The cost of avoiding the inheritance conversation

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You've already built the wealth, now it's time to build the plan. Don't look at it with the lens of this is about death. This isn't about death, it's about life. It's never too early because there's a lot of things you can put in place today that will make a significant difference to the outcome for everyone. What you don't want to do is go into these meetings and appear excited about the plan you've put in place for them. But equally, we have a surprising amount of clients that leave really upbeat from these conversations. We've done a number of things where we work with clients that have made significant difference to not only them, but their families today, based on future assumptions. And that's been really powerful for us. And when you're going through financial distress and emotional distress, that's a really dangerous combination to have.

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Welcome to the power of good advice, a series built on a simple belief. Good advice shouldn't be kept behind closed doors. Everyone deserves to have clarity, to feel confident, to build a prosperous future, and to unlock the good advice that can lead you there. At the heart of this series are the experts who guide people through life's most important financial decisions. In today's episode, what happens to your money after you've gone? It is so hard to visualize a family's life without you, but over half of us don't talk openly about our wishes for after we've gone.

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I'm Katie Derham, and I'm joined by two leading experts from Evelyn Partners who help individuals and families navigate this sensitive topic. We've got managing partner financial planning, Mark Wilkins, and investment management director, Will Mathewman. And it's lovely to have you both here. Thank you so much. Now, we all want peace of mind, but it is tough, isn't it? It's very difficult to visualize and talk about what life might look like for our families after we've gone. Mark, how do you guide clients to get comfortable with that idea? I think the biggest problem we have is a misconception about it being a doom and gloom conversation. And actually, it's actually something really positive, because you can do a huge amount about what you're going to do after you've left the earth today. But people are fearful of doing this. So I think a lot of people think, well, do I have enough actually to live on? What happens if I need long-term care? What happens if the children misspend the money? There's lots of different reasons why people don't take action now. And often, it's just down to the fact that people are just busy. It's not the conversation you have over breakfast where you're sat there talking about, "What happens after I've actually gone? Will you be okay?" But these are conversations that people like Will and I actually will sit down and have with people. And Will, I mean, how do you help clients do that? I mean, how do you get them to open up, give them confidence to talk about it? Yeah, probably the opening thing really for us is to make it really clear to the client that that whole meeting and conversation and discussion is entirely about them, okay? It isn't about us going in with a kind of cookie-cutter idea of what good looks like. And it certainly isn't us trying to position certain services or ideas or products to the client. We need it to be a really kind of open forum where clients sit and just get everything off their chest because without that information, we can't provide the advice we need to provide.

