A thriving Bank of Granny and Grandad means more of their cash is playing leapfrog. Steven McKnight, principal partner in the Aberdeen office of St James’s Place Wealth Management explains why
Money is about to skip a generation as families act to counter the unequal spread of wealth between young and old.
More than £400billion in wealth being held by Britain’s grandparents is expected to cascade down to the benefit of grandchildren in the coming years, according to a new report from Royal London.
As well as highlighting the vast wealth inequality between generations, the report also reveals a significant difference in the ways different age groups think about giving or receiving an inheritance.
An overwhelming majority of those aged 25–44 want to see their parents and grandparents spending freely and enjoying their retirement.
This is a powerful challenge to the idea of a generation of “millennials” resenting the lifestyles of older generations.
But older generations, the report finds, are much more focused on preserving their wealth and passing it on.
Grandparents, in particular, have a strong desire to leave an inheritance, especially to their children but also their grandchildren.
The report notes the people most likely to inherit housing are those with elderly parents and are, therefore, usually middle-aged themselves.
For this reason, they are likely already to possess their own housing wealth and be aware of the challenges facing their own children.
Most of this group – particularly those aged 55–64 – are, therefore, planning to pass some or all of any inheritance straight onto the next generation.
While they are less ideologically wedded to the idea of leaving a significant inheritance, the report claims “they clearly feel under pressure to do so and plan to do so”.
To address the challenge of distributing wealth more appropriately within the family, some beneficiaries will choose, or are obliged, to make posthumous changes to the wills of deceased family members using a “deed of variation“”.
However, the potential complications and upset involved mean this should very much be viewed as a last resort.
Better lifetime planning can prevent such problems; indeed, transfers of wealth between the generations do not only happen after death.
Parents and grandparents with the financial means are increasingly considering transferring assets to children within their own lifetimes and while they still have the opportunity to see these recipients benefit.
This may be to help children gain a foothold on the housing ladder, clear debts or build a fund for retirement.
It is clear the UK is entering an unprecedented era in which people are retiring with much greater wealth than their predecessors.
That wealth is largely being preserved through retirement and will in due course find its way down through the generations.
It makes sense, therefore, for more people to consider estate planning as part their overall financial planning strategy.
Making a will can help minimise tax and make sure your estate is passed on in line with your wishes, while there are other measures you can take while you are still alive to pass wealth on and minimise liability to inheritance tax.