Topic: Family financial planning

Cashing out

Pension changes brought a whole new range of options to consider

Unadvised retirees who are now able to dip into their pension are having to return to work to cope with juggling their finances, according to a new report[1].

Pension freedoms have given individuals control over how to spend their retirement savings, but a number of unintended consequences have emerged. Since rules governing how pensions can be taken were dramatically relaxed in 2015, more than a million over-55s have gone on a freedom-fueled spending spree.

New options to consider

The pension changes brought a whole new range of options to consider. Individuals now have to think about whether they want an annuity, drawdown, cash or a combination of options; when to access their pension; if it is better to use savings first before drawing their pension; and so on.

However, it seems many don’t really understand the consequences of these options. As a result, more than £23 billion has been ‘cashed out’ from the nation’s pension pots via more than 5 million individual payments. The findings show the increase in retirees returning to the workforce since the introduction of pension freedoms four years ago is due to the number of options available and the lack of professional financial advice.

Facing financial pressure

A quarter of retirees who have returned to work since April 2015 say they were faced with financial pressure. Figures from HM Revenue and Customs show around one million over 55s withdrew a 25% tax-free lump sum from their pension in the last year, up 23% points from the 12 months prior.

There is a lot to think about when you’re planning for retirement, and your circumstances will change over time, which is why it is important to obtain professional financial advice. There’s no doubt the pension freedoms have been hugely popular, but for some retirees they have come at a high price. People now face more complicated decisions in retirement, and it’s clear not everyone is getting it right.

Scale of the problem

The figures also show other reasons for returning to work that include reigniting a sense of purpose and boosting social relationships. A report from the Pensions Policy Institute shows women particularly are continuing to struggle with pensions savings. The average pension for a woman is currently £100,000 lower than for men.

Women’s pension savings have historically been impacted by a combination of the gender pay gap, part-time working and the increased burden of childcare costs, but this figure lays bare the scale of the problem.

Time to convert your pension pot into retirement income?

When you’re coming up to retirement, you have lots of decisions to make, not least how to convert your pension pot into retirement income. With more freedom comes more choice, and it’s important to obtain professional financial advice to help you decide what to do with your pension pot. To review your options, please contact us – we look forward to hearing from you.

Source data:

[1] All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,028 adults, who have accessed their DC pension since 1 April 2015. Fieldwork was undertaken between 18 and 29 April 2019. The survey was carried out online for Zurich.

Will you spend less in Retirement?

So … you’re thinking about retiring. To prepare, you’ve been adding to your personal pension plan or employers pension scheme, getting an estimate of your state pension scheme benefits and topping up your ISA.

This is all to provide you with an income when you stop working. But what about planning for the other end of the equation: What should you expect to spend if you want to at least maintain, if not improve your standard of living in retirement?

Since almost everyone wants to retire someday, there’s a bounty of familiar adages, rules of thumb and popular perceptions on what it’s going to take. One of the most common ones I hear is this: I probably won’t need to spend as much once I retire.

Lower income taxes, shorter commutes, homemade meals, etc. At one point or another, you’ve probably been told there are lots of ways to live well for less in retirement. There may be. But have you actually run the numbers based on your own expectations? If you’re simply assuming a bounty of savings will fall into place, just because, I’m afraid you’ve got more planning to do. Let’s break the process into three digestible bites.

  1.  Who Are You, Really?

As I mentioned, there are plenty of ways many people can lower their cost of living in retirement. But retirement isn’t a magic wand. It won’t change who you are, nor will one size fit all.

So, first things first. Take some time to think through which potential cost savings actually align with your personal preferences. Out of all the costs you could reduce …

  1. Which are the costs you’d be happy to cut? Income taxes, for example. Who would miss those?
  2. Which are the cost cuts that wouldn’t bother you much, if at all? Little things can add up, especially if you won’t miss them anyway.
  3. Which are the cuts you could make, but when push comes to shove, you’d rather not? You may want to list and prioritize these, so you can decide where to draw the line.
  4. Which potential cost savings aren’t even realistic for you? Be honest with yourself about what you can and cannot do without.

