Succession planning guide: How to talk about inheritance with your children

As baby boomers are starting to think about what to do with the wealth they have accumulated over their lifetime, succession planning is becoming an increasing priority. In this entry, you will get valuable insights on:

  • what is succession planning
  • how to protect children’s inheritance
  • inheritance planning best practices

What is succession planning

Succession planning is the process of deciding both who and how to pass your wealth on and, as such, is often deeply personal. Considerations range from choosing beneficiaries, minimising tax incurred, and optimising timing.

In my capacity as a millennial working in wealth management, I am able to see first-hand the perspective of both the donors and the recipients of this wealth. The donors being our clients, and the recipients – my millennial peers. An observation I have found curious is both the delay in creating a succession plan and the minimal involvement from the beneficiaries. Could this be as a result of busy lives getting in the way, or a latent desire to avoid the emotional strain discussed above of making a decision with often life-changing impact to the recipient?

For those fortunate enough to be in a position to leave to their loved ones, it can at times be a stressful and emotional experience, and can even result in family conflict over inheritance [2]. This supports the theory that the emotional cost of succession planning is in fact delaying action. In fact, one survey estimated that 60% of wealthy individuals do not have valid wills in place [3].

It is estimated that over the next 10 years, a staggering £215 billion of investable wealth will be passed down to the next generation in the UK [1].

How to protect children’s inheritance

The question of how and when to involve the next generation in discussions is another area that can be easier to skirt around than take action on. Almost half of the wealthy individuals worry about the impact the wealth will have on their children, [2] resulting in yet another factor that can push individuals to delay taking action on their succession plan. In fact, it is estimated that just 5% of individuals involve their children in the process, the overwhelming majority taking action individually or with their partner. [3]

One phrase I hear often is the donor’s desire to avoid “leaving complex arrangements” that their partner or children “won’t understand”. However, without these individuals being involved at an earlier stage, are we not making this task potentially more challenging? By involving your beneficiaries in the planning stages, you can both assess the understanding, and educate where required for the optimum outcome. Furthermore, you can take into account any personal reasons why an individual may not wish to receive wealth in certain structures.

It is difficult to find evidence supporting that the awareness of an inheritance has a detrimental impact on an individual’s drive, spending or independence, as there are so many additional factors and variables to take into account. It can be a real issue for the donor if there are frictions between the beneficiaries and / or donor when made aware of the donors intentions for their passing on their wealth. However, these issues are unlikely to disappear, or become any less significant by not addressing them in the donors lifetime.

We are about to experience the largest transfer of generational wealth in the UK’s history – have you created a succession plan yet?

Lydia Brook, Assistant Wealth Manager, Vestra

Inheritance planning tips

As ever, with these complicated and personal situations, there is no “right” answer. However, planning and taking due care to ensure you reach your own desired outcome can be navigated. Taking the time to think about your ideal outcome is always a good start. If this involves further guidance from any professionals arrange a meeting to sound out your plan and possible strategies to meet this.

Where you are comfortable to involve your spouse and / or children in the process, involve them in the meetings where you are formulating these succession plans. This can be a great opportunity to introduce all the parties where utilised and demonstrate the different roles they have to play.

If you feel your children or partner may be daunted by the complexity of your financial arrangements, you could seek appropriate financial education, often offered by existing relationships with financial advisors and wealth managers. Providing an introduction to any complex financial arrangement or structure and their purpose can help mitigate any confusion or distress for the beneficiaries when they are received.

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[1] “£215bn of UK millionaires’ wealth will be inherited over the next 10 years” – GlobalData

[2] “Succession planning: The challenges of wealth transfer” – Barclays

[3] “Breaking the wealth taboo: making succession a success” – Coutts