How much shall we leave to our children?

James Bond actor, Daniel Craig made the headlines a few years ago when he said that he doesn’t plan to have much money left to give to his children by the time he dies.

“Isn’t there an old adage that if you die a rich person you’ve failed?”  he said in an interview to the Times. Craig says that he finds it “distasteful” to leave his heirs massive amounts of money. He has two children and his wife Rachel Weisz also has a teenage son.

This attitude is similar to that of Warren Buffet and Bill Gates who have left most of their estates to philanthropic causes.. Buffett once said “After much observation of wealthy families here’s my recommendation. Leave the children enough so that they can do anything but not enough that they can do nothing”

For us mere mortals without estates in the region of hundreds of millions or billions, it’s a delicate balancing act, How much do we leave to our spouse, how much to our children, how much to the government (in the form of inheritance tax) , how much do we leave if any to other worthy causes?

First off, if we don’t make a will, the government steps in and divides our wealth according to their rules, which may not necessarily work out well for us. In the UK, it’s good to know that anything left to your spouse isn’t taxed.

Of course, Daniel Craig is absolutely right. You can’t take your wealth with you when you die.  You can’t be buried with your treasures like Tutankhamun of Egypt.

So we need to estimate with the help of cashflow planning, how much might be left over at the end and how much likely tax there is to pay. Inheritance tax is charged at 40% of your estate after accounting for a nil rate of 325K for each spouse, and increase to £500K when there is a primary residence of sufficient value and your estate is below a certain value.

We then have six choices.

1) Spend the money that might be left over on ourselves now, and do everything we have always wanted to do.

2) Start making gifts (either to our children or to charities) before we die (if it’s seven years before we die there is no tax to pay)

3) Place the money into a trust so that it leaves our estate just like a gift  but we (as trustees) have some control as to how, when and to whom it is disbursed. We can gift up to £325,000 each as a couple without incurring an immediate tax liability.

4) Buy some life insurance which will pay out tax-free when we die and help the beneficiaries of our estate meet the tax liabilities.

5) Invest the money in tax-efficient schemes (such as Business Relief) that are not liable to inheritance tax, understanding of course the risks involved.

6) Do nothing, make no changes and bequeath 40% of our estate to His Majesty’s government.

These choices are not easy or straightforward. Many people don’t want to spend more in their lifetimes. Others don’t want to gift. An honest  conversation with all the relevant parties defuses tension, ensures all the pros and cons are discussed, and can lead to an agreement and plan of action. A financial planner can help structure the process.

But if we leave it too late, choices can be made under duress, in a hurry and lead to bad outcomes for all. Good planning apart from reducing tax liabilities means peace of mind.

Get in touch to discuss your legacy and explore your estate planning options.

Please note

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

Please note that the Financial Conduct Authority (FCA) does not regulate some aspects of cash flow, estate or tax planning or trust advice.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

The value of investments may go down as well as up and you may get back less than you invest.

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