In other words, be sure to make your spending planning about you … not some fantasy “you” who you wish you could be. Potential cost savings in retirement may look great on paper. But think through how you’ll really feel about them. If you’re a couple, that goes for both of you! I’ve seen too many families become overly optimistic about how much of their spending they’ll be willing to jettison in retirement. That’s no good if you find yourself neither up to the challenge or awfully unhappy with the results.

  1. What Are Your Numbers?

Once you’ve got a sense of the actual lifestyle you’d like to achieve, it’s time to get a solid grip on the numbers involved. What expenses are really going to change, and which will probably remain about the same? Are you supporting your kids, your parents, or both? Have you paid off your mortgage? What other expenses might show up, or go away? Again, this involves a healthy dose of realism.

For example, what if one of your grand plans is to downsize from your gigantic, family-sized home into a place more fitting for your retirement lifestyle? If you’re hoping this will also free up a big chunk of change to fund your new lifestyle, be sure to carefully quantify the costs involved. There can be costs to prepare your property for sale, estate agent commissions, legal fees and moving expenses. You’ll also need to buy or lease your next house, where you’ll probably have a new wish list of upgrades or renovations you’d like to make and stamp duty to pay.

You may still want to downsize even if it’s not going to be the screaming deal you were hoping for, but it’s a good idea to proceed with your financial eyes wide open.

Without going into painful detail, sensible tax planning may warrant intentionally incurring extra taxable income in early retirement, with an eye toward paying less income tax overall. This is especially the case if you are likely to fall foul of the Lifetime Allowance Tax Charge at age 75 in respect of your pension benefits.

In other words: That huge tax cut you were anticipating? It may end up being less than you expected.

  1.  Has Anything Changed?

This brings me to my final point. Retirement planning isn’t a single event; it’s an ongoing process. If all goes well, you may be retired for decades. The standard of living you’re planning for in early retirement is unlikely to be the same one you’ll prepare for later on.

Initially, you may want to travel, volunteer, improve your golf handicap, and spend more time with the grandkids. You may be called on to take care of your parents. You may want or need to keep working off and on.

Over time, you may become less active and as a result your expenditure may fall.

For all these reasons and more – the more realistic you are about your true costs in retirement, the more likely you’ll be able to maintain your lifestyle. And, the more personalised numbers you factor into the equation, the more realistic you can be. For that, we employ our financial modelling tools and use these to illustrate if you have enough and what the outcomes could be given future markets falls and lifetime events.

 

Why silence isn’t necessarily bliss

Over six million adults refuse to discuss their Will with loved ones

Making a Will is very important if you care what happens to your money and your belongings after you die, and most of us do. But have you tried to talk with your parents about their Will? If that conversation isn’t happening, you’re not alone

And it’s not only parents who are uncomfortable. Adult children may also be nervous about raising the topic of their parents’ finances for fear they appear greedy or nosy. Understandably, talking about dying can be seen as ‘taboo’ and it is not always easy to bring it up. However, discussing your Will with beneficiaries means they are better prepared when the time comes.

However, worryingly, almost six and half million adults refuse to discuss their Will with loved ones according to a recent research[1]. A quarter (26%) of people with a Will say they will not discuss it as they do not want to think about dying and one in four (27%) do not want to upset beneficiaries by discussing the contents of their Will[2].

It is also hugely important for family members to be aware of vital decisions in your Will, such as who will look after your children. By overcoming ‘death anxiety,’ the natural fear of talking about death and the emotions associated with it, these important conversations can ensure your beneficiaries are aware of your wishes and understand them.

Nearly half (45%) of UK parents, the research identified, with adult children believe their Will is ‘no one’s business’ but their own or a partner’s. But sharing the contents of a Will makes the financial and practical consequences of death easier for those left behind. Losing someone can have a huge impact on finances for months or even years to come, so it is crucial for families to be prepared.

