WHAT IS THE KEY TO SUCCESSFUL SUCCESSION PLANNING?
Published: 30 Nov 2022
Post pandemic life has left many of us thinking more about our financial wellbeing, ensuring our assets are in good order during our lifetime but also for our legacy. The key to effective inheritance and succession planning is generally to use a combination of lifetime gifting with the tax efficient transfer of assets on death.
A big factor in the decision making process is how one feels about control; do you wish to retain control in relation to assets gifted during your lifetime or maintain control after you have gone, or are you happy to make direct gifts and relinquish control to the next generation?
Where family wealth is built up over many years of hard work and dedication, there will be parents who do not wish to simply give away assets in lifetime and immediately lose control of these. They may hold importance in order for the next generation to learn the value of money. With direct gifts, there is a risk that wealth may be squandered away, or vulnerable to settlement on divorce, resulting in the loss of assets outside the family. Whilst direct gifting is generally the simpler option the simplicity may be outweighed by the discomfort of losing control. Therefore many individuals look to the creation of trusts or family investment companies (FICs) which seek to enable them to pass on wealth but most importantly, retain control over the assets either as trustees or as company directors.
What is right for your own family’s circumstances will depend on your specific circumstances, what assets you have, your requirement to retain access to your capital, and whether you wish to retain control over assets gifted. Bespoke advice should always be sought. Below we consider some of the simple reliefs available for direct gifting.
LIFETIME GIFTING – KEEPING THINGS SIMPLE WHEN SUCCESSION PLANNING
Lifetime gifting is a topic which is often on the agenda. The desire, of course, in many cases is for parents and grandparents to assist children and grandchildren with, say, getting onto the property ladder or paying school fees. Not all succession planning needs to involve complex structures including trusts or family FICs although both vehicles may be particularly tax efficient in certain circumstances and we are well placed to advise on such structures. The benefit of not having complex tax considerations (and accompanying administration which arise on transfers into trusts or FICs) may result in a preference for making direct gifts.
THE IMPORTANCE OF AN EFFICIENT WILL
As mentioned above, successful succession planning may include a combination of effective lifetime gifting together with consideration of the effective transfer of your Estate after you have passed.
Post pandemic, more of us are realising the importance of having up to date Wills and avoiding the worst case scenario of dying intestate. Whilst it is of course key to have a valid Will, it is as also important to ensure that the Will is reviewed regularly to ensure it is up to date and still relevant. With constant changes to tax legislation, changes to family circumstances (e.g. marriage, divorce) all these factors can impact (or possibly invalidate) your Will. Now is the time to be seeking proper advice and to give due consideration as to how succession planning will work for you and your family.
WHAT HAPPENS TO THE FAMILY HOME?
For many the family home will be the prime Estate asset. On second death, the family home will be left to beneficiaries in accordance with your Will. Dependent upon the value of your Estate and who the property is left to, this will determine whether the Estate benefits from an additional allowance – the residential nil rate band. The allowance can be worth up to £250,000 where an Estate does not exceed £2million and therefore advice should be taken in lifetime and on death to ensure that this valuable allowance is not lost. For Estates worth in excess of £2m you could consider whether it is worth looking at reducing the size of your Estate, by making lifetime gifts to bring the value of your Estate down to £2m.