Family wealth management: at a glance
What do I need to know? Family wealth management often involves anticipating costly events and arranging your finances to account for them.
What does it mean for me? Financial advisers can help you plan, especially if your finances are complicated.
Why does it matter? Ensuring your family is prepared for the unexpected can give you peace of mind.
In the UK, savers will transfer as much as £7tn between generations by 2050 according to research published by Vanguard. But the ‘Great Wealth Transfer’ is just one component of financial planning. Family wealth management can help loved ones build long-term financial security. But you may need professional guidance to make the most of the opportunities available to you.
In this article, you’ll learn about the elements that make up comprehensive family wealth management. You’ll also understand which major life events can derail finances if you’re not prepared.
What is family wealth management?
Family wealth management is the practice of planning, arranging, and optimising your finances so your loved ones can benefit. It can include estate planning, writing a will, building a savings portfolio, or even discussing your arrangements with a financial adviser.
Financial advisers and family wealth management
Financial advisers are professionals that can offer guidance based on your unique circumstances.
Financial advice can help you with the more complicated considerations behind effective family wealth management. For example, the amount of tax you owe can vary significantly depending on your income, when you receive an inheritance, and how you choose to structure your wealth for the next generation.
Generational wealth and structure
‘Generational wealth’ describes the assets, resources, and finances you pass down to younger family members or loved ones.
Generational wealth can include cash savings, stocks, businesses, property, and other assets. You can transfer these assets to younger family members in a handful of ways, such as leaving them in a will or placing them in a trust fund.
How you choose to do this can have consequences for your own finances. So, it’s important to seek professional advice if you’re unsure which approach is right for you.
Key events to plan and discuss with advisers
Managing wealth across generations often means planning for major life events, both for yourself and your loved ones. A financial adviser can help you consider your priorities, such as:
Children and grandchildren
Your children are your legacy, so it’s not uncommon to want to leave them with healthy finances after you’ve passed away. Grandparents may already have a plan in mind, but major life events and changing priorities often prompt people to revisit their will.
Transferring wealth to the next generation is not just about money. You’ll want the reassurance that your children or grandchildren will manage their wealth responsibly. Some savers choose to open discretionary trust funds for this reason, where a person you specify (the trustee, or trustees) can determine how and when assets are distributed.
Marriage and divorce
Spouses and civil partners can inherit money and assets without paying Inheritance Tax (IHT). But many families also use a will to decide how wealth will be passed on to future generations, including children. Writing a will is also important if you have children from a previous marriage.
Adult children getting married
You could also discuss how prenuptial agreements work with your children, long before they meet a life partner. If your children are likely to benefit from receiving a significant amount of wealth at a young age, you could start educating them about finances early.
This approach could benefit your family if you choose to pass down wealth in a bare trust (which usually transfers assets to beneficiaries as soon as they come of age), or if your children will receive a large inheritance from an older relative.
Divorce
No one wants to think about divorce when they get married. But divorce is a very expensive and often stressful experience, so it’s best to have financial plans in place if your partnership dissolves.
A financial adviser can help you navigate difficult conversations, provide support, and help you make informed decisions that benefit both you and your relatives if things do not work out.
Retirement planning
Savings and pensions are key to preparing for retirement, but how you choose to take your pension and spend your money can change how much you need to pay in tax. If you have specific goals in mind for your retirement, such as travelling the world, you’ll also need to consider how much you need to save now to build the retirement you want.
Making use of annual allowances, such as a Cash ISA (Individual Savings Account) and pension contribution limits, can help you grow your tax-free savings over time.
Family wealth management starts before you’re ready
There’s never a better time to start family wealth management than right now. Although your circumstances will change over the years, strong family wealth management relies on detailed planning so you’re always prepared should the unexpected occur.
Family wealth management can seem overwhelming at first, so consider speaking with a financial adviser. Professional guidance is also useful if you intend to pass on large sums to younger generations. A financial adviser can also help you think through other scenarios you may not have considered before now.
With a balance of having pragmatic conversations with loved ones and saving for the future, you can set up your family for financial success over the long term.
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