‘When I’m gone’ conversation with your partner or family

  • Avoid talking to someone when they’re busy. Look for opportunities to broach the subject, such as when you’re discussing the future or perhaps following the death of someone close to you
  • Consider beginning the conversation with a question such as, ‘Have you ever wondered what would happen…?’; ‘Do you think we should talk about…?
  • Think about how you would manage financially should the worst happen. What impact would losing a partner or family member have on your household income and your expenses? Be aware that your financial situation may change in the future
  • Make sure you know where all important documents such as Wills, bank details, insurance policies, etc. are kept, so that you have all the information you might need
  • Prepare in advance – would you know how to manage the day-to-day finances? If not, consider how you could start to learn about them now so this doesn’t come as a shock

In the event of an illness, loss of capacity or death, are your plans in place?

Many of us will eventually reach a point in our lives when we require specialist assistance to ensure that our family will be able to cope better and manage their affairs in the event of an illness, loss of capacity or death.  If you would like to review your particular situation, why not give us a call?

Source data:

[1] Royal London – six million figure is based on ONS adult population stats of 52.8million. Our research shows 47% of UK adults have a Will – 26% of this figure equates to 6,458,535.05

[2] Opinium on behalf of Royal London surveyed 2,006 adults between 26 and 29 October 2018. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

Freetirees

Pension freedoms usher in a new generation

The introduction of pension freedoms has been a huge enabler for over-55’s, allowing millions to draw income from their pensions flexibly. Pension freedoms offer the opportunity to transition into retirement by continuing to work with reduced hours beyond traditional retirement age.

This emerging trend enables you to choose a middle path, allowing for reduced working hours and more flexible quality leisure time, while also receiving your retirement benefits. Taking a phased approach to retirement, new research[1] shows, was the preference for half of UK workers over 50, or five million workers[2].

Tailor retirement to your own individual requirements

The flexibility that pension freedoms gives means that older workers can tailor their retirement to their own individual requirements, giving rise to a new distinct and more ‘free’ stage of life in between work and retirement.

A quarter (26%) of over-50s could see themselves continuing to work while collecting their pension, but their motivation for doing so isn’t driven solely by economics. Keeping their brain active and an enjoyment of work as well as the benefits of social interaction all play their part.

Work–life balance has never been more important

Earning an income later in life also provides workers with the opportunity to continue saving, which can mean higher retirement benefits in the future. The research highlights that a work–life balance has never been more important to those over 55. Pension freedoms have allowed them to throw off the shackles of a traditional retirement and follow a plan that suits their individual needs. While historically people benefitted from generous final salary pensions, one drawback of these was that they didn’t offer much flexibility to decide how and when to take benefits.

The pension freedoms have changed the way people think about retirement and are enabling the rise of a more flexible transition into retirement, including allowing people to choose to start accessing some retirement savings to support a reduced working pattern.

Freedoms to continue to live life on your own terms

Pension freedoms have allowed older workers to be more flexible, creating a distinct phase in their later life where they can alter their working pattern to their needs. This allows them to continue working beyond traditional retirement age while also having more time for leisure, for family, for volunteering and to pursue hobbies and travel.

The research also highlights another point that older workers want to be able to continue to live life on their own terms, and pension freedoms allow an increasing number to enjoy a new life stage where they can combine reduced working hours with enjoying more leisure time.

What is your financial action plan?

For many people, it’s not clear where their money will come from when they no longer receive a salary – and that can be stressful. But don’t worry. With our help, you can create a plan of the actions you can take today to prepare you for the life you want tomorrow.  Why not speak to us to arrange a meeting.

 

Source data:

[1] Research conducted by Aegon in conjunction with Opinium, based on responses from 1007 UK workers aged 50+ earning £20k+ between 30 November and 6 December 2018.

[2] Office for National Statistics A05 NSA: Employment, unemployment and economic inactivity by age group

Improve Your Relationship with Money by Answering These 5 Questions

Many people have a complicated relationship with money. Hang-ups carried over from childhood experiences get mixed together with positive and negative experiences through adulthood. Few people ever take the time to reflect on what money really means to them and how they can “get right” with money to make smarter decisions.

Take time to answer these 5 questions and you might find that you can do a better job of living your best life possible with the money you have.

