is not. With thorough financial advice, a family can, in many instances, avoid Inheritance Tax altogether.”

Options to think about

There are a number of options open to people when writing a will or making plans for the future. For example, under the current gift allowance laws, you are able to give away £3,000 a year to family members that will not be subject to Inheritance Tax. Parents can also gift their children £5,000 as a wedding present, whilst grandparents are able to gift £2,500.

Gifting money regularly is one way to reduce how much Inheritance Tax you have to pay, so it is a good idea to discuss this with family members. This money - known as a ‘living legacy’ - is a great way for older people to enjoy seeing their wealth being enjoyed by loved ones whilst they are still alive.

Don’t hesitate to get talking today

Hopefully, this brief guide has made thinking and talking about family finances seem a little less daunting. It may feel a little unnatural or morbid at first, but sparking open conversation is the best way to ensure that your family prospers for decades to come.

Important Notice: All advice and tax treatment depends on the individual circumstances of each individual client and that current legislation/tax treatment may be subject to change in future. Please be aware that:

  • Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances.
  • Tax laws can change.
  • The Financial Conduct Authority does not regulate tax advice.

The information in this article does not constitute personalised advice. You should contact your financial adviser for personalised advice including the suitability of any particular product or service for you. The information in this article should not be construed as an offer, invitation or recommendation to invest or take any other action.