Case Study: Passing on your wealth – Are you giving your property away for free?

  • Cara Casey
  • 15 May 2023
  • 5 mins reading time

Could you tell us a little bit about how you got to where you are today as a Financial Adviser?

My interest in financial advice started from an early age as my dad had his own financial adviser who he had a great relationship with. My dad was never part of this world of financial planning, neither were the rest of my family, and like a lot of our clients here at Schroders Personal Wealth, financial knowledge was not his bread and butter. It was my teenage years when I began to tap into my interest in this industry as I could see the value of working with a financial adviser – he gave my dad piece of mind, and I could see the difference his advice made to our lives. This is where I got the buzz for it – I can help make a difference to families lives, like my dad’s adviser did for my family. At 17, I started my journey with Lloyds Bank and I went on to pass my exams and I am now a qualified financial adviser. From a young age, I’ve had a passion for helping people and through being a part of this industry, but more specifically this company, I can see the power financial advice has in helping change the lives of my clients.

Each client you form a relationship with and give advice to is different. They have different needs, circumstances, preferences, and willingness to take risk. When it comes to having conversations about passing on wealth, it can often be really difficult, especially if they happen to occur in the devastating times of losing a loved one. Is there a key piece of advice you tend to share with all clients?

As an adviser, it is part of my role to strike a relationship with my clients and ask questions that may not be the easiest or the nicest, but we have a duty of care to ask them. To avoid the difficult questions would be a disservice to my clients. When speaking about intergenerational wealth with a client, I always find out what their understanding is of inheritance tax (IHT) and a little bit about their family tree. I follow this by asking what their objectives are for their later life and the answer tends to be around wishing to leave a legacy for their children.

It's the emotional trigger that allows the client to fully understand what difference my advice is going to make, to not only them, but their loved ones too. It’s important to get across that having a conversation about passing on your wealth is only going to benefit your children or grandchildren. How do I bring the conversation around IHT to life? Like myself, a lot of clients are visual people – talking about these things is good but it doesn’t always bring it to life. At Schroders Personal Wealth we have a tool called Voyant which helps to really paint the picture for clients. It allows advisers to play hypothetical scenarios in terms of their lifestyle so it’s a great steppingstone. Or I may propose a scenario to them, such as, Mr and Mrs Customer, by not discussing your finances with your family could be the equivalent of you giving your property away for nothing. Property that for many years you’ve paid a mortgage on and is now being given to His Majesty’s Revenue & Customs (HMRC) for free, how does that make you feel? Their answer usually consists of them not wanting that to happen, so then I may ask, what difference could this make to your children? And this gets them to start thinking.

Is there a particular scenario that you’ve experienced with a client where you’ve helped them with intergenerational wealth transfer and the potential costs that come with inheritance such as inheritance tax (IHT)?

I met with a client who didn’t have children of her own but was very close with her brother, nieces and nephews. In fact, she had already set up a gift trust for them with her previous adviser. A gift trust is a tax-efficient way of IHT planning, where my client can pass her assets on to her chosen beneficiaries. By setting up a gift trust means any growth on her investment would remain outside her estate.

My client was originally thinking of putting more money into the gift trust. I advised her not to do this as she was only in her mid-50s. I highlighted that you never know what’s around the corner so we need to be slightly conservative and not put too much away that she can’t access in the future. A lot of her estate was in stocks and shares which allows for potential growth in the estate, not outside of it – so we had a look at loan trusts to allow her to manage liabilities more effectively as although the loan remains within her estate, any growth on her investment would be immediately outside of her estate for IHT. This allowed her to have more flexibility should something unforeseen happen. If needed, she could take some of the money out of the loan trust, or if not, it’s a pot there for her nieces and nephews but it means her money isn’t all tied up.

She had very good income from an NHS pension which pays a guaranteed income for life. She wasn’t spending all her income, which meant it was simply rolling up inside her estate and increasing the potential IHT liability. We set up a life policy which will provide an additional pot of money for her beneficiaries on her death. We placed the policy in trust so that it didn’t form part of her estate for IHT purposes. By redirecting the surplus income into a life policy in trust she was minimising this issue.

We covered everything she could do whilst making sure her lifestyle was still well maintained but also allowed her to leave more to her family. Making these decisions now is more beneficial than in 10-15 years when she may not be as healthy as she is today, it’s best to make decisive decisions whilst you can in case you are faced with challenges which may come later in life such as deterioration of health.

Before I spoke with her she was aware of the options we discussed from speaking to previous advisers, however nothing had materialised. By speaking to me we could take the conversation to the next level. For this client, it was a case of going over her options and explaining and showing the benefits to allow her to fully understand them. She made a comment, as she left the meeting, that it was the first time she understood everything properly. As advisers, we have to make sure we are making our advice and conversations as straight forward and clear as possible. Ideally, what I’d want each of my clients to do, is in a few years down the line, be out with their friends or family and if someone asked them about this topic they’d know exactly what they’ve done and would be able to give them an answer.

Important information

The different scenarios discussed are examples and what is right for each person will depend on individual circumstances.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.

Fees & charges apply at SPW.

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