Historically, individuals typically transferred their wealth to beneficiaries after their demise via a will. Nevertheless, you might be contemplating the idea of presenting assets while you’re alive, establishing a living legacy. Explore further to uncover the advantages and disadvantages that might influence your decision when choosing between these alternatives.

The benefits of passing on assets during your lifetime

A living legacy presents an opportunity to offer timely assistance to your loved ones when they require it most.

Conventional inheritances are typically received later in life, a time when beneficiaries may already have achieved some financial stability. Conversely, a living legacy allows the transfer of assets at a juncture when they can be more impactful and beneficial.

Given the escalating housing prices, numerous families encounter challenges in accessing the property market. Consequently, parents and grandparents are increasingly inclined to pass on wealth to assist their descendants in securing a deposit for a home.

According to the Institute for Fiscal Studies, around half of first-time buyers in their 20s receive financial help to buy their home. On average, they receive a gift of £25,000.

The study revealed that this transfer of wealth not only aids in achieving homeownership aspirations but also contributes significantly to long-term wealth accumulation. Individuals receiving financial assistance often make larger initial deposits, potentially resulting in substantial savings on mortgage interest, amounting to thousands of pounds.

Assisting loved ones in entering the property market isn’t the sole rationale for considering gifting assets presently. Perhaps you aim to finance their university or private school education or alleviate their debt burden, thereby enhancing their day-to-day financial stability.

Passing on assets during your lifetime could give you greater control over how they’re used 

Transferring assets while you’re alive allows for more control over their intended use by your beneficiaries.

For instance, if you have specific desires such as ensuring your grandchild’s education at a private school, choosing to cover the fees directly during your lifetime enables precise fulfilment of your intentions.

It may be worth speaking to your family about their goals and the obstacles they face in reaching them. This could help you provide support in a way that suits both them and you.

Gifting might offer a way to reduce a potential Inheritance Tax bill

Should the value of your estate surpass Inheritance Tax thresholds after your passing, it might lead to a substantial tax obligation, consequently reducing the amount inherited by your beneficiaries.

For the tax year 2023/24, the nil-rate band stands at £325,000, meaning if the value of your estate remains below this threshold, no Inheritance Tax (IHT) is applicable. Additionally, if you’re transferring certain properties, notably your primary residence, to direct descendants, you might be eligible to leverage the residence nil-rate band, set at £175,000 in 2023/24.

It’s important to note that any unused allowances can be transferred to your spouse or civil partner. Therefore, as a couple, you could potentially pass on a total estate value of up to £1 million before Inheritance Tax becomes due.

If your estate might face potential Inheritance Tax (IHT), there could be strategies available to decrease the prospective tax liability, such as transferring assets while you’re alive. However, it’s important to note that not all assets are immediately excluded from your estate for IHT purposes, and navigating the regulations can be intricate.

Should you be considering establishing a living legacy to alleviate the impact of an Inheritance Tax bill, our assistance can be instrumental in guiding you through the process.

The drawbacks of a living legacy 

Passing on wealth now could affect your long-term financial security 

One significant challenge of gifting assets during your lifetime involves comprehending the lasting implications it may pose on your financial security. Could withdrawing a substantial sum from your estate now potentially necessitate making sacrifices or compromises later in life?

Incorporating gifts into your financial strategy can provide insights into both the immediate and prolonged consequences. It can instill confidence in your decision to pass on assets, assuring not only their secure transfer but also maintaining your financial stability.

A living legacy could affect the assets you leave behind as an inheritance 

Even though a living legacy can be advantageous, there might still be a desire to leave an inheritance for your loved ones. Gifting assets during your lifetime could potentially diminish the amount they’ll ultimately receive after your passing. Therefore, if preserving assets for inheritance purposes is a priority, evaluating how a living legacy impacts your estate during your lifetime becomes crucial.

Additionally, engaging in discussions with your loved ones is beneficial—ensuring they comprehend how immediate gifts could influence their future inheritance. This understanding may significantly influence their financial choices and planning.

Gifting assets during your lifetime may make your estate plan more complex 

Estate planning often involves intricate considerations, and adding lifetime gifting can further complicate matters.

For instance, you may choose to gift a deposit to assist one child in purchasing a home, while another child already owns their residence. In such a scenario, deliberating on whether to offer a lump sum immediately or allocate a larger amount through your will to the second child becomes a critical decision.

An estate plan that’s tailored to you could help you manage different goals and set out the best way to provide support for each of your beneficiaries. It can also help you take the steps necessary to ensure your wishes are followed, such as writing a will.  

Arrange a meeting with us to talk about your living legacy 

If you’re considering transferring wealth while you’re alive, it’s crucial to evaluate its impact on your long-term financial situation and explore tax-efficient strategies. Incorporating a living legacy into your comprehensive long-term financial plan can offer reassurance while you provide support to your loved ones.

We could also help you assess other options, such as leaving an inheritance in a will or placing assets in a trust, to create an estate plan that suits you.

Please get in touch with us to arrange a meeting. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or legal services. 

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