1. What’s your first money memory?

Your earliest experiences with money probably happened in your home. You saw how your parents earned and managed their money. You probably compared the quality of your family home and vehicles to what you saw at friends’ and neighbours’ houses. An unexpected job loss or illness might have led to some very lean holidays or none at all. Or, if you grew up in an affluent household, you might have taken money for granted in a way you no longer do now that you’re the one earning it.

Identifying some of these early memories is critical to reassessing your relationship with money. Are you following positive examples towards decisions that are going to improve your life? Or, without even realising it, are you repeating poor money habits that are going to hurt you in the long run?

2. Do you feel like money is your servant or your master?

Sometimes money makes us feel like we’re a hamster on a wheel, running as fast as we can without ever really getting anywhere. But if you never stop chasing after that next pound, when it comes time to retire, all you’re going to have is money, and a whole lot of empty days on your calendar.

People who get the most out of their money recognise that it’s a tool they can use to skillfully navigate to where they want to be in life. So, instead of working too long and hard for more money, think about how to put the money you have to work for you.

3. What would you do if you had more money?

You’ve probably read about studies that show lottery winners don’t end up any happier than they were before their windfalls. This is a dramatic example proving some conventional wisdom: money doesn’t buy happiness. That’s especially true if you’re stuck on your wheel for 40 hours every week just chasing more and more money.

If the idea of having more money gets you thinking about all the things you’d buy, it’s important to remember how quickly even the fanciest new car smell will fade.

If you would immediately quit your job if you had enough money to support your family and live comfortably, then maybe you need to think about a more fulfilling career.

Having more money might not “solve” some issues you’re currently experiencing but asking what you would do if you had more money might lead you to new decisions that improve your current life satisfaction.

4. What would you do if you had more time?

Imagine you don’t have to work. You can spend every single day doing exactly what you want. What does your ideal week look like? What things are you doing? What hobbies are you perfecting? Where are you travelling? With whom are you spending your time?

These things often get pushed to the side when we’re busy working. But if your money isn’t providing you with opportunities to spend time doing what you love with the people you love, then your work-life balance might need an adjustment.

5. What would your life look like to you if it turned out “well”?

Hopefully by now you’re starting to think about how your relationship to money could be keeping you from getting the most out of your money.

The successful retirees that we work with don’t look back fondly on the amount of money they made or how much stuff they were able to buy. They tell us their lives turned out well because they used money to make progress towards major life goals. They say their money provided them the freedom to pursue their passions. And their sense of well-being increased as they committed time and resources to health, spirituality, and continual self-improvement.

When you reach retirement age, we want you to look back happily on a life well-lived. Come and talk to us about how our interactive tools and Life-Centred Planning process can improve your relationship to your money.

Millennials ‘misjudging inheritance windfall’

I read an article recently which seemed to indicate that more financial planning education is needed for Millennials.

For those that don’t know, Millennials are those born between 1981 and 1996, so those currently aged 23 to 38, and who grew up during the time when the internet became a normal everyday way of life.

A new survey conducted by Wealth Manager, Charles Stanley highlighted that some young people have an expectation of the amount of money they will inherit and what it could buy. Their survey found that the majority of millennials surveyed misjudged the amount of inheritance they will receive and when they expect to get it.

The survey suggests that whilst young people expected to receive nearly £130,000 from relatives when they die, the median amount handed down was only £11,000!

Similarly, one in seven millennials expected to inherit before they turned 35, while in reality the typical inheritance age is between 55 and 64. There is also an expectation about what an inheritance can go towards. At least 22% of those surveyed planned to use any money to go towards a deposit on a house, although official statistics suggest currently only 7% actually used the funds they had in that way.

“People are living longer than ever, so relying on an inheritance to get on the housing ladder is a risky strategy as you may get less, and much later than planned,” said John Porteous, from Charles Stanley. “In reality, most people save and invest to get on the housing ladder. Starting early and planning ahead is essential to achieving the deposit you need,”

Having said that, according to Your Money, more people are inheriting. Inheritance tax receipts in the UK hit a record high of £5.4bn in the 2018-19 tax year, up £164m or 3.1% on the previous 12 months, which was also a record.