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And very often I find, and Mark feel the same, that actually we'll head into some of those meetings and clients will be incredibly nervous and it will be a conversation that you can see has daunted them to a degree. But actually by the end of it, the optimism and the kind of reassurance that they're going to come out the other side with a meaningful plan. Yes, really, really powerful. I mean, are you the sort of person, Will, who's confident about talking about, you know, life after you've gone and what's going to happen to your money or have you learnt to be doing this job? Yeah, a really good question. Yeah, so I probably, I realize that and I think generally, probably in the West in general, we're pretty terrible at this. So this is an area of discussion that we don't reckon with well and often we just try and dodge it at all costs. I've definitely got better through the job. So it's something that I wouldn't necessarily sit down with my wife at the end of an evening and start to talk about our plans for if one of us goes. But equally, we have to do this so often with so many clients who have so many different circumstances and who also come in it very differently from an emotional perspective that we have to navigate that very differently. They're not all the same. So I'd say, yeah, it's got easier over time. I mean, I suppose it's just being matter of fact, isn't it, I suppose, about it and getting used to using the right form of words. It is. And I think one of the things that we see is when people don't plan. So that gives us a bit more confidence to talk about some difficult subjects because the last thing you want to do is see somebody else fall into the trap somebody else has fallen into. And we see a lot of people where, you know, you've got families at war, the communications just not happened. They don't even know where to find their wills or their important documents. And when you're going through financial distress and emotional distress, that's a really dangerous combination to have. And we've seen families fall out badly as a result. What stage do you expect your clients to start thinking about this? You know, if I'm sitting here, obviously, I'm forever 37. But I mean, I'm in midlife, should we say. Should I be thinking about this now? I've got some elderly parents still. I've got children flying my nest. I mean, is that the sort of time I should be thinking about what's going to happen after I go? Yeah, I think it's one of those things that people typically leave it just way too late. And there are a lot of things where there are time constraints to estate planning, mitigating tax. And I think the big thing for us, and we've got a number of clients where we've helped them at 37. And I'm obviously 37 as well, where we've looked to map out what their future life looks like, because it's so important you do something now and you have a plan and that plan is flexible. So we've done an awful lot of work where, again, going back to the, is this a more big subject to talk about or is it something which is really quite positive? We've done a number of things where we work with clients that made significant difference to not only them, but their families today, based on future assumptions. And that's been really powerful for us. So the time to do it is probably, it's never too early because there's a lot of things you can put in place today that will make a significant difference to the outcome for everyone. So what are the kind of questions you're asking them? Because, as you say, you're looking at the picture now. But what kind of themes come up in terms of what's going to happen after you've gone? What kind of legacy subjects come into the conversation? It's very dependent on the individual you're talking to and their family circumstances, and also often the experiences they've had when they've had money handed down to them as well. So it's a difficult one to really name. But the key question we ask is, what does money mean to you? What's that money got to do for you? Who is important in your family? And if you could describe an ideal outcome for them, what would that look like? So we're very much led by what the client's looking to achieve. Some of them are very polarized in their views. So we have some clients, as an example, say, IHT, I've paid so much tax due in my lifetime. That's inheritance tax, yeah. Yeah, inheritance tax. I've paid so much tax due in my lifetime, I'd be damned if I'm paying it when I'm dead as well. And then you have others who say, well, do you know what? The kids will have more money than I ever had when I started. They can pay the bill. And you often have a middle ground in between. So it does depend on the individual as to what they're looking to achieve. But they're the key things. It's about understanding what's important to the client. I mean, do you find that generally people, I would assume this is the case, but I'll ask the question anyway, that is mostly about looking after their families? Or do you have a lot of people coming in saying, actually, you know, do you know what? They need to look after themselves. And I'm going to leave all the money to the local dog's home, or charities, whatever. We have that. We have both extremes. And I think one of the problems that we often see is we can often be referees in the room. So a lot of people don't communicate what they're trying to do. And you end up in a situation whereby all the money has been left to a charity. But nobody's told the family. And that can cause all sorts of problems. So contentious probate is one of the fastest growing areas of law, where people are challenging legacies that have been left to people they didn't expect it to go to. And that's causing quite a few problems. So our job is to try and get the family to communicate, because we've seen what happens when people don't talk to one another. And that's caused serious family breakups. And it's not necessary. I think an interesting way of looking at it is I think, well, you know, they're not just leaving money behind. We are not going to just leave money behind. You're actually leaving the ability for your family to maybe get on the property ladder, help them give up a job they don't like, or whatever it might be. It's this idea of it's not money, it's life, isn't it? Absolutely. Yeah. And I think, again, the industry has been pretty poor at times, articulating that that discussion is not about, "Oh, there's a pot of money there to invest. How do we invest it best? And who should have that pot in what kind of proportion?" The question is, what do you want this wealth that has accumulated over time, often through incredible amounts of hard work, do you want to see the benefit of that transitioning through your family? And do you want to be part of that journey? Or do you want that to be something that happens when you're not here? And that's probably been the biggest eye-opener for a lot of our clients is to give them the peace of mind that, okay, you're going to be okay, but in addition to you being okay, you're going to be able to participate and enjoy seeing that kind of next generation pursuing whatever life is for them. It isn't so much you're going to see an extra amount of money drop into their bank account. It's more participating in that kind of life experience. I mean, you refer to yourself, Mark, as a referee in the room. Do you try and encourage the different generations to come into the office together? Yeah, ideally. We've seen two examples. There's one which you just talking about leaving money for children to get on a property ladder. I've got a really good example of a client who was 54 and her husband unfortunately died at 52. And she was really worried about what was she going to do with her money because she said, from a financial point of view, he dealt with everything. And she said, it's not because I'm daft, but he really enjoyed it and it just bores me senseless. But she had a number of things she wanted to do. And this is quite unusual because often we have to tease out of people. What are you trying to achieve? What's important to you? So we looked at the shape of money. So money could rise significantly over time. You could say that's a great outcome, but that's typically where you have inheritance tax, capital gains tax, corporation tax, income tax. And that's the bit we often focus on. You could wander along somewhere in the middle. You could say that's okay. Or you could run out of money before you run out of life. And that's clearly the disaster point. And that stops a lot of people gifting money because they're worried they're going to need it themselves. So this particular lady that both Will and I worked with, she had a number of things she wanted to do, which is quite unusual. So she had a pension. She had some investments. She had some cash, a buy-to-let, various things. But she said, look, I want an income of 48,000 a year. Okay, that's great. What else are you looking to achieve? And she said, well, I'd like to actually spend 15,000 pounds a year on holidays. Okay, it's quite sizable. That sounds good. And she goes, but only up to the age of 74. So I thought, you've got me intrigued now. Why 74? And she said, well, what I'd like to do is, and she goes, my husband was a lovely man, but the most adventurous thing we do for holiday is two weeks in a static caravan in North Wales. And there's nothing wrong with that. But she goes, I realize now he's gone. Life is short. I want to do extreme holidays. So it's a finger in the air, age 74. I might not be fit enough to carry on doing this. So we then talked about the family and said, okay, talk to me about your family. She said, well, I've got three sons. I said, what's your plans for them? So she said, well, I'd love to better leave them some money to get onto the property ladder. Okay, that's great. How much are you thinking of leaving? She said, if I could leave them 100,000 pounds each, that'd be great. I said, why do you want to do that when you're gone? If you could afford to do that today, would you be interested? She said, well, I'd love to, but I don't know if I can afford to do this. But one of the things I talked about then was, well, talk to me about your family members. Your mum and dad still here? I said, no, but they lived a long life until their late 90s. I said, well, they fit them well. She said, well, unfortunately, in our family, we suffer with Alzheimer's. So they spent quite a bit of time in care. So we said, okay, so you're looking for 15,000 pounds a year for holidays to age 74, 48,000 a year in terms of income. You want to gift 100,000 to each of the three children, and you want to make sure you're covered for care. She said, yeah. So we went away and modeled it, and we all looked at various bits and pieces in terms of investments. We worked out she was going to run out of money at age 86, and we try and bump people off politely at age 100.

