Why we need to break the silence around family finances
Life’s two certainties – death and taxes – should not be taboo subjects in families, writes John Godfrey
The issue of passing money and assets on to one’s children has been featuring prominently in the news, due to the furore surrounding changes to inheritance tax (IHT). The most significant of these changes include bringing defined contribution pensions inside the scope of IHT and reducing the relief available when passing on agricultural land.
That more people will soon be paying a tax originally targeted at the very rich means now is as good a time as any for families to have a discussion around death and money. Admittedly, nobody’s favourite conversation topics. Yet, as wealth managers, we know that early planning and sound advice can make a significant difference – not just to finances, but to family harmony.
The clients we advise at LGT Wealth Management tend towards the original targets of such a tax: entrepreneurs, highly paid professionals, family business scions, and landowners; and one might imagine that the family fortune looms large in family interactions. But while we might all have an idea of what a wealthy person is like – I’m told TikTok now features thousands of videos on how to acquire ‘old money’ style – the extent to which finances are not discussed within families can still surprise me to this day.
It is not unusual to encounter industrious people who have built up assets worth many millions of pounds, only to fret about the impact this will have on their offspring. Often, the result is that the family wealth becomes a kind of accidental secret. I say offspring rather than children, as many heirs are well into middle age before financial planning conversations begin – if they happen at all. Sometimes, parents worry that awareness of the money will corrupt or demotivate their children. Other times, the silence is driven by the thorns of family dynamics and a paralysis around how to tackle these: how to respond when one child is a sensible saver, the other a flagrant spender? What if one wants to enter the family business, and the other isn’t interested?
The growing generational wealth gap is further evidence for the importance of family financial planning – even for those with more modest means. New research from the International Longevity Centre shows older people are the disproportionate beneficiaries of household wealth increases: median wealth for someone in their late sixties increased by 46 per cent in the decade to 2020, compared to just 9 percent for someone in their late thirties. And only four per cent of UK household wealth is held by the under-40s. Despite this, 70 per cent of respondents had not received any financial help from families.
For those fortunate to enter later life in a strong financial position, careful planning and professional advice are essential in determining the best time to endow children with financial support. Inheriting later in life, when adult offspring have (hopefully) established their own careers and assets, does have drawbacks: it has a lesser impact than if done during their more impecunious younger years, and it can be fraught with tax implications.
Instead, families that openly discuss their values, set expectations, and introduce financial responsibility gradually tend to foster a more stable, multi-generational legacy. An adviser can guide families through strategies such as trust structures, philanthropy, and staggered inheritance, helping family money fulfil its function as an enabler of freedom and security, rather than a source of contention. At a practical level, delaying these discussions limits available options, given that gifts made in the seven years before death become subject to IHT.
Ultimately, life’s two certainties – death and taxes – should not be taboo subjects but ones we approach with care and foresight. Whether the goal is legacy, security, or family harmony, early and open discussions lay the groundwork for a smoother transition. In a landscape where financial rules constantly evolve, preparedness is key.
The best time to start talking about inheritance? Now.
John Godfrey, head of Scotland, LGT Wealth Management
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