Planning clients’ retirement income is one of the most important parts of a financial adviser’s job, but what about preparing them for an inheritance tax bill?
While planning for a retirement income is essential, clients can miss a number of steps when it comes to passing on wealth.
Often, this is because they have not taken advantage of the available reliefs and exemptions.
First and foremost, it should be kept in mind that IHT rules can – and do – change.
Key points
- People should review their will once every three to four years
- Advisers should look at long-term prosperity for their clients
- Gifting to children and grandchildren should be considered when planning for IHT
Therefore, it is important to have an up-to-date will, says Philip Whitcomb, partner and head of rural private clients at Moore Blatch.
He said: “Ideally, you should review your will at least every three to five years to take into account not only changes in family circumstances but also changes [to tax rules in regards to succession].”
There are other easy ways to plan for the eventual IHT bill on a client’s estate, taking into account the number of reliefs and exemptions that clients can utilise if they plan ahead.
Ben Gilmore, investment manager at Charles Stanley, says: “The middle-aged now have frighteningly large mortgages and small pensions, young people cannot get a foot on the housing ladder without significant help from their family, and the older generation is often extremely rich on paper but can be cash poor as a large proportion of their wealth is tied up in property.
“With millennials standing to inherit more than £20tn of wealth over the next 20-30 years, our inheritances will come to the rescue, right?”
But he continues: “Data certainly suggests that inherited wealth will not find its way to those who need it most, and they will continue to use their money for the hand-to-mouth requirements and those subscription fixes.
“This means today, more than ever, planning for your retirement and the management of family wealth matters.”
He says Experian data suggests there are three clear groups who are most likely to receive an inheritance:
- Moneymakers: people typically in their early 40s who spend much of their income, but also earn significant figures – and their savings and pensions reflect that. They tend to have large mortgages, but they can comfortably service them through strong earnings power and can always fall back on the likely future inheritance.
- Established investors: people approaching retirement, generally with pension pots of more than half a million pounds.
- Career experience: people approaching 50 years old and have already made good provision for when they retire, with pension pots approaching half a million.
Passing on pensions
Advisers should be looking at long-term prosperity for their clients and their families, says Tracy Crookes, financial planner at Quilter Private Client Advisers.
Ms Crookes says: “An easy way to build that long-term relationship is to suggest meeting family members and/or including them in client conversations.
“Some clients will not be comfortable to start with – money has long been a subject no one talks about but it’s really important that we knock down these walls.”
She continues: “We all include family members where a client is elderly or could be considered vulnerable for other reasons such as a bereavement, but I actively encourage bringing family members into any meetings so they can see the plans unfold and feel involved.”
