Focus on
Intergenerational
wealth management
What is Intergenerational Wealth Management?
Traditionally, wealth has been passed from one generation to the next after death. Intergenerational wealth management challenges this assumption. Instead, it focuses on how families can use their combined wealth more collaboratively during their lifetimes.
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This approach allows families to support one another when it’s most needed, easing the financial burden of everyday life while also creating opportunities for legitimate estate planning and tax mitigation. By planning ahead, you can reduce the impact of inheritance tax, avoid unnecessary legal complications, and make sure your wealth benefits the people you care about most.
Changing attitudes to estate planning and wealth transfer
Attitudes to wealth transfer are shifting. Families are increasingly open to lifetime transfers, rather than waiting until wealth passes through estates. This change was already in motion, but the pandemic accelerated the trend — as with so many aspects of social and financial life.
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Research from Charles Stanley found that 82% of financial advisers reported a sharp rise in client interest in intergenerational wealth transfer between November 2020 and November 2021. In the same period, 77% said estate planning had become more important to clients.
Fundamentally, when you leave money when you die you will never get to see the impact of that on your loved ones’ lives. So, making gifts during your lifetime and helping to change lives makes sense.
The drivers of changing attitudes to wealth transfer
There are several forces behind this shift. Baby boomers, the wealthiest generation in history, are beginning to hand down significant assets. They increasingly recognise the planning opportunities this presents, both to support younger generations and to mitigate future tax liabilities.
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At the same time, the real cost of inheritance tax is rising. Fiscal drag — where rate bands and allowances are frozen while asset values rise — has made inheritance tax more onerous than most other taxes. The nil rate band has remained at £325,000 since April 2009. Had it tracked inflation, by April 2022 it would be worth over £450,000 — nearly 40% more. Property and share values have grown much faster, creating even greater pressure. With the nil rate band frozen until at least 2025/26, the burden of inheritance tax will only increase.
The concept of gifting has been a big feature for my wife and I for our children. We’ve passed on and avoided being taxed on a fairly significant chunk of our wealth to our family.
Challenges with Current Strategies
Two well-established planning tools currently offer strong benefits: registered pensions and certain investments, such as AIM-listed shares, that qualify for Business Relief. These assets can be free of inheritance tax, while still remaining in your estate and available to draw on if needed.
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However, these privileges may not last forever. While the current government appears unlikely to make changes in the short term, future governments could reduce or remove them. For that reason, while these strategies remain highly effective today, it is important to plan with the awareness that they may not always be available.
The ways to transfer your wealth
There are many approaches to transferring wealth, each with its own advantages and considerations. Tax planning is important, but it is not the only factor to weigh.
Outright gifts of capital
These are often the simplest and, tax wise, most effective approaches to transferring wealth. But you may not feel able to make sufficient gifts without endangering your standard of living, which is understandable but may well not be the case. And, of course, the recipients may not be ready or able to accept the transfer and make good use of it.
Gifts into trust
These allow more control over the destination and uses of any assets, but they can involve extra complexity and expense and, in some instances, risk. Here, specialist help is likely to be necessary.
Gifts of a series of capital or income gifts
These may be appropriate, but it should be noted that they are less effective in the event of premature death.
Loans on which the borrowers pay interest (or not)
These can be effective ways for you to retain a degree of control over the assets you make available to younger relatives. These can be retained as loans or cancelled from time to time.
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Property
It may be the largest asset that many people have, but there are highly effective anti-avoidance provisions that stop people getting a tax advantage from giving away their homes while still living in them. Equity release is one possible and partial answer to this issue.
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The use of Business Relief investments
These can be effective end of life planning strategies, but the two-year ownership condition may make them unsuitable for death-bed situations.
Example Case Study:
The Robinson Family
Mr and Mrs Robinson, both in their late 60s, had built up significant wealth through a family business and property. They wanted to ensure their children and grandchildren benefited without facing unnecessary tax bills.
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Working with their adviser, they placed part of their wealth into a trust to fund their grandchildren’s education. They also reviewed their wills to align with their wishes and set up a pension strategy that allowed them to maintain income while protecting assets for the future.
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The Robinsons were able to see their wealth making a real difference during their lifetime, while also reducing the inheritance tax burden on their estate.
FAQs
In conclusion
Intergenerational wealth management presents valuable opportunities for families, but it is not always easy to get right. With the right framework in place, you can maximise the benefits while creating security across the generations.
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At Financial Framework, we can help you plan ahead with confidence, ensuring your wealth supports the people who matter most.