Keeping wealth in the family

There are more millionaires than ever before in the UK - only China, the US and Japan have more, according to Coutts. A survey released earlier this year by Boston Consulting Group found that around 821,000 households in the UK are millionaires, with a combined wealth of £6.5 trillion, up from £6.1 trillion a year earlier. The Office of National Statistics latest figures states that 8% of all households have a high net worth of £250,000 or greater. Notably, the figures do not include homes, only what are known as investable assets: cash, shares, bonds and pension funds – the amount we could relatively easily get our hands on if we wanted to invest.

This means that the likelihood that we bump into a millionaire as we go about our daily routine is rising – and as the number of wealthy people in the UK increases, so will the demand for specialist financial expertise. Experts we can trust to help protect and grow wealth and ensure that wealth is carried into the future.

But as no two people are the same and neither are their hopes and aspirations for the future, protecting wealth for future generations requires careful thought and planning.

A Will alone may not be enough to protect assets and keep them in the family; detailed succession planning is essential. That includes planning how assets are used, determining who’ll benefit from them – and putting in place structures to protect wealth and ensure goals can be achieved.

Most of us would like the wealth we have created to benefit future generations of the family, not just immediate children; with funds for education, perhaps, a deposit for a first home, or capital to establish a new business. No matter how wealthy we are, these goals are not guaranteed without careful planning.

There are also threats to wealth that we need to be wary of; Tax, divorce, and unwise decisions by vulnerable beneficiaries can all have a big impact. Inheritance Tax, levied at 40% over the nil-rate tax band threshold (fixed at £325,000 until 2021), is a major threat to any legacy for loved ones.

Another threat is large losses if a family business falls on hard times, for example, because it loses a key person due to ill-health or an unexpected death of a business partner. So, it’s essential to build a plan for the future to ensure that assets are preserved and protected.

With the right plan in place, you can not only minimise taxation but also ensure the protection of funds to benefit a family for decades to come – but this takes careful planning and sometimes a team of experts to meet the demands of each individual.

We can help you protect your family’s financial future

Every day we work with families whose needs are different, but one thing most families share is the desire to do the best for themselves and their successors. There is no one right answer, but the impact of taking no action can be devastating. We are specialists and we have the know-how to ensure you get the right policy for your needs and your budget, so you can be sure your loved ones are taken care of financially should the worst happen.

If you are a trusted expert, taking responsibility for proposing a plan for the financial well-being of a client, the advantage of using a specialist provider, such as Essential Insurance, to support you is that we can be flexible and responsive to client demands – taking the leg work out of a specific part of the proposed plan for you.

There are a number of reasons that a person may require life cover and in many circumstances, these do not reduce because of an individual’s net worth, in many circumstances they actually increase.

Life insurance can be purchased either by the individual or by their employer. In the latter case, the benefit would usually be paid into a trust for the benefit of the employee's beneficiaries.

If cover is bought as part of a shareholder protection scheme with a cross-option agreement in place, the life cover will pay out to the company to enable them to repurchase the shares or compensate an external investor.

Protecting against inheritance tax (IHT) 

Of course, one of the many reasons people choose to purchase life cover is to protect against inheritance tax liabilities.

If the value of your estate is above the nil rate band (NRB) of £325,000; then the part of your estate that is above this threshold will be liable for tax at the rate of 40%.

So, if your estate is worth £525,000 and your IHT threshold is £325,000, the tax charged will be on £200,000 (£525,000 - £325,000). The tax would be £80,000 (40% of £200,000).

Taking out a life insurance policy to pay some or all of an Inheritance Tax (IHT) bill, can make things easier on your family when it comes time to sort out your estate.

It can help protect your home from having to be sold to pay IHT.

In short, it can give you peace of mind you’re not lumbering your family with a hefty tax bill when you pass away.

You’ll only reduce IHT on your estate if your life insurance policy is written in trust* during your lifetime. If your life insurance policy is not written into a trust the policy proceeds will count towards the value of your estate and be liable to IHT on your death.

Put simply, if arranged correctly, life insurance is a simple and effective way to mitigate exposure to IHT and a way to provide security for a family or cover a risk to a company or corporate investor - and we can help make it easy for you to put it in place to keep your wealth in the family!

*Trusts are not regulated by the Financial Conduct Authority.