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So when we went through that, clearly that wasn't good enough because we need the money to outlast her. So we then looked at the investment structures. We drew down the money in the right order, and we changed some of the investment solutions we had. And we worked out she could actually afford to do everything that she wanted to do today. She wouldn't have run out of money until she was 106. She could still sell the property if she needed to, and it meant she could do everything she wanted to do, and I still get postcards from wherever she goes around the world doing wacky things. And she sent me pictures of two of the children's houses. So for her, it wasn't a case of this is a doom and gloom conversation. For her, this filled her with a lot of happiness because she said, I can see the children benefit today. They need the money now. And before I met you, I was worried I was going to do it when I was gone. So that's kind of the things that we work with. So that works really well. I mean, do you think there's a way, Mark, that you've ever had to advise the children of a family on how to approach this topic sensibly with their parents who haven't yet engaged with it? We have very different opinions from different family members or the children. And some of them, you're kind of concerned over how they're going to approach this because some are a little bit more delicate than others in terms of way which you might approach things. I saw a particular example with a family where they had approached this badly. And I've actually used this as an example to help others now, where there were three siblings and a family where the father owned a business, but he'd left the two parts of the business to the two sons and their sister, they left money for a house. And when I went into the meeting, it was a very strange atmosphere. Everybody was at each other. It was really tense. And what the issue was, for years, the two brothers had accused their sister of having more money from the family than they had had. And this was, you know, it had been poorly communicated. There were lots of rumors and speculation going on. But what we did was, just to Will's point, is we re-engineered things. We went backwards to look at, OK, if the gifts were given that far ago, if it was to be reversed to cash flow, what would that have now produced going forward? And actually, when we re-forecast from 10 years prior, it came out that she was the one who'd had the least amount of money out of the whole family. And they'd been at war for about four or five years. They didn't talk to the daughter at all. This was the first time that actually had everyone in the same room for a long period of time. And two brothers burst into tears because of the way in which they'd acted to their sister. So it's really important you get the questioning right and you approach it in the right manner because people just don't realize. So when you'd actually factored in the income they'd received, how the business had grown, they had far more money than she'd had in this instance. That's so interesting. That's so sad, actually. It's really sad. Great result from you guys, but goodness me. I mean, what is the most common mistake people make, do you think, Will, when it comes to this sort of planning?

