None of us finds it easy to talk about death, and many of us find talking about money difficult too. This means that families often end up putting off crucial conversations about inheritance, wills and legacies in order to avoid feeling uncomfortable.
However, having upfront discussions about these difficult issues is really important if families are to avoid conflict, long-drawn-out legal battles and large tax bills. That means making time for honest and frank discussions between the generations, ensuring everyone’s needs, opinions and wishes are heard. Here’s how to get ready for a discussion of this type, which should put the family finances on a firmer footing.
Jot down your goals
There are many good reasons to have discussions about inheritance, and listing what you hope to get resolved by the discussion can be a good way to focus everyone’s minds.
Even if you do not make a formal agenda, jotting down your goals can help to get the conversation moving. Some important things to consider include:
- How family members want to fund plans and dreams for later life, as well as considering the possible need to pay for care
- Setting up powers of attorney for financial affairs and for healthcare, so that decisions can be made if a family member is incapacitated
- Making the most of rules and exemptions around inheritance tax (IHT), including annual gifts to family, the seven-year rule, and the role of private pensions in tax planning.
- Ensuring that family members’ expectations on possible inheritance and money needs in the future are explored, so that money can be passed down the generations in the most tax efficient way.
- Whether existing wills need updating due to changing family circumstances.
Get the paperwork in order
Ensuring you have all the details to hand before a discussion of this type will help to prevent confusion and delay. Some of the items that you might need include:
- Details of private pensions, workplace pensions and any savings and investments
- Copies of existing wills
- Bank statements
Consider getting expert advice
The rules around tax planning for inheritance can be complex, and a financial adviser, or other expert, can help to ensure that you’ve thought of everything so that your relatives do not end up with a larger tax bill than is necessary. Making use of annual gifting allowances, for example, can help to bring down an IHT bill, while there are other investment types that offer inheritance tax breaks.
A financial adviser can also help with cashflow planning, which is particularly important as family members approach retirement, to ensure that their money is deaccumulated in a tax efficient manner, and that there is enough for each stage of retirement.
Another reason to have a professional in the room when discussing inheritance is to ensure that tricky inheritance conversations remain focussed on the task in hand and that the results of any decisions made are correctly carried out.
Family financial priorities can change, particularly when there are new additions to a family, or when there are marriages, deaths or changing circumstances. These changes can mean that wills need to be redrafted, executors need to be changed, or decisions around spending or gifting need to be made.
Some families might want to review their inheritance plans on an annual basis, as part of a more general catch up with a financial adviser, while others might review them when circumstances change.
A financial adviser can add value here too, as over time he or she is likely to become a trusted part of a family’s inheritance conversations, meaning that there’s even more likelihood of these difficult conversations going smoothly.