Protecting Family Wealth

As with any planning process, at some point you are going to have to make some final decisions. People who are really detail orientated and who want to understand every little thing tend to struggle here. The problem is that legal work is complex.

This is the reason why people study for decades to practise in this area. You have to accept that you probably will not understand every single word of every single document and simply trust in the professional that you have chosen to use.

In the same way that you trust a doctor or dentist or nera employee rights specialist when they say you need some treatment (and you probably don’t understand every tiny detail of the procedure they are recommending), you have to trust your estate planning professional to guide you through the law and the process.

Estate planning is something people like to procrastinate over

Thinking about death or work related stress claims ireland is clearly uncomfortable and many people end up burying their head in the sand. However, it doesn’t have to be like this. A good estate planning practitioner should make the process at least partially enjoyable and there should be some laughs along the way. The process should also deliver great peace of mind and it will be a nice relief when it is done.

The hardest part is taking the first step…Keep Calm and Carry On. Having good monaghan solicitors to help you is a huge assistance. So now that all of the initial ‘problems’ are out of the way, there is nothing stopping you from making your estate planning more efficient and effective. Most of the above issues are very rarely real issues when you do the sums. It is usually possible to give away assets without causing problems later on, the return on investment for the cost involved is usually impressive and the sooner you start the better. So… what are you waiting for?

While much of the time and attention you will give to estate planning is focused on saving tax, it is very easy to forget or overlook the various other threats to family wealth. These threats can potentially be far more costly than any inheritance tax bill, both in terms of money and stress, but we rarely give them the same time consideration or level of attention. However, they often have a silent, but significant, impact on family wealth as it passes down the generations.

These issues usually don’t get the same press coverage as the dreaded inheritance tax bill or personal injury claims, but should be ignored at your peril. I will begin this chapter by focusing on one of these ‘social impacts’ that is concerned with inheritance tax and that is what I call multi-generation inheritance tax. Multi-Generation Inheritance Tax Before you begin this section, I have to inform you of a couple of assumptions that I have made.

They are not designed to offend or stereotype, but they are reflective of the real world and the work that I do with clients on a daily basis. People who are wealthy tend to have children who are wealthy in their own right or who will become wealthy in the future.

There will generally be around 25–30 years between the generations.

So, for example, if the parents die at approximately average life expectancy aged 85, then it is likely that the children will be around 55–60 at this point and the grandchildren will be 30–35.With that in mind, let me explain what is possibly one of the biggest missed opportunities in modern tax planning.

Let’s assume that a family’s parents have a net worth of £2million and they want to leave this money to their children. The children will pay inheritance tax on this money when it passes to them. If we also assume that those children are aged 55 and 60and already financially well off, the receipt of that inheritance has just significantly exacerbated the inheritance tax liability of the grandchildren.

In fact, the grandchildren will pay another tranche of inheritance tax on exactly the same money. This is illustrated in the example below. If left unchecked, family wealth can be significantly dented within a couple of generations, all because of successive tranches of inheritance tax being paid on the same money!

How Multi-Generation Inheritance Tax Erodes Family Wealth

As an example, let’s consider parents who have an estate worth £2million and who leave this all to their two children when they die. The children will claim 2 × £325,000 nil rate band exemptions, leaving a taxable estate of £1,350,000, which is charged 40%inheritance tax = £540,000 tax paid. This leaves £1,460,000 (£2,000,000 − £540,000) to pass to the children. Let’s then assume that the children already have a net worth of£650,000 (thereby already using up the two nil rate band exemptions).

The addition of £1,460,000 to their estate means that, whereas before they would pay no inheritance tax, they now have a taxable estate of £1,460,000, which will be taxed at 40% when they pass the money to the grandchildren.£1,460,000 × 40% = £584,000 tax paid – more than the bill on the original estate!

This tax is effectively being paid by the grandchildren on the £1.46m that was already taxed when it passed from the parents to the children. This is a problem that is fairly simple to solve, yet 99.9% of people have never thought about it. I will deal with some of the possible solutions to this issue in the later chapters. This problem is further exacerbated when the assets pass down through further generations without and employers liability.

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