Brits are notorious for avoiding awkward, personal conversations; which is making family financial planning, especially around passing on wealth, unnecessarily difficult.
Wealth manager Charles Stanley surveyed 2,000 UK parents of children aged 18 or older, as well as UK adults aged 18-30.
It found only 24% of parents have spoken openly to their adult children about the issue of inheritance.
Some 30% have talked to their family about their Will; only 36% have made their children executors of their estate.
However, only 11% of young people are aware that they are an executor.
Children also assume that their parents have made provisions, with only 19% saying their parents don’t have a Will; in reality, 44% of parents don’t have a Will.
Easing the burden for the inheritor
“It’s important that advisers help to facilitate conversations between their clients and their family as early as possible and then help them to draw up a Will to reflect their desires,” Rachael Griffin, financial planning expert at Quilter, told International Adviser. “Similarly, making sure clients’ make family members are aware of how they plan to fund their retirement is equally essential.
“If they don’t, their family may have no idea whether their plan involves downsizing, equity release, pension provision or a combination of them all and make decisions that jeopardise this plan.
“Younger generations typically rely on an inheritance to fund the big purchases in life, having frank conversations about your financial position will mean they have a realistic expectation of how much they stand to inherit and can plan accordingly.”
Taboo
The survey found the most common reason for not discussing inheritance is because the subject is awkward (14%).
Emily Griffiths-Hamilton, wealth planning author of Your Business, Your Family, Their Future, told IA: “I agree that the topic of money appears to be the last remaining taboo topic in families.
“It’s interesting to me that most parents recognise that sex is a part of every individuals life’s journey. In other words, having sex education discussions, on an age-appropriate basis, has become a normal and natural part of parenting.
“At the same time, every individual, no matter their family’s financial background, will have some kind of financial journey in the 21st century, and yet this topic still remains undiscussable in families.
“The specific difficulty I come across is families trying to start the money conversation by talking about the money.
“This can often be a difficult and conflicted place to begins. Instead, I encourage families to start the conversation by talking about the purpose of money.
“Rather than starting conversations around the family’s assets and account balances, which are simply resources that need to be managed, families are often more comfortable and well-advised to start the conversations around the family’s shared values and vision.”
Resentment
Not talking about inheritance can lead to family friction and cause resentment.
Some 62% of young adults would be unhappy if their parents favoured their siblings by leaving them more or overlooked them entirely; and would feel betrayed, jealous or financially insecure.
Despite this, 19% of parents may not divide their estate equally among their children.
Younger respondents would be more forgiving if their own children benefitted from their parents’ estate, but 23% would be unhappy if their parents left them out and gave their inheritance directly to their grandchildren.
Some 25% of parents surveyed said they may pass their estate directly on to their grandchildren.
Neil Jones, wealth management and tax specialist at Canada Life, said to IA: “This research rightly highlights the dangers of a missed generation when it comes to inheritance – classically, these are baby boomer grandparents passing on assets to their grandchildren instead of their children.
“To a degree this may be understandable. Younger people face some serious hurdles when it comes to the property ladder and a state pension age that seems to be constantly receding into the distance.
“Nonetheless, many of the middle generation face serious financial difficulties too and may be relying on an inheritance that may not come.
“Again, it’s communication that is the key which will allow planning to create a better financial outcome.”
Financial loss
The survey also found that not talking about finances and inheritance could also result in families losing out financially.
Two third of younger adults (65%) haven’t thought about planning for the future when it comes to inheritance.
Just over one in five (21%) rely on internet-gathered information to help plan for the future and one in 10 (11%) speak to friends.
The biggest concern of parents is that their children won’t get professional advice to make the most of their inheritance (33%), although only 21% advise their children to get professional advice.
Andrea Jones, senior associate solicitor at law firm Irwin Mitchell Private Wealth, told IA: “It can be helpful to have family discussions with a professional adviser who can provide direction on the decisions which need to be made by the parents and the legal documents required to be completed to ensure that the parents have done what they can in order to mitigate unnecessary inheritance tax liabilities and family disputes.
“By involving the next generation in these discussions, it also makes them more informed about what is likely to happen on the death of their parents and also what they need to do to protect their own assets for their own children.
John Annetts, partner and head of administration of estates at law firm Howard Kennedy, said to IA: “The prospect of paying professional fees can be daunting.
“But, in the context of the potential tax savings that can be made and the peace of mind of knowing your assets are passing in the right way, it could be the best investment a family can make.”
