How many times have you planned to do something but in the final analysis there was no action to follow through? The club of good intentions has an ever-growing membership. In fact, there are over 20 million parents in the club. Some 30 million parents want to leave wealth to their children in their will. That is their intention! However, 20 million have not written a will. The level of inactivity gets better, some 87% have yet to approach a financial adviser about the best way to pass on wealth. Unfortunately, such good intentions and the deferring of writing a will often results in unintended consequences.
Let’s consider the case of Jonathan who was married to Olivia and he had two daughters from a previous relationship. When Jonathan died suddenly at the start of the Covid period without a will, all intentions died with him. Any share of the house he owned as joint tenants with his wife, Olivia immediately became lost to his two daughters. This was a shock and education to Alberta, Jonathan’s youngest daughter who had her eyes on part of her father’s house.
Failing to plan and write a will or complete estate planning can lead to large inheritance tax (IHT) bills being levied on a person’s estate when they die. It may be worthwhile reflecting on the thought that income tax is mandatory but IHT is a tax we choose to pay due to the lack of planning. Probably, the most renown comment on IHT came from former Labour Chancellor Roy Jenkins who described inheritance tax as “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.”
Over half of parents (56%) are considering writing wealth into trust (or already have). However, only 12% have actually done it. Those aged 65+ appear less open to writing wealth into trust, with only 40% considering it.
LV= Wealth and Wellbeing Monitor February 2022
The pervasiveness of good intention is not the only factor that is exposing households to a greater threat or risk of IHT in 2022. Many households are exposed to the continual rise in house prices and none more than in our borough and city. These sentiments are echoed by Clive Bolton, Managing Director of Savings and Retirement at LV=:
“The rise in value of housing and other assets means inheritance tax is potentially a problem for many estates but it is relatively simple to avoid with some careful planning. Although people recognise the financial benefits of doing things like writing a will, it is striking that only a minority have taken action to do so. Estate planning can save people a huge amount of tax and ensure your family receive a financial legacy you want them to have.”
Without a doubt, a key pillar in the transfer of wealth to the next generation is the writing of a will, especially given the increase in blended family households. However, a will should be drafted as part of an overall estate planning and IHT management (or minimisation) strategy and not in isolation.
In addition, where there is residential property in an estate, the nature of the property ownership between the parties should be known. It is often amazing to find that joint property owners are oblivious to the mode of their property ownership. It is suffice to state that joint property owners should enquire and understand their mode of joint ownership of their property or properties, even if they don’t manage to move from the intention to the will writing stage.
Parents and households can use a variety of methods to pass on their wealth to the next generation. However, the most important factor is that they start early and convert their good intention into action.