The great wealth transfer: helping clients to do the right thing

Leaving a genuine lasting legacy

Leaving a genuine lasting legacy

This article was first published by Nucleus Illuminate on 6th June 2022 and can be found here.

Baby boomers, the scourge of millennials, are nearing the end of their working lives

With this evolution will come what is being referred to as the great wealth transfer. There are plenty of numbers being published (most are in the £5-6tr range) and of course, significant variables that will affect the eventual amount, but whatever it is it will be very substantial.

Boomers are also likely to be the last generation lucky enough to have defined benefit pensions, where investment risk is born by the sponsor, but it’s still the natural time to seek financial planning advice. Additionally, in light of the last couple of years, it’s become more natural to discuss eventual inheritance and estate planning. A point at which millennials swallow some of their grudges.

With sensible planning there are really two questions

What do you want to pass on, or try to pass on, and how do you want to do it? 

Often the answer to the first part is, unhelpfully, as much as possible. With the inheritance tax threshold now frozen out to at least 2026, this is increasingly becoming a factor in estate planning (£6.1bn of inheritance tax was collected in the last financial year). Also, with the recent unwelcome return of inflation, the variables around estimating retirement incomes, cost of living and future value of savings, has become much more uncertain. Good financial planning has become even more essential.

This leads on to how a client passes on their wealth. 

Gifting and trusts are a regular route, but with many years of life still in the tank and the highly uncertain world we currently live in, many clients are understandably reluctant to lose access to their hard-earned savings. For the very wealthy, VCTs and EIS are another route, but these are generally not evergreen and heavily liquidity constrained if urgent access is required. 

Another route that is getting increased use is to seek business relief through qualifying AIM shares. Under current legislation, this offers full access, control and generally good liquidity, and rapid relief (two years of ownership) from inheritance tax.

The world of ESG

There is, however, another increasingly important factor in answering the question ‘How do you want to pass on your wealth?’ which is ‘What is it actually invested in?’ Here we enter the world of ESG. 

There’s no doubt that the natural world is becoming increasingly stressed and for many millennials it’s their number one concern. And the dismissal that it’s just a woke worry is rapidly melting away; I defy anyone to justify the great garbage patch in the Pacific Ocean as a ‘good thing’.

Greenwashing also comes into the conversation. 

Boomers, with more years under the belt to have cultured a degree of scepticism, understand this is a real issue. And it doesn’t help when authorities struggle to define what is green; a few years back nuclear was verboten in a green fund, now not so much. This is changing at pace though, and companies are beginning to tackle their ESG footprint with action, not just words. 

We’re finding this to be particularly true with some AIM companies, where they are too small to be covered by rating agencies, but carry no legacy issues and are solely focused on solutions to the UN sustainable development goals.

It’s natural to feel uncertain and never more so than now. Clients, however, do want to do the ‘right thing,’ ensuring they pass on as much as they can and investing in a way that can make a positive contribution as well. 

It is possible to do both and leave a genuine lasting legacy.

Matt Strachan

Chief Investment Officer, Thorntons Investments

6 June 2022

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