Metis AM
Over the years, you’ll have worked hard to build your wealth and provide a comfortable lifestyle for your family. Once you are confident that you are secure financially, you’ll probably also have thought about your estate, and how much you’d like to pass on to your loved ones.
An inheritance can make a huge difference to the life of a family member if they use it wisely, such as by helping them to put down a mortgage deposit for their first home. That’s why many people are now preferring to pass on their wealth while they’re still alive, rather than in a will.
According to research from Aviva, more than half of over-55s say they would prefer to give an inheritance in this way. There can be many great reasons to do this, so read on to find out the five valuable benefits of giving while living.
1. You can see the difference your inheritance makes to your loved ones
One of the biggest benefits of giving a living gift is that you’ll be around to see the difference that it makes to the lives of your family members. This is something that you wouldn’t be able to do if you only passed on wealth through your will.
Giving while living can create priceless lifelong memories, as you can see first-hand how your wealth is improving the lives of the people you care about.
Whether you’re enabling your children to take an unforgettable once-in-a-lifetime holiday or helping a grandchild take their first step onto the property ladder, making a living gift can be hugely rewarding.
2. You’ll be able to guarantee that your money is used wisely
When you choose to pass on your wealth through your will, you might have the concern in the back of your mind that your loved ones might not know how to use it effectively. This can be especially true if you’re giving to a family member who is young and doesn’t have much experience handling money.
Even if you pass it on through a trust and add stipulations, you may still find yourself worrying. That’s why giving while living can help to put your mind at ease, knowing that you’ll be around to offer valuable advice.
For example, if a loved one wants to start investing with the money you gifted them, you can use your expertise to help them make good decisions with it. Conversely, you can also make sure that they don’t fall foul of any financial scams.
Giving while living can help to give you more peace of mind, knowing that your money is going exactly where you want it to.
3. Your money can give your family more opportunities
When you look back on your life, there are probably plenty of opportunities you wish you had taken advantage of, but maybe didn’t have the funds to do so. By giving a living gift to your loved ones, you can open doors for them that might otherwise be closed.
For example, you could pay for private education for your grandchildren so that they can have better opportunities, which may also increase their chance of attending a prestigious university.
Alternatively, you could financially support a loved one who wants to start their own business, giving them valuable capital to establish themselves.
By making a living gift, you can have the hugely rewarding experience of watching your money make a real difference to the lives of the people most precious to you.
4. Passing money on earlier can have a bigger impact
While the value of your gift is obviously important, the timing is also key. If you wait too long and only pass on your wealth after you’ve died, your children may be approaching retirement while your grandchildren might even have families of their own.
An inheritance is useful at any stage of life, but it can often make a much bigger difference when you give it earlier. For example, when your grandchildren are just starting out, a generous financial gift can make it much easier for them to buy their first home.
Passing on an inheritance earlier can also be helpful if your family plan to invest this wealth, as it gives them a longer timeframe to let it grow. This can be especially important if you want to help loved ones boost the value of their pension.
5. Gifting can be a good way to reduce your Inheritance Tax liability
When you pass away, if the value of your estate is above a threshold called the “nil-rate band” then your loved ones may have to pay Inheritance Tax (IHT). At a time when they are already grieving, a bill from HMRC is the last thing they need.
In the 2022/23 tax year, this threshold stands at £325,000, though you can also take advantage of the residence nil-rate band if you pass your home on to your children or grandchildren. This raises the amount of wealth you can pass on to your family by a further £175,000.
As we discussed in a previous article, if you’re worried about incurring a tax charge when you die, giving gifts during your lifetime can be a great way to avoid this. Doing so can help you to pass on wealth to your loved ones, while also reducing the value of your estate and the tax liability you may leave behind.
You can give gifts of unlimited value to anyone you choose, as long as you live for a further seven years, as after this point they fall outside your estate.
Of course, it’s more likely that you will survive for seven years if you make a gift at age 50 than at age 100! So, giving earlier in life can enable you to transfer wealth without potential IHT issues.
Get in touch
If you’re considering making a living gift to your family and want to make sure you avoid any IHT issues, we can help. Please email enquiries@metiswealth.co.uk or call 0345 450 5670.
Please note:
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
