A third (31 per cent) of wealthier individuals plan to pass on their wealth to their children during their lifetimes, according to research by Lloyds Private Bank.
The study, which examines trends around inheritance, attitudes to money and family businesses, revealed that parents planning to leave parts of their estate to their dependents while they are still alive expect to gift an average of 72 per cent of their wealth throughout their lives with the rest passed on after death.
In general, wealthier families will set aside almost three quarters (72 per cent) of their financial assets as an inheritance to go to the next generation – either before or after death – with half (50 per cent) of those surveyed aiming to give their children more than 90 per cent of their money and assets.
Those with assets over GBP1m are the most generous, and will leave a higher proportion of their wealth to next generation. Millionaires aim to leave three quarters (75 per cent) of their financial assets to their children and over half (57 per cent) will pass on more than 90 per cent of their wealth to their children.
Inheritance can take a number of forms, with cash being the most common gift given before death – almost a quarter (23 per cent) of respondents plan to pass on wealth in this way. Wealthier individuals who own a family firm are then most likely to transfer part of their business to the next generation when they are still alive (19 per cent). Perhaps unsurprisingly, property is the asset most likely to be passed on after death (76 per cent), followed by other investments such as stocks and shares (54 per cent).
Jon Wingent, Lloyds Private Bank, says: “We are seeing a growing trend of wealthier families beginning to spread their assets across the generations whilst they are still alive. Anyone thinking of doing this needs to consider a myriad of factors, including whether there is any tax due at the time of the gift and then further down the line on death. In addition to this, they will need to figure out the best way to pass on any wealth. An absolute gift is sometimes the simplest approach, but many families choose a trust arrangement which allows the older generation to retain an element of control for a period of time.”
When it comes to deciding how to transfer their estates to the next generations, half (49 per cent) of parents planning to transfer wealth to their children rely on their instincts and do what they feel is the right thing for the family. A third (36 per cent) use their own research to make up their mind, while one in ten (11 per cent) follow the same route as their parents before them as “this is the way it has always been in our family”. Those with assets above GBP1 million are most likely to seek professional financial advice (41 per cent compared to 36 per cent overall).
Those who have grandchildren plan to leave almost a quarter (21 per cent) of their overall assets directly to their children’s children, which equates to an average of GBP203,948 per grandchild. Of those respondents that plan to leave part of their estate to their grandchildren, two in five (39 per cent) say their grandchildren deserve it. One in five (21 per cent) are doing so because their children don’t need the money – indeed over two fifths (42 per cent) believe their dependents want nothing to do with their wealth and three quarters (73 per cent) say that their children were indifferent to their fortune. And a sixth (16 per cent) say their grandchildren would put it to better use.
Wingent says: “It is very important for those planning on making a gift to understand all the relevant allowances so they can be used in the right way – this could incorporate gifting out of surplus income, the annual gift allowance or gifts on marriage to name but three. Families should always make arrangements in advance and consult their wealth planner for specialist advice on how to best give their children and grandchildren an inheritance.”