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Explore how intergenerational planning and adapting client conversations
For many clients, knowing that their family will be taken care of after they’re gone is an important life goal. But planning for the long-term can be difficult when the world around us is constantly changing. So, what are the challenges that clients face when it comes to leaving a legacy? We’ve asked our solution experts to share their insights on the impact of current affairs, a competitive housing market and inheritance tax could have on your client’s decisions.
Our research shows that 46% of people’s most important legacy to leave their loved ones is financial security. And in an uncertain climate, passing down wealth could be one of the ways they’re able to achieve this. But in a changing world, it’s becoming difficult for clients to know where to begin. Nick Flynn, Director of Retirement Income at Canada Life, explains, “To date we’ve not seen wide-spread changes in people’s approach. In part I believe some clients have held off making substantial decisions while the world faces such uncertainty. I suspect this will change, but clearly, we’re dealing with challenging global events at the moment.”
Constant change can make it difficult for clients to see past the present and think about what will be best for their family’s future. While an important life goal for clients might be to leave a legacy, they might also want to ensure they can fund any later life care needs in the future. Darren Sage, Individual Protection Specialist at Canada Life says, “The future of social care costs will have a big bearing on the need for protection as well as the type of protection people might want to take out.”
This could create a dilemma for clients; how do they leave a legacy and make sure their future needs will be taken care of?
In the current housing market, it’s becoming increasingly difficult for people to become homeowners on their own. Nick Flynn explains, “The bank of mum and dad has become a key element of the UK housing market, with many not being able to join the housing ladder without parental assistance.”
Stephen Watterson, Product Manager, Protection at Canada Life adds, “There is an upward trend in parents assisting or indeed buying property for their children, often born out of necessity due to a competitive housing market and relatively low starting salaries. This isn’t just cash rich families - it’s often the case that parents are using their pension allowances from age 50 to fund these deposits.”
What we’re seeing here, is that parents consider leaving their property to their children to try and bridge the gap between a competitive housing market and an uncertain economy. They’re viewing the wealth stored in their home as a way to help give their children financial security. While this might be an effective solution for some clients, it might have the opposite effect for others.
Stephen Watterson explains, “Traditionally parents will leave the family home to their family in their estate when they pass away. With increasing house prices, the likelihood of that property alone (even without other assets) creating an IHT liability today is far greater than it ever has been. And in the modern world, there is a distinct possibility that this family home would then have to be sold to cover the liability.” Leaving behind the family home as part of an inheritance in today’s market, might not provide the inheritance that clients are hoping it will. It could in fact result in their family incurring more expenses.
This also means that clients might be stopping themselves enjoying the wealth in their home, because they feel they must leave an inheritance for their family. But do their children have the same expectation?
Our research shows that only a minority of people said they’re relying solely on an inheritance to fund their future*. So, are clients choosing to leave behind their property because it’s the best decision for them or because they believe it’s what should be done?
Alice Watson, Head of Marketing, Insurance at Canada Life explains, “We know that a person’s property is usually what’s expected to be left, but that may stop them accessing the wealth stored up in it. Instead, spending the property wealth and saving the pension could be more tax efficient.” This could present another option for clients. By releasing the equity in their home, they’re able to pass on their wealth and watch it being enjoyed during their lifetime.
There are different options to suit your client’s needs when it comes to how they choose to leave a legacy. But one challenge remains; how to achieve this in the most tax efficient way.
If your client’s long-term goal is to look after their family financially, the last thing they’ll want is for their loved ones to be facing large Inheritance Tax fees. Although in some situations it might be unavoidable, the threat of families paying a large tax bill seems to be increasing. Andrew Tully, Technical Director at Canada Life explains, “The Office for Budget Responsibility suggest IHT tax receipts will reach £8.3bn by 2025/26.1 This compares to around £3bn in 2012. 1 This demonstrates how many more families are paying Inheritance Tax. It’s therefore vital people get expert financial advice as there are tax efficient ways to pass wealth onto loved ones.”
No one wants to imagine the unthinkable happening but opening conversations around estate planning early on, could help clients and their families start to put plans in place. And with the world around us changing at a rapid speed, there’s no time like the present. Andrew Tully says, “The pandemic has resulted in many people recognising their own mortality and reflecting on their life goals. This may mean more people are open to discussing estate planning with family. Part of that will be simple steps such as writing a will or making sure the will is up to date if they already have one.”
Life experiences can change the way we view risk, and the pandemic has created concerns for clients that might not have been there before. This could result in them thinking more about the long term and how they want to protect their family after they’re gone.
The thought of this might be overwhelming for clients but there might already be existing plans in place that can be utilised. Andrew Tully explains, “People shouldn’t forget about pensions, which are incredibly efficient at passing on wealth to family in a tax efficient way. But again, simple steps can help make sure the money goes to their chosen beneficiaries.”
Finding the most tax efficient way for your clients to leave their legacy can be challenging. Especially as the world around us is constantly changing. But there are different tools available to help you support your clients and their family, every step of the way. Our solution experts will be taking a closer look at how intergenerational planning could be the key to building long-lasting relationships.
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*Source: Research for Canada Life was conducted in partnership with Savanta. Read more about the research.
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