Last month, it was reported in the press that a Member of Parliament suggested that the older generation should consider disinheriting their children in favour of their grandchildren, in order to help the younger generation get on to the housing ladder.
Whilst these comments may not be applicable to everyone in such a wide way as was suggested by the MP in question, they do highlight an important issue which can often be overlooked when people are considering to whom they should leave their estate on death.
When thinking about their Wills, parents often consider leaving everything to their children, even in their more advanced years when their children are grown up and financially secure.
This can sometimes lead to a ‘bunching up’ effect for Inheritance Tax purposes where, for example, the estate of the parents will be subject to Inheritance Tax at 40% and will pass to children who will also have an Inheritance Tax liability of their own on their death.
This can often be mitigated by structuring the Will in such a way so that the estate is distributed on death to include children and grandchildren, thus enabling the family wealth to pass down the generations more tax efficiently. Lifetime giving can also be an effective way of mitigating Inheritance Tax and can be done in a flexible way to benefit both children and grandchildren.
This is, of course, dependent on the circumstances of the children and grandchildren. In the current economic climate there can be much uncertainty, and a financially secure adult child today may fall on hard times in the not too distant future. It is also important to look at the circumstance of the grandchildren, as things such as divorce and bankruptcy can often be unforeseeable threats to family wealth when passed on to future generations. Tax reliefs may also play a part in the decision making with some reliefs only available if wealth is left to particular relatives.
It is, however, important for people to consider these things when making their Wills and to be aware of alternative ways to structure succession planning which do not always conform to the ‘traditional’ stereotype of leaving everything to the next generation under the terms of their Will.
It may be somewhat ironic that the teenagers listening to ‘My Generation’ by The Who, back in 1965 are now the ones having to think carefully about the next generation when making their Wills.
At Hay & Kilner we have an experienced team of solicitors with specialist expertise in relation to lifetime giving, and estate and Inheritance Tax planning, who can advise on succession planning and Will preparation.
For further information, please contact Alice Clewes, Partner at Hay & Kilner
Call: 0191 232 8345