While sometimes a source of frustration, family can for many people also provide an important source of strength, structure and purpose in life.

For older generations, a potentially important strand to this notion is the ability to support younger generations through the passing on of wealth, either during your lifetime or in the form of inheritance.

Recently, the subject of financial legacy has been brought into sharp focus by the suggestion that we are on the cusp of a major inter-generational shift in wealth. This theory is rooted in the fact that Baby Boomers, born in the wake of the Second World War, are now typically well into retirement and facing decisions in the coming years around passing on their wealth to children, grandchildren and other family members.

The generalised view of the Baby Boomer generation is that they have prospered on the back of decades of economic growth and rising property prices. In the US, one estimate suggests this accumulation of wealth has left individuals of this age with a mean net worth of somewhere between £799,000 and £989,000, making for a substantial legacy.

In the UK, it is thought this could lead to more than £5.5 trillion being passed on to younger generations in the decades ahead – a sum that is almost three times annual GDP.

Starting the conversation

The transfer of wealth is not necessarily a straightforward matter, however, and it can be made more complicated by the fact that money is often a topic of conversation that families avoid. Indeed, research reveals that around a fifth of over-60s have not spoken about their finances to younger generations.

Without a clear understanding of their parents’ wishes, however, children can be left feeling anxious about what the future holds. For example, 44% of those in middle age worry about having to take on the responsibility of managing their parents’ money if the need should arise, with just over half (52%) of those respondents saying they felt overwhelmed at the prospect.

Poor inter-generational communication on legacy planning can leave children in the dark on important matters, presenting a risk that personal objectives will be compromised or that family members will be face unexpected challenges if a parent unexpectedly dies or becomes seriously ill.

It can therefore be helpful to have open discussions around subjects such as whether parents have a will in place and who is the executor. There is also the consideration of whether they have set up a Lasting Power of Attorney to manage their affairs if they find themselves in a situation where they are no longer able to cope.

Putting measures in place

Addressing the issue of inheritance ahead of time allows any gaps in legacy planning to be identified and for individuals to put important measures in place at a time when they don’t feel pressured to do so. It is often the case, however, that despite good intentions, people shy away from addressing the issue of inheritance because they are not confident in their own knowledge or because they are simply content to push back the conversation for another day.

A survey of people with investments, for example, highlighted that while a clear majority (79%) of respondents expected to pass wealth onto loved ones, just over half (55%) have actually spoken to family or beneficiaries about inheritance tax, with a fifth (19%) admitting they were unsure about the impact that inheritance tax might have on their estate.

In reality, increasing numbers of people are facing an inheritance tax (IHT) charge today thanks to a combination of thresholds being frozen until at least 2028 and increasing estate valuations driven by higher house prices. The tax is typically charged at the rate of 40% in relation to the part of your estate above the threshold of £325,000, known as the nil-rate band.

In the six months to September 2023, inheritance tax garnered a record £3.9bn for HM Revenue & Customs (HMRC), marking a rise of £400m on the same period last year.

Whether or not the government ultimately decides to scrap IHT, as has been suggested, remains to be seen. In the meantime, tax remains one of the many factors to consider when it comes to setting out a clear, well-structured plan for passing on your wealth. Encouraging generations to come together and talk as part of this process might be uncomfortable in the here and now, but it could also deliver lasting benefits to the family for the future.

The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.