The Financial Times says,

To downsize, or not to downsize?

Planning your next move for a comfortable retirement

It can be a daunting prospect to think about selling the family home, but it is a decision that many decide is the right choice for them once the children have long moved out and the upkeep seems too onerous. However, people don’t often consider the impact this could have on their retirement, according to new research[1].

This has revealed that if people have decided to downsize, they could unlock value from their home, providing the often-overlooked solution to helping them achieve a comfortable retirement. The new report found that UK adults would like an annual retirement income of £39,773 to be comfortable in their later years. This is up from £26,184 in 2016.

UK adults’ retirement savings expectations

Expectations for larger incomes in later life may stem from retirement savings increasing substantially over this time. The research found that the average size of a pension is up 7% over two years, from £174,555 to £186,617. In keeping with this, UK adults expect to have retirement savings of £215,852 by the time they stop work – up 27% from 2016 – when the expected amount was £169,594.

After the State Pension of £8,546 per year[2], £31,226 per year extra would be needed to meet people’s desired income target of £39,773. At current low annuity rates, this income would need a pension pot of £600,515 for a level annuity.

Mind the gap – funding a desired lifestyle

Despite the increase in pensions savings, the bigger increase in expectations for income in retirement has meant that the pensions gap – the shortfall from what people will need to fund their desired lifestyle, if they bought an annuity, and what they expect to have in their pension pot at retirement – has gone up from £370,000 to £385,000 over two years.

Post-pension freedoms, there are several options for retirees to consider rather than having to buy an annuity, providing myriad ways for retirees to meet their income goals. For example, the research showed that figures revealed that those choosing to move to a smaller property, or ‘downsizing’, could release a significant amount of capital that could help them achieve the lifestyle in retirement that they really want. 

Providing motivation for a move to a smaller property

Once the children have left home, moving closer to public transport links or to a single-story home can often provide motivation for a move to a smaller property that may be more suitable. Using average UK house prices for homes of different sizes, figures show that the £385,000 shortfall could be significantly plugged if downsizing from a four-bed to a two-bed property. This would immediately increase savings by £287,286, or if invested over five years could be worth nearly enough to fill the gap, at £349,527[3]. If the decision to downsize is made earlier in life, then the funds could be invested over ten years[3], amounting to £425,253.

Planning to fund retirement by continuing to work

Despite the benefits of downsizing and increasing retirement savings, 83% of those surveyed said they did not intend to downsize to fund their retirement, increasing to 87% for over-55s. More people said that they plan to fund their retirement by continuing to work, either in their current role (11%) or by taking up a new job (9%), than by downsizing their property.

Considering the maximum annual pension contribution per tax year of £40,000, releasing a large amount of cash in one go from downsizing your property would mean only a portion can be invested directly into a pension. However, any money that is invested in this way would benefit from 20% tax relief before any investment return. The remainder can be invested or held in cash based on appropriate advice for that individual.

Monumental life decision that can be unnerving

Making the choice to downsize is a monumental life decision that can be unnerving to think about, but it can also have a great financial impact, providing a major boost to your retirement fund. Deciding on the right time to downsize can also be difficult, but the process can be easier if not left too late.

Moving to a smaller home nearby will lower the pressures that come with the upkeep and expenditure of a large property while keeping you near to any friends or family who live in the same area. Also, moving wealth from an illiquid asset such as property to a liquid asset such as cash has the added benefit of enabling tax planning, which could reduce any potential Inheritance Tax liability. It can be useful to take emotion out of the equation and try to be as pragmatic as possible – it’s easier said than done, but it can help with some very tough decisions that need to be made.

Looking towards a patchwork of savings and assets

The research showed greater realism about how long it might take to accumulate assets to fund retirement, and what will be needed to reach financial goals in retirement. On average, people would like to retire at age 61, up five years from when the survey was last undertaken in 2016, when this was 56. However, many admit that early retirement is unrealistic, with 67 being the average at which respondents think they will have enough money to stop working, coinciding with the rising State Pension age.

