Preparing for wealth transfer: What you need to know

Wealth planning

Passing your assets to the next generation may not be as simple as it sounds.


Successful entrepreneurs are known for building their businesses over the years with a combination of passion and hard work.

Naturally, there will come a point when you start to think about planning for the future, stepping back from your businesses and passing wealth to loved ones. A robust wealth transfer plan can help you to achieve all three.

An entrepreneur’s assets are likely to be illiquid because they are tied up in the business, which can pose a challenge. This helps to explain why 39 percent of business owners who were surveyed as part of RBC Wealth Management’s Wealth Transfer Report 2017 had a full wealth transfer plan in place. This compares to 26 percent of employed professionals. The figure suggests wealth transfer planning is important for business owners because they have the extra dimension of thinking about an exit strategy from their company.

Nevertheless, RBC Wealth Management’s research suggests there is room for improvement among some business owners; worryingly, one-fifth of the sample had not started planning for wealth transfer.

Planning for a wealth transfer as early as possible will provide you with the time and breathing space to make sure you have the right structures in place when you decide to step back from the business. The broader preparations are likely to span tax and estate planning, as well as retirement, inheritance and succession planning. Although it may feel like there is a lot to think about, try not to lose sight of the benefits a plan can bring.

First, make sure you have the right advisers on hand to formulate a plan and guide you through the process. Even if you have advisers in place, Adam Wereszczynski, a relationship manager at RBC Wealth Management in London, says it could be beneficial to get a second opinion from an external adviser. This will clarify whether your existing arrangements are appropriate for your circumstances.

“It is never a bad idea to get a second or third pair of eyes on your existing arrangements,” he says.

Planning your legacy

Once your advisers are in place, think about how much money will be required to achieve your objectives. This doesn’t need to be as daunting as it sounds, as your wealth manager will be a resource in providing a cost-benefit analysis.

“The first stage of the process is to establish how much of your wealth you need to look after you for the rest of your life. This involves cash flow modelling to establish what your income needs are likely to be,” says Dion Lindskog, head of wealth structuring at RBC Wealth Management.

Given that your assets are likely to be tied up in the business, this is likely to bring another question to the fore: are you planning to pass your business on to the next generation? If so, how you can you do this tax-efficiently?

If the business is family-owned, you may be looking for another family member to buy you out. Whichever route you take, plan ahead to ensure the best possible outcome.

Gifting strategy

At this point, it’s worth thinking about how much you wish to gift to any children and grandchildren – as well as the most appropriate route to do this.

One option is to provide direct gifts. While each person has a £3,000 annual exemption for gifts, which is removed from your estate immediately when used, you can also gift money or assets above this threshold that will be exempt from inheritance tax providing you live for at least seven years afterwards and you have no interest or link to the transferred assets. 

“This route depends on the age of the children and what they are like. For some parents, giving their children too much money too young can cause problems, in terms of them squandering it or lacking motivation to pursue a career,” Lindskog says.

If you wish to exert some control over how and when the money is allocated, gifting via a trust will allow you to do this. You can draft letters of wishes for beneficiaries (including charities), executed by trustees.

Bare trusts provide a neat solution for those who wish to pass on assets to minors. As a beneficiary, they will gain the right to capital and income within the trust from the age of 18.

Family investment companies represent another option to transfer assets to the next generation (via a limited liability company structure), while life insurance policies and offshore bonds can also be considered. Each option comes with its own tax implications, which need to be evaluated.

In order for your wealth transfer plan to take effect, it must be underpinned by an up-to-date will that accounts for assets held across different jurisdictions.

“I think everybody should have a will – regardless of what their wealth is,” Lindskog says.

“For every report I write, the first question I ask is, ‘have you got a will?’. If you do, I then ask if it is up to date. If you don’t have a will, it will be a key priority to set one up. There is no point doing any clever financial planning if you haven’t got a will,” he says.

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