What will happen to those you leave behind?
The objective of every parent is to be able to provide for those that they will leave behind.
However it is surprising how few actually have a clear plan to do this in a measured and intelligent way that maximises wealth for future generations. A recent study revealed that in the UK more than 3 in 5 small businesses have no succession plan at all.
What is a succession plan?
Put simply, it is a way of ensuring firstly that the right people and processes are in place for the day that you retire and walk away. And secondly that you have a plan to protect your assets and pass these on to the next generation in a controlled way. Both aspects are equally important – this article focuses on the latter.
Asset protection sounds a good idea – how do I do this?
Every individual has different circumstances but one thing is for sure – there are a lot of people out there who would like to get their hands on your money. You want to make sure it goes where you want it to go – and here are some of the points you need to consider:
Decide where you want your assets to end upWill your share in the business go to your children or grandchildren in the business? Who will get a share of your house and other assets when you pass away? Is your will correctly drafted to take this into account, including taking into account recent changes in business structure?
Make sure your assets are inheritance tax friendlySome assets qualify for exemption from inheritance tax, some do not. Every individual has an IHT nil rate band allowance of £325,000 (doubled up for a married couple) and some will benefit from the new Residence Nil Rate Band with effect from April this year – any assets not qualifying for exemption that exceed these nil rate bands will suffer tax at 40%. If you think this could affect you, or if you are at all unsure, you should get competent professional advice.
Plan your income requirements into retirementIn passing the reins to the next generation you need to ensure your assets work for you and provide the income you need, even if your needs are less than they once were. On the flip side, there is no point in accumulating more income than you need as this can cause other problems (see the next point).
Start to pass your assets on before you have toThere are two reasons for this: inheritance tax (IHT) and care home fees. The further in advance you pass assets down the family, the more chance you have of preserving these from the tax man or your local council.
The last point is a fundamental one, but sometimes it doesn’t feel very comfortable passing things on particularly to younger family members until they are a bit older and more experienced. Also sometimes point 4 above can get in the way of point 3 – you need the assets to give you an income into retirement.
What you really need is a way to ‘have your cake and eat it’ – to pass your assets down the family but keep control of them until the time is right to let go completely.
We’ve got an interesting solution that will help with this, contact us to find out more.
Please note This report is provided for information only. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this report can be accepted.