Many people are now looking towards a patchwork of savings and assets to fund retirement. While only 17% of people expect to downsize, over one in three (34%) expect to draw on other savings to fund their retirement, and a fifth (20%) expect to at least part-fund their later years by continuing to work. In addition, 14% hope to use inherited money or property.

Complexities around optimal financial planning

Despite the complexities around optimal financial planning for retirement, 52% of people do not seek advice regarding retirement and do not plan to. This number increases to 70% for retirees, which may be why one in ten (10%) of them still don’t know how they will fund their retirement.

Pensions have long been seen as the foundation of retirement saving, but many people now recognise that they will need to draw on other available assets to finance their retirement. The answer used to be to ‘buy an annuity’. Whilst annuities still have a place as one of the few ways to guarantee an income, they are expensive. A successful retirement plan involves making the most of not just your pension, but all your savings, other investments and assets.

Want to discuss your options?

Clearly, there is a lot to consider, and making the wrong retirement decisions can be costly. Many people approach retirement with little or no idea how much money they will need or the best way to take an income. Obtaining professional financial advice in the lead-up to and at retirement is essential. We use Financial Modelling Software to help you understand how your retirement can be funded, so please do contact us if you would like to discuss your requirements.

Source data

[1] Research conducted by Opinium Research amongst 5,000 UK adults between 30 August and 5 September 2018.

[2] Full State Pension 2018, https://www.gov.uk/new-state-pension/what-youll-get

[3] This assumes a 4% p.a. growth rate with dividends re-invested net of charges and no Capital Gains Tax to pay on the property sale.

 

 

Safeguarding your wealth for future generations

Unforeseen life events and circumstances can potentially impact your finances in several ways. We can help you to safeguard your wealth for future generations. But for many of us, there can be a remarkable gap between our intentions and our actions.

Inheritance Tax (IHT) affects thousands of families every year. It comes at a time of loss and mourning and can have an impact on families with even quite modest assets – if you thought IHT was just for extremely wealthy people to worry about, think again.

Tackling IHT sooner rather than later

There are legitimate ways to mitigate against IHT, which is why it is sometimes called the ‘voluntary tax’. Unfortunately, some of the most valuable exemptions must be used seven years before your death to be fully effective, so it makes sense to consider ways to tackle IHT sooner rather than later and to seek professional financial advice.

As property prices make IHT a reality for many in the UK, we’ve looked at a few ways to prevent HM Revenue and Customs being one of the largest beneficiaries of your estate. IHT is levied at a fixed rate of 40% on all assets worth more than £325,000 per person (0% under this amount) – or £650,000 per couple if other exemptions cannot be applied.

Parents and grandparents who are passing on their home will be able to leave up to £950,000 to their children without them having to pay IHT.  This figure will rise to £1 million by 2020. The current allowance of £325,000 remains unchanged, but a new tax-free band worth £175,000 per person on your main residence will be added to the £325,000, making it £500,000 per person. The new tax-free band was set at £125,000 in 2018, eventually rising to £175,000 in 2020.

Steps to mitigate against IHT

  1. Make a Will

Dying intestate (without a Will) means that you may not be making the most of the IHT exemption that exists if you wish your estate to pass to your spouse or registered civil partner. For example, if you don’t make a Will, then relatives other than your spouse or registered civil partner may be entitled to a share of your estate – and this might trigger an IHT liability.

  1. Make lifetime gifts

Gifts made more than seven years before the donor dies to an individual or to a bare trust are free of IHT. So, if appropriate, it could be wise to pass on some of your wealth while you are still alive. This may reduce the value of your estate when it is assessed for IHT purposes, and there is no limit on the sums you can pass on. You can gift as much as you wish, and this is known as a ‘Potentially Exempt Transfer’ (PET).

However, there is a catch: if you live for seven years after making such a gift, then it will be exempt from IHT. But should you be unfortunate enough to die within seven years, it will still be counted as part of your estate if it is above the annual gift allowance. You need to be particularly careful if you are giving away your home to your children with conditions attached to it, or if you give it away but continue to benefit from it. This is known as a ‘Gift with Reservation of Benefit’.

