Case Study: Passing on your wealth – What do you want to happen to your estate?

  • Cara Casey
  • 17 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?

I started my career with Lloyds Bank in 1980 and performed a number of different roles. I reached a point where I felt as though the time had come for a change, one where I could get more involved with the clients rather than the mechanics behind running branches and staffing. I moved into Lloyds Bank Private Banking and became a Private Banking Manager at the time when the roles of working in a bank and giving financial advice were merged. Overall, I’ve been a qualified financial adviser for about 15 years.

What I like the most about my role is the opportunity to change people’s lives. I really get to know my clients; some I’ve had for 10 or 20 years so in many ways they’re not only clients, but friends too. I am privileged to go on their financial journey with them. I meet their families and have the chance to add value to their lives.

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 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?

I think the important thing is to make sure that the clients themselves are comfortable with their finances. Once this is established, I can understand what they want to do now and in the future, and ultimately how they want their wealth to benefit their family and their beneficiaries. It’s my job to get an in depth appreciation of how my clients want their money to work and the tools they have available to deal with that, such as wishing to spend more money, gifting money during their lifetime and using their allowances.

As an adviser at Schroders Personal Wealth, we have a tool called Voyant which I think is a great way to visually show my clients their wealth and the projected potential growth of their wealth in the years to come. I have clients who are in their late 80s or 90s that still don’t want family members present in discussions relating to passing on their wealth. When this is the case, I tend to explain the benefits of getting family members involved in the conversations on inheritance tax (IHT) because it’s helpful for them to gain knowledge of my role as an adviser so they better understand how I can support the client, and if necessary, other members of their family. So, if the situation were to occur where my client was to pass away, at least a family member would be aware of the finances, the clients wishes and the next steps to take. It’s important to be mindful that as some clients get older, they may not have the ability to have important financial discussions with their family members. Accordingly, I believe it’s best to have those conversations with loves ones sooner rather than later. And on this note, it’s important to make sure that any feelings of family members prying into my clients’ financial circumstances is completely removed from the situation. It should be a very supportive introduction and it could happen at any life stage whether that be a client at 50 or 90.

Is there a particular scenario that you’ve experienced with a client where you’ve helped them with passing on their wealth and the potential costs that come with inheritance such as inheritance tax?

My clients are a couple in their mid-50s, who have built up significant wealth of over £1.5 million. The couple are doing very well for themselves and normally at around that age the focus would be around accumulating wealth or pensions and the discussion around inheritance tax (IHT) would be more general. Whenever I arrange an annual review meeting, the first thing I ask is ‘has anything changed since we met last time?’, in this case, the wife had recently inherited money from her mother. This meant that there was a possibility that their beneficiaries could encounter an additional IHT issue. I began to look at a deed of variation trust and we decided to put a sizeable amount of money into there. A deed of variation trust means instead of bringing the inherited funds into her estate where she potentially could lose £100k by a way of IHT liabilities instead of going to her children, the inheritance money has the potential to start growing from day one without adding to the estate. This allowed the client to still access the money if they wanted or needed to, but it could also be passed down generations without necessarily being touched.

It’s not unusual for advisers here at Schroders Personal Wealth to have joint meetings at presentations with clients which include a member of the trust department to go over the finer details of trust planning. This joint relationship with the two departments ensures clients get all the information they need to make the right decision for their circumstances. At this point, it’s likely already got to the stage that the client has pretty much made up their mind that they are going to do something before the Trust Manager comes in but it’s helpful having them involved in the conversation.

Conversations around deed of variation trust are not necessarily ones that clients would have with their solicitor. Once I’ve discussed it with them, it’s common for the client to think it sounds too good to be true so they may go away and do some of their own research. The joint presentation meeting with Trust Managers is a great way to reassure clients of what we can do and what we’ve got within our toolkit to do it. At this stage, the thought of ‘I’m not sure you can do this’ and the question of ‘why would we do this?’ changes to ‘why wouldn’t we do this?’ – this change of thought comes from truly understanding what the client wants to happen to financially support their family in the future.

I tend to favour drawing diagrams to help bring this sort of conversation to life. When I ask clients – What do you want to happen to your estate? As an example, it’s quite powerful to draw a pie chart which includes their two kids, but also have a percentage of the chart to include a third recipient, HMRC. Currently, HMRC get 40% of estate after deduction of allowances. As advisers, we shouldn’t be worried about what we’re asking clients as long as we’re asking questions for the right reasons. It should be remembered though that we’ve got to deal with each client on an individual basis and present information to them in a way that they understand, as this will differ each time.

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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