It is estimated some £5.5 trillion will pass between generations in the UK over the next 30 years and, writes Kirsty Mitchell, to ensure these assets are secured, elderly clients need to start talking about their wealth.
Do you encourage your elderly clients to talk to their family about their wealth?
It is a simple enough notion but it is more important than it may first appear. Many clients can put off this conversation as it can cause contention within their family and, very often, how even to bring up the subject can be a sticking point too. A conversation about family wealth leads into discussing the estate and what will happen to this estate once the elderly generation are no longer around to take care of it.
Spending habits are changing and, with this, different attitudes to finances are emerging.
One of the main problems is that, although mathematics is a central part of school education, financial literacy is not, and children are reliant on their parents to educate them on such matters. This knowledge, however, is not often acquired until they are well into their twenties. So, with finances being such a big part of the family wealth conversation, we can see why parents are starting to worry.
How can the elderly client population open this conversation with their children? First, it seems education around finances needs to begin at an earlier stage – whether this be with family or elsewhere. Not only would this give the younger generation more information but, with this knowledge, comes confidence too. If our children become more confident in talking about these matters, the family wealth conversation is bound to be much more comfortable.
Second, as we are beginning to see the merge from this generation to the next, we can also see that spending habits are changing and, with this, different attitudes to finances are emerging.
Where the baby-boomer generation wanted to speak to a financial adviser, invest their money and grow capital, the younger generations appear to be more prone to spending. Further to this, as property prices are increasing, younger clients are now less likely to purchase their own property and so may only be able to own a property through inheritance.
Currently, 70% of the UK’s household wealth is held by the over-50s and, in the next 30 years, it is estimated £5.5 trillion will pass between generations. As such, ring-fencing the estate and talking about the estate value is something that is growing ever-more important.
Yet, only 1 million lasting powers of attorney (LPA) were taken out in the last five years and currently only 1% of the UK population have an LPA in place at the moment. Considering 850,000 people living in the UK are currently suffering with dementia and this number is expected to rise above two million by 2051, this statistic is very concerning.
There are two main factors to consider when looking to ring-fence an estate – what happens if the client dies and what happens if the client loses capacity? These two scenarios have two very different outcomes and clients need to be educated about both.
70% of the UK’s household wealth is held by the over-50s and, in the next 30 years, it is estimated £5.5 trillion will pass between generations.
If a client loses capacity, their estate will be frozen – in other words, bank accounts will be inaccessible, drawdowns will fail and nothing can be done with any investments the client had. With no access to the estate, bills would go unpaid and the family would be unable to pay for care
Additionally, the client would become the responsibility of social services and the family would have no say on the care their elderly loved one receives, unless they apply for deputyship. This problem can, however, be very easily resolved.
There are two types of LPA – ‘health and welfare’ and ‘property and financial affairs’ – and it is important the client has both in place to ensure full protection of their estate. The first handles the care the client receives and the second deals with the finances and estate.
What is often overlooked is that the property and financial affairs LPA can be used at any time after it has been registered – not just as a result of incapacity, be that mental or physical. For its part, the health and welfare LPA only becomes effective when the donor has lost mental capacity. Either sort of LPA only becomes legal once registered with the Office of the Public Guardian.
Start the conversation
This brings us back to the family wealth conversation. It need not necessarily be all doom and gloom and there are simple ways to start the wealth conversation. Most estates, for example, contain a treasured family heirloom and – leading with this would ease the family into the discussion.
Ultimately, telling your elderly clients to have this conversation means they can rest assured, knowing they have attorneys available if they lose capacity, they have executors at the ready who know the value of their estate and their children can navigate through their inherited wealth.
Little by little, clients are having this conversation more frequently than in previous years. If we do not speed up this process, however, we will have a situation whereby the baby-boomer generation have assets that are not secured. That headline figure is worth repeating – £5.5 trillion passing between generations in the next 30 years …
Kirsty Mitchell is marketing and development manager at at APS Legal & Associates
This is reproduced from Professional Adviser; all views are from the publication. This originally appeared online on 5 December 2017.