  1. Leave a proportion to charity

Being generous to your favourite charity can reduce your tax bill. If you leave at least 10% of your net estate to a charity or number of charities, then your IHT liability on the taxable portion of the estate is reduced to 36% rather than 40%.

  1. Set up a trust

Family trusts can be useful as a way of reducing IHT, making provision for your children and spouse, and potentially protecting family businesses. Trusts enable the donor to control who benefits (the beneficiaries) and under what circumstances, sometimes long after the donor’s death. Compare this with making a direct gift (for example, to a child), which offers no control to the donor once given. When you set up a trust, it is a legal arrangement, and you will need to appoint ‘trustees’ who are responsible for holding and managing the assets. Trustees have a responsibility to manage the trust on behalf of and in the best interest of the beneficiaries, in accordance with the trust terms. The terms will be set out in a legal document called ‘the trust deed’.

Types of trust

There are now three main types of trust.

Bare (Absolute) trusts – with a bare trust, you name the beneficiaries at outset and these can’t be changed. The assets, both income and capital, are immediately owned and can be taken by the beneficiary at age 18 (16 in Scotland).

Interest in possession trusts – with this type of trust, the beneficiaries have a right to all the income from the trust, but not necessarily the capital. Sometimes, a different beneficiary will get the capital – say, on the death of the income beneficiary. They’re often set up under the terms of a Will to allow a spouse to benefit from the income during their lifetime but with the capital being owned by their children. The capital is distributed on the remaining parent’s death.

Discretionary trusts – here, the trustees decide what happens to the income and capital throughout the lifetime of the trust and how it is paid out. There is usually a wide range of beneficiaries, but no specific beneficiary has the right to income from the trust.

Some trusts will now have to pay an IHT charge when they are set up, at ten-yearly intervals and even when assets are distributed.

The sooner you start planning, the more you can do

We can work with you to ensure you make use of all the reliefs and exemptions you can. We can build a tailor-made succession plan based on your individual circumstances to make sure the allowances work best for you. We can give you the peace of mind of knowing that you have laid the firmest foundations for your family’s future. Please contact us to discuss your situation.

Warnings

This article is distributed for educational purposes only and must not be considered to be advice.  The information is based upon our current understanding of taxation legislation and regulations.  Any levels and bases of, and reliefs from, taxation are subject to change.  Errors and omissions excepted. 

 

How to make a good decision when life throws you a tough choice

No matter how thorough our planning is, life inevitably tosses curveballs at us. Often these challenging moments are linked to major life transitions that affect our families, our careers, and our money. Balancing these variables can make arriving at the best decision that much more complicated.

Snap decisions are usually the least effective in the long run. Instead, take a deep breath, and let these decision-making strategies lead you towards the best possible outcome.

  1. Discuss the decision openly and honestly with your spouse

The harder the decision, the more serious it probably is, especially if it involves your family finances. Hiding problems from your spouse almost always makes a difficult situation even harder. If this is truly a fork in the road moment, both of you should be on the same page. Your spouse’s perspective might be just the thing you need to make sure you’re making the right choice for the right reasons.

  1. Consider how this decision aligns with your values

You might think of this as the “mirror test.” If you make this choice, are you going to be able to look yourself in the mirror tomorrow? If not, you might be leaning towards a decision that’s at odds with what’s really important to you.

Think about the reasons for this disconnect. Are you considering the easier of two possible choices? Living by your values isn’t always easy in the moment, but that face in the mirror is going to be looking back at you for the rest of your life.

  1. Identify an objective

Sometimes we don’t understand our true reasons for the choices we make until we dig a little deeper. “Why?” can be a simple but very powerful question, especially if you keep asking it.

For example, why do you want to buy a bigger house?

Because we need more space.

Why do you need more space?

Because I don’t have room for a home cinema.

Why do you need a home cinema?

Because my job is too stressful, and I need to destress.

Turns out your housing decision isn’t really about your house. It’s about work and a bigger TV isn’t going to make your job any less stressful.

