When it comes to estate planning should our clients really be the children, not their parents?

Estate planning and wealth transfer is often a low priority for the senior generations, because inheritance tax is not understood, death is a taboo subject and “as I am going to spend it there won’t be any left anyway and even if there is I won’t be worrying about family in-fighting when I am gone”.

In fact, estate planning and inheritance tax mitigation is fairly straightforward and with a little application most clients can come up with a plan for distributing their estate in a reasonably equitable and tax efficient way. In our experience, detailed planning across the generations can be quite productive, binds families together and leaves less to chance and the tax man.

However, we have for some time recognised that the eventual recipients are often the ones who really need help, and in a way that deals with the emotional and life issues of an inheritance, not just the investment of a lump sum. As life planners we are deeply concerned at the impact of the massive wave of inheritances expected to cascade down the generations from the "heroes" and "silent" generations (the parents of the "baby-boomers") over the next 10 to fifteen years. What will be the impact on the lives of those who will suddenly, and possibly for the first time in their lives, be the beneficiary of substantial wealth? A measured life planning approach, helping people to look at money in a mature way, will save many of the recipient generation from considerable grief and stress in dealing with these inheritances.

A recent survey conducted for Friends Provident reinforces our view. It includes the alarming statistic that nearly one in three British adults is banking on an inheritance to help fund their retirement, although it appears that only 14 per cent of adults have actually discussed their inheritance with their parents and are clear about how much they’ll be receiving. Of the 31 per cent of Britons relying on an inheritance to help fund their retirement, 36 per cent expect it to fund over half of their retirement, whilst 15 per cent of all adults have not even considered yet how they will fund their retirement.

There is considerable scope for “un-met expectations” because in reality inheritances may never be sufficient to meet anything like half the cost of retirement. Both increasing longevity and possible long term care costs could take their toll on the value of parents’ estates. The survey also revealed that 20 per cent of respondents aged 65 or over are “sandwiched” between still living parents and their own children, leading to multi-generational distribution of estates.

For everyone’s sake, its probably best for the senior generations to put some estate planning in place sooner rather than later, and for the junior generations to put some proper financial planning in place to ensure retirement is spent in comfort, not penury.