assisted dying legislation

Cost of living; price of dying

Inheritance, especially among parents and children of a certain age, is a conversation that can prove to be incredibly uncomfortable amongst families. Usually, everyone is looking at what’s best for the whole, rather than the individuals involved. The challenge is that not everyone is able to articulate the outcome they are looking for in the right way, nor do they have the depth of knowledge with regards to the possible options available to them before and after a loved one has passed.

That’s where solicitors, estate planners and other professional advisors have an essential role to play. They are critical catalysts for ensuring open conversations that enable access to the right solutions, many of which have taken on even greater significance in the context of the current cost-of-living crisis.

The latest data from the Office for National Statistics (ONS) shows that the Consumer Price Index (including owner occupier housing costs) rose by 3.8% in the 12 months to March 2024. While that’s a massive fall from a recent peak of 9.6% in October 2022, it’s still uncomfortably high for many, and eating away at the average Briton’s ability to pay for the basic necessities.

What price a gift?

Considering these statistics, gifting may be an appealing prospect. While the initial thought may have been to provide a nest egg for the future, many children have an immediate need to be helped with day-to-day bills and living expenses. Decisions such as starting their own family or buying a car, which may have been put on hold in the current economic environment, can be realistically put back on the table.

As consultants Armstrong Watson points out, waiting until the parents pass away to leave an inheritance may be the traditional way, but the reality is that many children will be in the 50’s or 60’s by then and as such past the time when they really need a cash injection from the ‘Bank of Mum and Dad’. A living inheritance is therefore becoming a more popular option – and it could also, potentially, reduce your clients’ Inheritance Tax (IHT) liabilities.

As professionals know, when a person dies, the value of their property, savings and other assets is calculated, deducting amounts for debts and funeral expenses to give an ‘estate value’. This estate value dictates whether, and how much, IHT is due before the remainder is distributed to beneficiaries.

So, advising clients to reduce the value of their estate before they die, by gifting assets while they are still living, for example, may be good advice in helping mitigate the amount of IHT that is due once they pass. It might also mean they are still around to enjoy seeing how their money is being spent to improve the lives of their children.

A survey by retirement adviser Key recently found that 45% of over-55’s agreed with the statement: ‘Waiting to give children an inheritance is wrong; money should be given when it is useful’.

Key’s Chief Executive, Will Hale says: “People choose a living inheritance for a variety of reasons, including IHT mitigation. For many, it’s more about the emotional benefits of giving their loved ones a financial step-up when they need it most and being able to see them enjoy it.”

Best advice

On the surface, gifting appears to be an obvious ‘go to’ solution for many advisors. But it comes with challenges. The most difficult is ensuring that the gift is actually affordable to those being advised. That may sound an obvious statement but calculating what an individual may need into old age is far from easy, and someone in good health now, may not be considering the cost of care in the future.

With a possible change in Government in the coming weeks, whatever the outcome, the markets will be affected, which will in turn impact future costs. Planning for those costs is going to be difficult, especially in the short term.

Advisors can, of course, seek advice from experts in other fields —such as Age UK— for practical advice on the cost of residential homes, for example. They will undoubtedly also need to liaise closely with an accountant to ensure the advice they give doesn’t inadvertently leave a client’s children with a large and unwelcome tax bill!

Loans and advances

Gifting , of course, is not the only show in town. Estate planning professionals will also be very familiar with various financial mechanisms that can release money against the value of an asset. The most widely publicised is Equity release which enables homeowners to raise money against the value of their property. The ‘equity’ is a lump sum in the form of a lifetime mortgage (i.e effectively a long-term loan). This sum, plus interest, is repaid on a client’s death by selling their home. Equity release can reduce the amount of IHT payable, so they have their place, but are not for everyone.

Other ways of advancing money after a client’s death, and while advising the family, are also available. Cash advances, for example, can help an individual pay any IHT that is due so that probate can proceed or offer an advance on the value of probate, once it has been granted.

As with all important financial decisions, however, it all comes back to being open and honest with clients. Everyone invariably wants the best outcome, so facilitating those tricky conversations and knowing what options are available both now, and in the future, can help your clients arrive at the best solution for everyone.

By Luke Cheadle, Head of UK Operations for The Estate Registry

This article was submitted to be published by The Estate Registry as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.

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