  1. Think about everyone involved

Step outside of yourself and think about the other people who are going to be affected by your choice. Your spouse, your children, your friends, your colleagues, your neighbours. What’s best for you right now, might not be what’s best for the people closest to you. Is this decision going to damage any relationships that are important to you? Is that damage worth it?

  1. Are past experiences influencing this decision? For better? For worse?

Our decision-making can sometimes feel like it’s automatic. We make choices without ever really thinking about why we made that choice. We might say after the event that we were “going on instinct” or “listening to our gut feelings.”

But the way we respond to major choices is often a result of our past experiences. For example, your attitudes about an investment decision or high value purchase might be heavily influenced by how you saw your parents handle their money when you were a child. You might continue to work a safe but unfulfilling job because that’s what your father did to provide for you.

Think about whether your experiences are helping you make a good choice or reinforcing some bad habits.

  1. Consider seeking professional advice

It can be difficult to admit when we need help. But pros are pros for a reason. There are probably plenty of people who have benefitted from your professional expertise over the years. Don’t be too proud or too embarrassed to contact a solicitor, doctor, counsellor, contractor, or tax expert if you need the best possible advice.

And if your decision will occur at a major intersection of your life and your money, we want to be at the top of your call list. Come in and talk to us about how this choice could affect your Financial Plan, and how we can help.

Financial Planning is About Making Your Life Plan a Reality

Often, clients who have just begun working with us are surprised by how our planning process starts. We don’t begin by talking about Pensions, ISA’s, or how much you’re saving. Instead, we begin by talking about you, not your money.

Putting your life before your financial plan.

As Life-Centred Financial Planners, our process begins with understanding your life plan. We start by asking you about your family, your work, your home, your goals, and the things that you value the most.

Our job is to work with you to build a financial plan that will help you make your life plan a reality.

Of course, building wealth that will provide for your family and keep you comfortable today and in retirement is a part of that plan. So is monitoring your investments and assets and doing what we can to maximise your return on investment. But we also believe that maximising your Return on Life is just as important, if not more so. Some people feel like they will never have enough money whilst others, who have learnt to view money as a tool, start to see a whole new world of possibilities open in front of them.

Feeling free.

One of the most important things your money can do for you is provide a sense of freedom. If you don’t feel locked into chasing after the next pound, you’ll start exploring what more you can get out of life rather than just more money.

Feeling free to use your money in ways that fulfil you is going to become extremely important once you retire. After all, you’re going to have to do something with the 40 hours every week you used to spend working! But you’re also going to have to allow yourself to stop focusing on saving and start enjoying the life that your assets can provide.

So, having money and building wealth is a part of the plan. But it’s not THE plan.

The earlier you start thinking about how you can use your money to balance your vocation with vacation, your sense of personal and professional progress with recreation and pleasure, and the demands of supporting your family with achieving your individual goals, the freer you’re going to feel.

And achieving that kind of freedom with your money isn’t just going to help you sleep soundly at night – it’s going to make you feel excited to get out of bed the next morning.

What’s coming next?

So, when does the planning process end?

If you’re like most of the people we work with, never.

Life-Centred Planning isn’t about hitting some number with your savings, investments, and assets. We’re much more concerned about how your life is going than how the markets are performing.

Instead, the kinds of adjustments we’re going to make throughout the life of your plan will be in response to major transitions in your life.

Some transitions we’ll be able to anticipate, like a child going to University, a big family holiday you’ve been planning for, and, for many of you, the actual date of your retirement. Other transitions, like a sudden illness or a big move for work, we’ll help you adjust for as necessary.

In some cases, your life plan might change simply because you want something different out of life. You might start contemplating a career change. You might decide home doesn’t feel like home anymore and start looking for a new house. You might lose yourself in a new hobby and decide to invest some time and money in perfecting it. You might decide it’s time to be your own boss and start your own company.

Planning for and reacting to these moments where your life and your money intersect is what we do best. Come in and talk to us about how Life-Centred Planning can help you get the best life possible with the money you have.