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Yeah, so often, well, first one's leaving it too late. So they feel that they don't really need to worry about it until it is far too late in that kind of journey. Another one that we actually met with some clients recently again who, this one really caught them off guard, which was they'd done a series of gifting to their children. And they're about to embark on some more gifting. And Mark asked them, "Oh, the point at which you provided the gift to your children, did you do that on exactly the same day?" And they said, "Why should we have?" And it's incredibly important that when kind of an equal share of gift is done to whoever it is, that they are done on the same day. Because you can find yourself in a situation where one of the recipients of the gift is liable to tax, and the other, who effectively received the gift first, isn't. And you went into kind of more detail with those clients particularly as to how they'd kind of fallen into that trap, didn't you? Yeah. Yeah. And we often see issues where there is no plan in place, or if there is a plan in place, it's not been revisited. And of course, life events happen, governments change, legislation changes. And simple things such as, say, a life event, the amount of times we've sat down with people and looked at their expression of wishes forms, which is who you're planning to leave your pension to or some other asset to after you've gone, still has an ex-wife or husband or partner or family member they've fallen out with. And when they realize this, they're horrified because they didn't realize. They did what they thought was right at the time, but of course, circumstances change. So people don't revisit that, and that causes all sorts of problems. And that's a biggie. You often see that. I suppose the big question hanging over all of this is that, you know, you can plan for your retirement and say, "I'd like to retire in 15 years' time."

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You don't know when you're going to die. No. And so when is a sensible point, roughly, to start thinking about this? What do you think, Will? Well, we keep saying as early as possible, don't we? We do. But that isn't always realistic because we've also identified people who are very, very busy. And sometimes in the peak of their working lives, this isn't necessarily the first thing that they want to do. We would generally encourage people as they start to consider that kind of transition towards the next chapter, which is retirement. That's the moment at which this is probably something they should be really taking seriously.

