3 powerful reasons to create an intergenerational wealth plan

Households across the UK are likely to welcome news that the Prime Minister Rishi Sunak could significantly reduce or potentially abolish Inheritance Tax (IHT). The news is particularly welcome after the government decided to freeze the nil-rate band (NRB), which is the amount you’re allowed to have in your estate before IHT is charged until 2028.

As a result of the freeze, many more households across the UK are now exposed to the tax. Indeed, according to This is Money, official data reveals that HM Revenue and Customs Treasury received £3.2 billion between April and August 2023 – up £300 million from the same period in the previous year.

So, if the PM does decide to cut the tax it might reduce or negate your estate’s exposure to IHT. When you consider that in 2023/24 the tax is typically charged at 40%, any decision to slash it could allow you to leave significantly more in assets to loved ones.

With this in mind, you might think there’s no longer any reason to create an intergenerational wealth plan, which can be an extremely effective component in an IHT mitigation strategy. If so, you may want to think again.

As an intergenerational wealth plan is a long-term strategy for passing your wealth to beneficiaries while you’re still alive, it could have other advantages aside from tax efficiency. Read on to discover three powerful reasons you may still want to create one if you haven’t done so already.

1. You can ensure beneficiaries get the most from your gift

As you’re gifting while you’re still alive, you can speak to your beneficiaries before you pass on any of your wealth to them, so that they’re better prepared for the gift they’re about to receive. This could be particularly important if you intend to pass investments on.

According to This is Money, half of Britons would not know what to do if they with inherited investments, something that could result in your beneficiaries making a decision they later regret. As a result, your gift may not provide the long-term financial security you intended.

Being able to explain how best to use your gift could ensure that your beneficiaries make better decisions with it, which could then provide them with the financial security you are hoping for. One way to help your beneficiaries understand how to get the best outcome from their inheritance is to involve them in a meeting with your financial adviser.

Your adviser can explain how your loved ones could ensure that your gift is used as tax-efficiently as possible and help expose it to greater growth potential.

2. You have more say about how your money is used

If you’re concerned that your beneficiaries may not use your gift responsibly, you could use an intergenerational wealth plan. As you are gifting while you’re still alive, you can make stipulations about how your wealth should be used.

You might also want to consider using a legal framework, called a trust, which allows you to make certain conditions on how your money is passed to loved ones when you die. One time you might want to use a trust is if you want to pass your wealth to a younger family member in the future, however fear they may use it irresponsibly.

By creating a trust within your intergenerational wealth plan, your wealth will only be released to the beneficiary when they want to buy a home with it. As such, you’ll have peace of mind that the beneficiary cannot use your gift in an inappropriate way.

3. You could pass wealth to beneficiaries when it’s needed most

Creating an intergenerational wealth plan and passing your wealth to loved ones while you’re still alive probably means that your beneficiaries will receive it when they’re younger. As such, the assets you give to them may be worth more to them.

For example, you could be passing your wealth to your child or grandchild when they have a young family to support and a mortgage to pay. This means your gift could provide a much-needed financial boost when they need it most, instead of later on in life after your death, when their children could be financially independent, and the mortgage paid off.

Get in touch

As you can see, even if IHT is scrapped or significantly reduced, creating an intergenerational wealth plan may still be a shrewd financial strategy for you and your beneficiaries. If you’d like to learn more about this, please call on 01527 577775 or speak to one of our advisers, as we’d be happy to help.

In addition, if you would like to discover more about how using a trust may also benefit you, please contact AFH Trusts & Estate Planning Services on 01527 577775. With extensive experience in creating trusts and wills, we’ll help you pass your wealth on to future generations more smoothly and effectively.


Monday 23 October 2023