Why “giving while living” can ensure a seamless transfer of wealth to your loved ones

man holding house keys

In recent years, there has been an increasing trend away from leaving money to loved ones only after death, with more families embracing a “giving while living” approach.

New research from Aviva shows that more than half of over-55s want to see the benefit of giving significant financial help to their family while they are still alive, rather than leave an inheritance in a will.

There are lots of benefits to transferring wealth to younger generations earlier in life – but also some factors you’ll need to consider. Read on to find out more about the pros and cons of this approach.

Give money when it is needed most

The official Office for National Statistics (ONS) 2021 Census data revealed that the greatest number of people ever in the UK are now in the over-65 age bracket. People of that age now account for 18.6% of the UK population, compared with 16.4% a decade ago.

In addition, for the first time, there are more than half a million people aged 90 or more, in contrast to 100 years ago, when only 15,000 had reached that age.

While longer life expectancy is to be welcomed, it does increase the age at which people inherit from their parents. 

Someone born in the 1960s, and so now aged between 53 and 62, would typically receive an inheritance on the death of their last parent at age 58. This climbs to 62 for a child born in the 1970s, and 64 for someone born in the 1980s.

How useful would an inheritance be to your child if they received it in their 60s?

This is one of the reasons why increasing numbers of parents and grandparents are considering transferring wealth and making gifts earlier in their life.

Your loved ones might be most in need of the financial assistance when they are in their 20s and 30s – enabling them to buy a house, get married, or start their own business.

Giving money earlier on in life means your family potentially receive a gift when it has a much more meaningful benefit, rather than inheriting it on your death when they could already be retired themselves.

See the benefit of your gift

Another positive reason to “gift with a warm hand” is that you will be able to see the benefit of your gift in your lifetime.

Making a gift to a loved one when you are alive can have tangible benefits that you can see. It can be very rewarding to see the impact that your generosity has on a younger family member, and the opportunities it affords them.

This can also be true of charitable giving. Making a donation to a good cause that is close to your heart when you are alive means you might be able to see the direct impact of that gift – rather than leaving a legacy in your will.

Reduce a potential Inheritance Tax liability

You have previously read about ways in which you can tackle potential Inheritance Tax (IHT) issues and leave more to family.

One of the most popular strategies for mitigating IHT is to make gifts. As well as your annual £3,000 gifting exemption, any gifts you make will typically fall outside of your estate if you survive for seven years after making them. These are called “potentially exempt transfers” (PETs).

If you make gifts earlier in life, longevity statistics will tell you that it’s much more likely that you will survive for seven years after making the gift. You’re more likely to live for another seven years at age 60 then you are at age 100!

Consequently, making gifts earlier in life can help you to reduce the value of your estate for IHT purposes, potentially ensuring more of your wealth passes to loved ones.

We can help you create an appropriate gifting strategy

One of the main questions that clients have when they want to transfer wealth to loved ones is: “can I afford it?”

Writing a cheque now might benefit a loved one, but it could also hinder your own progress towards your longer-term goals. It might delay your retirement or leave you with a shortfall in later life.

Using cashflow modelling software, we can forecast what effect making a gift will have on your financial future. We can model a range of scenarios to establish what level of gift is appropriate, and whether you can afford to help out a loved one without running out of money yourself.

We can also create a robust estate plan that helps you to ensure wealth is transferred between generations as tax-efficiently as possible.

Get in touch

If you would like to explore how you might be able to make gifts to your loved ones while you are alive, please get in touch. Email or call 01454 416653.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

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