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We'd still like to talk about it as early as possible, but that's a moment where they're already embarking on a transition in life. So with any moment of change, we like to reset and look at all the factors. I mean, of course, we've blithely said, you know, you don't know when you're going to die. I suppose, Mark, there are cases when you do, sadly, don't you? Correct. So how do you advise people when they do get a diagnosis, whether there really is genuinely a date they're working towards? It's quite difficult. And it does depend on the individual as to what they're happy to do. So I have a client right now. She's 94. And has been done in 96. But it doesn't leave much of a window in terms of life expectancy left. And she's rapidly declined in terms of her mental capacity and state. And she's been taken into a care home. So there are certain things you can do to try and move money out of the state quite quickly. So often you hear people talking about this seven year clock where you're effectively giving money away to people. But you need to wait seven years for it to clear the state from an inheritance tax point of view. There are different methods you can use which can move money out immediately. And there are different methods you could use which could move money out of the state within a state of two years. So there's different things you can do. It depends on circumstances, the individual. But it's not a case of one size fits all. There's a number of things you can do. But again, goes back to the point of you want to try and start planning this earlier, if you can, which is why cash flow is so important, because you can show somebody's life ahead of them. Certainly speaking from my own experience, people in my family, I've got people in my family who died at 52. I've also got my grandmother who died at 104. So birth certificates had expiry dates to make our job really easy, but they don't. So we've just got to try and plan. But I think the key thing is plan early. Don't wait for a life event to shock you into action. A lot of people think, oh, I need life cover because they know somebody who's died. They look at critical illness cover because they know somebody who suffered a critical illness. You know, retirement's a great point to sit back and think, what does my next chapter of life look like? But there are lots of other prompts you can have a look at to make sure we already. But the key thing is flexibility. Make sure a plan is flexible. And we review it every year. So we saw a client only yesterday that is eight years of annual reviews. They're now in a position where, you know, they are properly set up. So it's a nice case of looking after and making sure that they're well maintained. Is there ever a situation where you think to yourself, I could give you one version of events here. I could give you some advice which would absolutely maximise your finances, but you know it's not the right thing for the family? Yeah, absolutely. And often that comes around when there's been a significant event that's taking the focus away from just that pure financial outcome. And that's really that's probably the area that gives us the most satisfaction in terms of the value we can add, because we're very, very good at trying to articulate investment returns. And this is how much tax you've been saved or whatnot. But really, the piece that kind of fills us with the most happiness probably is seeing when a client's meaningfully benefited emotionally from some advice we've given. So to the point that you raised earlier around getting this plan in as soon as possible, we have a client that we met recently who very sadly their son has been diagnosed with a terminal illness and he's in his early 30s. So this really was not part of the plan. But because they had a very, very robust cash flowing place that Mark and I had put in a number of years ago, it was clear that really the financial piece, they could park that, that could be put to one side. They've, we reassured them that they could start to spend more money earlier in that journey than they'd originally planned, because they wanted to spend time with their son now doing things that they otherwise wouldn't have done.

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And actually having that really robust plan in place meant that instead of that moment being a moment where they said, okay, Mark, well, we need you in a room now to work out what the plan is. Actually, the finances became the kind of secondary behind the scenes piece, we could take a lot of the burden away from them. And they could just act emotionally and personally in that kind of family relationship. And that was an example of where it really works, I think. Very poignant, that. Goodness me.

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To leave us on a high. What's that one thing that you think people listening to this or watching this could do to shift the conversation from, oh, I don't want to think about it. It's all too grim and miserable to actually know I'm going to make a change that's going to really help my family and friends. It's a hard one to articulate cleanly. But I think the key thing is that don't look at it with the lens of this is about death. This isn't about death. It's about life. And what can you do to make the family position, finances, lifestyle that much better? And there's so many things you can do. And we've seen it from grandparents down to their grandchildren and some of the things they've done for them to set them up for life. And that's the thing. Set them up for life with something quite simple today that is going to make a huge difference because there's certain things you can't do. You get to the point of starting your career. You've typically got to try and get on a property ladder. You're not paid as much as you will do later in life. You might be starting a family. There's lots of things where you then don't have that freedom to do what you want to do because money's going out on normal bills. So if you can help your younger generation come through now and set them up for life, that's the key thing. So I look at it as a real positive story for us. It's definitely not all about death and taxes. How about you, Will? Yeah, just improving family and client outcomes, really, in terms of, I think psychologically, the way that we've operated with that transition of wealth over the last, however many years has shifted massively just in the last few years. And it's gone from this idea of when I'm gone, I'll be able to leave a pod of money to I'm going to set my children up or whoever it may be for that next stage of life and I'm going to be part of it myself. So it's far less thinking of the final event and it's more thinking of how you can be part of that next phase of life, really. And yeah, it's really difficult to articulate because what you don't want to do is go into these meetings and appear excited about the plan you've put in place for them. But equally, we have a surprising amount of clients that leave really upbeat from these conversations. Well, I have to say, you've made me think about it in a completely different way. So Will, Mark, thank you very much indeed. You're welcome. Thank you. Thank you so much for joining me for today's conversation and thank you to my guests, Mark Wilkins, Managing Partner Financial Planning and Will Mathewman, Investment Management Director from Evelyn Partners.

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If you would like personalised guidance on estate planning and inheritance tax or on another branch of wealth management, then the team at Evelyn Partners are here to help. There are plenty of ways you can get in touch. Click the link in the description to find out more. Thank you for watching and goodbye.