Traditionally, the process of intergenerational wealth transfer happens as inheritance. This can come with the cost of inheritance tax, but it also comes with the cost of not enjoying seeing your loved ones benefit from the financial help you have given them. So why not consider passing on some of your wealth during your lifetime?
For parents and their children, two of the hardest things to discuss can be what happens in the devastating event of losing a parent, and talking about money. This means that discussing inheritance may be doubly hard! But what if passing on your wealth to your family didn’t only have to happen when you die – could this make the conversation easier?
Traditionally, the process of intergenerational wealth transfer happens as inheritance. This can come with the cost of inheritance tax, but it also comes with the cost of not enjoying seeing your loved ones benefit from the financial help you have given them.
So why not consider passing on some of your wealth during your lifetime? Of course, you will need to plan carefully for what you can afford, what the limits are under current inheritance tax rules, and what you need to support your own lifestyle, as well as planning for any unforeseen events.
Gifting money to loved ones during your lifetime can often mean giving smaller amounts than might be passed on through an inheritance. However, it’s not just about the amount—it’s also about the timing. While there are limits to how much you can gift tax-free each year, these allowances don’t prevent you from making larger gifts; they may simply be considered part of your estate if you pass away within seven years. Importantly, giving earlier can have a far greater impact. Your children may face major life milestones—such as buying their first home, upgrading to a family car, or planning for early retirement—while you’re still around. Offering financial support at these moments can be far more meaningful than a larger sum received later in life.
Our recent Family and Finances Report highlighted that passing on wealth isn’t limited to inheritance alone. In the context of longer life expectancies and complexities of inheritance tax (IHT), many families now choose to transfer assets during their lifetimes – an increasingly important part of the intergenerational wealth conversation.
Our survey reveals that one in four respondents (24%) have already gifted significant money or assets to family members, while another 26% plan to do so. This proactive approach not only helps mitigate tax liabilities but also helps out loved ones while the benefactor is still around to witness the positive impact.
So, it could make sense to consider giving a little to help when the time is right, rather than waiting to give more further down the line, if you are able to do so.
Talking about money matters with family members can be hard. Talking about money in relation to death may be especially hard. In fact our report found that inheritance and estate planning emerge as the last great family taboo, with 40% of people describing it as such. Despite understanding the significance of financial planning, many people shy away from conversations about money and death, opting instead for a 'stiff upper lip.' These silences often lead to crucial decisions being postponed until a crisis hits, when clear thinking is most challenging.
Our research discovered that regular conversations about finances are rare. Only 26% of respondents say they regularly discuss financial matters with their family, while a third (34%) say they do so rarely or never. Retirees are less likely to talk regularly, but more inclined to do so occasionally, perhaps only when prompted by specific life events.
But discussing money around happy events such as securing a place at university or getting on the property ladder could help to tackle the taboo of financial disclosure. Parents don’t need to go through the entire ins and outs of their financial affairs if they only need to pass on a relatively small proportion of their overall wealth.
Discussions with children about how much extra help they may need in their first year at university, also need to include consideration about how much you can afford to give while still paying into your pension and maintaining your own standard of living. But these types of intergenerational wealth transitions tend to involve much smaller amounts than estate planning, and so are likely to be much less of a major decision.
It also means discussing money in relation to an exciting next step for your family, which should be a positive thing – you might even enjoy talking about it!
By starting small, you may be able to pass on your wealth more regularly. Each year at university, a new house, a new car, a wedding day, your first grandchild—these are all events where you can discuss finances and work out what help you want and can afford to give.
Each time you talk about money with your family will likely become easier so it will feel less of a taboo subject, and instead could become the norm.
You may even get to the stage where you feel comfortable enough to include your children in your discussions with your financial adviser.
It would not be sensible to give away all of your wealth while you are still alive. Therefore, we are unlikely to see ‘the death of inheritance’, but if you do enjoy gifting your wealth to your family throughout your lifetime and can afford to do so, then your estate at the end of your life may be smaller. But estates of any size still need planning for the best way to manage matters most efficiently, and will still require conversations with your loved ones.
If your family have already been attending meetings with you and your adviser early on in your life, this could really help prepare for the always difficult conversation about what happens when you die.
This article is for information purposes only. It is not intended as advice.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Schroders Personal Wealth does not provide estate planning and administration, trust management or will writing, however we can introduce you to a relevant specialist. We might receive a referral fee from some of the partners we introduce to you.
Any views expressed are our in-house views as at the time of publishing.
This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or part) without our prior written consent.
