Creating the future

– the importance of succession planning and family governance.

Over the next 30 years we are likely to experience the largest wealth transition in history. During this period, studies estimate over USD30 trillion will move from one generation to the next. It is at this critical juncture that individuals must keep sight of their financial legacy, writes Daniel Way, senior private banker at the Newbury office of Kleinwort Hambros.

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To business owners, safeguarding the future of their businesses is a key consideration of their estate planning. 

But they are also individuals and their wealth plan should reflect the entirety of their financial legacy.

In order to achieve this, individuals should have an all-encompassing strategy which addresses all their key objectives and concerns.

While not an exhaustive list, some common questions to consider are:

  • From where will I draw to meet my lifetime expenditure?
  • How do I feel about lifetime gifting?
  • How will you motivate and educate the next generation?
  • How much access and control do I wish to retain?
  • How can I avoid conflict?
  • What is the best way, given my own circumstances, to protect my assets for future generations?
  • Do I want to ensure fair division of my estate (particularly where children enter the family business); how can this be achieved?
  • Do I want to create a charitable legacy? Should it include wider involvement of the family?
  • Taking time to consider your answers to these types of questions will help to create a sustainable platform for family wealth during your lifetime and beyond.

Of course, it is somewhat impossible to view succession planning without considering the implications of IHT.

In July 2019, the latest report from the Office of Tax Simplification (OTS) conceded that IHT is a ‘deeply unpopular tax’ and made many recommendations which will no doubt prove popular. For example, reducing the potentially exempt period from seven to five years albeit with the loss of taper relief and proposals to increase the annual gift allowance from £3,000.

However, while we must not ignore the impact of IHT in building a credible plan in the most efficient manner possible, it is important not to lose sight of your financial legacy in the broader context.

Navigating the complexities of wealth with the specific demands of a modern family brings with it its own challenges. Relationships between family members can become dysfunctional unexpectedly (often due to competing loyalties – sibling v spouse) and even litigious, resulting in siblings ‘at war’. In the case of the latter these may last for years, decades or indeed lifetimes. As advisers, we come across situations where following divorce or death, relationships within families can become broken beyond repair.

These negative influences in the context of a family’s ‘wealth’ invariably result in the unintended depletion of wealth.

This can be avoided if we – individuals and advisers – don’t only view succession planning through the prism of tax.

Succession planning advice which emphasises strategy and governance to consider the whole of your wealth, should lead to more sustainable outcomes.

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