Continuing the cheery theme of thinking about what happens when we snuff it, we’re going to look at estate planning. After a life spent first building and then enjoying wealth, if there’s anything left, we will probably end up thinking about how best to pass that on to the next generation, or to the causes we care about.
We’re talking now about leaving a legacy when we’re gone and the choices we make can have massive repercussions for our families – this is important, so we’re going to take our time over it.
You’re the Starting Point
Right at the top I want to hammer the point home that estate planning, legacy planning – whatever you want to call it – starts with you. It’s your legacy; it’s your estate. If I had a pound for every time someone has asked me, while we’ve been talking about this subject: “How much can I give away?” I always respond “All of it”.
They’ll look at me funny and then they’ll clarify that they want to know about gift exemptions – how much can they give away within the rules for inheritance tax. But the point is that you can do what you want with your own money.
When legacy planning, we must start from the position of what we want to happen, then we can navigate the system and rules, to make it happen in the most efficient way. Just as you shouldn’t let the ‘rules’ tail wag the legacy dog, you should let the tax tail wag it either.
This comes down to investment choices which might have inheritance tax benefits. It’s a golden rule that you should do anything for tax reasons that you’re not ordinarily happy with. Don’t just do it for tax reasons, whereas in any other situation you wouldn’t touch that investment with a barge pole. Remember – you’re the starting point. What you want to happen is the most important thing, then we can navigate the system.
Your Needs Come First
It’s a natural function of parenthood that we want to look after our kids. Millions of years of evolution have mandated this. But again, in having conversations with clients over the years, I am constantly having to remind parents that their own needs come first. When we’re planning in later life, we’re using the context of their future needs to determine what, if anything, can be given away now.
Even if a client is not planning on making lifetime gifts, very often they’ll look to not spend money that they could be enjoying, because they want to leave it to the kids. They usually get short shrift from me, though delivered politely and with a smile. Your. Needs. Come. First. Look after number one.
When I started a family I moved into a three bed house. My two daughters are now at that stage but three bed houses are pricing out of their reach. I’m not particularly well off but I want to help them avoid the stress of having children in tiny two bed houses with tiny kitchens in the undesirable areas they both live in at the moment.
Secondly, if I ever have to pay for care, my savings will probably only last a few months. Maybe only a few weeks. So I’d prefer to pass money on while I still can.