Mark Creed has produced an article on the upcoming reduction to the annual exemption amount on Capital Gains Tax and if you should consider crystalising your gains before 5th April 2023.

Marcus Carlton and Phil Patient’s articles provide some more long-term thoughts to consider. Marcus’ article on how connecting with your future self can help boost your financial wellbeing provides a different way of thinking about your financial future, whilst Phil’s article reflects on his own experiences of how to prepare children for an inheritance, looking toward the financial future of the next generation.

We have also included some common questions about crypto currency and blockchain, something that is often talked about but generally not clearly explained.

Finally, I’m sure many of you watched the World Cup in Qatar at the end of 2022. Whilst you may have been focussed on the football, there was another story unfolding around the sponsors and the need for agile marketing going forward. Our marketing manager, Stephanie, has laid out the story in our last article.

We hope you enjoy this edition and that the early forward markers for economic recovery continue to bloom and in time burst into life.

Growth at HFMC Wealth

As the weather is starting to change for the better and the plants start to emerge, HFMC Wealth have also been growing. We are delighted to announce that we have acquired R&S Associates Financial Planning Ltd which further strengthens our capabilities for serving our clients at our London office.

This is a continuation of our plan to build a growing, sustainable financial planning and wealth management business that can benefit our clients and staff from prudent increases in scale, whilst maintaining the depth of understanding and relationship that are so vital to being a successful client focussed business with a wide circle of relevant services.

The transaction, which completed on 16th January 2023, saw all R&S Financial Planning client-facing staff retained. The team will be jointly headed up by Vince Lane and Darren Berry. Vince is a Chartered Financial Planner and is an affiliate member of Resolution, the leading organisation for family justice professionals further strengthening our experience in serving families facing such circumstances.

Darren has previously looked after private clients at UBS and holds the Chartered Financial Planner status, is a designated Trust and Estate Practitioner through STEP and is a Fellow of the Personal Finance Society.

R&S advises over 100 high net worth families, many of whom have been clients for decades and, similarly to us, in some cases over multiple generations.

We would especially like to welcome all the R&S clients to the HFMC Wealth family and hope you find this, your first quarterly newsletter from us, to be insightful and informative.

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None of us know when our time will come to an end, but we do know that it will happen. My own dad had accumulated wealth in his lifetime and was keen for this to be preserved for me and my two brothers as much as possible.

This is not unusual for our clients, and one of your overriding financial planning goals is likely to be to pass some of your accumulated wealth to your children or grandchildren.

Indeed, the Kings Court Trust estimate that an eye-watering £5.5 trillion will pass between the generations within the next 30 years in what many have called “the great wealth transfer”.

With billions of pounds set to transfer between generations, how prepared are your children and grandchildren to receive their own inheritance?

Also, how prepared are you to leave your affairs such that your family know what to do when you are gone?

In my family’s case, whilst dad had no expectation of his passing, he had prepared a list of all of his wishes, along with leaving us his key details such as NI number, passport numbers, asset list, instructions and passwords. This was designed to make the management of his estate so much simpler than it otherwise would have been.

Preparing for the inevitable, perhaps in a similar way to my father using a document like HFMC Wealth’s ICE document, and letting your family know where to find it certainly helps begin any conversation about inheritance and what to do next.

Whilst your financial adviser will certainly know much of the hard facts about your financial affairs, if not all of it, they won’t know much of the more personal information that your family may later rely on.

According to a 2022 survey by the Bank of America, only 51% of parents with $3 million or more (around £2.5 million) in investable assets believe their children are well prepared to inherit.

Whilst 80% of wealthy parents consider it important to leave a financial inheritance to their children, only half said that the next generation are prepared to inherit when the time comes.

So, if you’re concerned about passing on your wealth, here are five useful hints and tips.

1. Make sure your child has a good financial education

If you want your children or grandchildren to handle an inheritance responsibly, it’s vital they have a sound knowledge of financial matters.

If they are still young, there are valuable lessons you can teach them about earning their pocket money, and the balance between saving and spending. We have written previously about the use of apps for pre and early teens such as GoHenry for just this purpose.

If they are older, concepts such as saving, compound returns, tax-efficiency, and asset diversification are likely to be more appropriate.

Inheriting a large sum of money with no basic knowledge of how to deal with it can easily lead to money being frittered away, meaning the valuable help you have provided could go to waste.

2. Start laying the groundwork early

One way to help to prepare your children for an inheritance is to start early. Consider inviting your adult children to meetings with your financial planner, so they can begin to understand the issues involved in an intergenerational wealth transfer, and also of any wishes you might have for how it may be used. Whilst clearly not binding, it can be really helpful.

Remember also that wealth acquired young can have a powerful multiplier effect.

For example, if a child or grandchild can pay off student debt, they can start to save earlier. Getting onto the housing ladder sooner can help them save money in terms of “wasted” rent and give them an asset that will likely appreciate in value over time.

Often, wealth breeds wealth. Indeed, the Guardian reports one study that traced the descendants of wealthy Victorians and found their great-great-grandchildren were still disproportionately likely to be well-off five generations later.

3. Explain the concerns you have about passing money on

As you get older, you’ll have to manage the tricky balance between “not running out of money” and “dying with too much”.

Passing on too much wealth too early could leave you short in years to come, particularly if you then have to pay for later-life care.

Similarly, not passing on wealth now could leave your loved ones with a substantial Inheritance Tax (IHT) headache when you pass away.

A 2022 report from Resolution Foundation revealed that some older people are making significant sacrifices in order to leave something to their children. To leave a healthier nest egg to their offspring, 9% are downsizing, 16% are saving more, and 4% are working longer into retirement.

So, you may need to have a conversation with your child or grandchild outlining reasons you might not be comfortable providing a significant sum now. While they may be happy for you to spend your money as you see fit – it’s your money, mum and dad! – they may also need to understand why you need to retain assets to maintain your quality of living in the years or decades to come.

4. Manage expectations

How much are your children expecting to receive from you as an inheritance?

If they don’t know how much money is involved, it can cause tension down the line. A 2019 study published by MoneyAge revealed that UK adults, on average, expect to receive an inheritance windfall of £132,000 from their parents.

Meanwhile, figures from the Office for National Statistics (ONS) suggest the average inheritance passed down by parents is around £50,000.

For many of our clients, the average inheritance is likely to be significantly more, particularly given the value of property.

With discussions about finances being taboo in so many UK families, your children or grandchildren could be vastly overestimating or underestimating the amount of inheritance they expect to receive. Misaligned expectations may leave them more or less able to achieve the life goals they thought they’d be able to meet with the money they expected to inherit.

And, when preparing a child for an inheritance, it’s not just the amount you need to consider when setting expectations, but also timescales.

Increasingly, like my own parents, those with wealth are taking a “giving while living” approach, by passing on wealth while they are alive rather than on death. As well as having the benefit of seeing your bequest go to good use, receiving a living inheritance tends to mean that children and grandchildren inherit money at a time in their life when they need it more.

For example, you may be able to help financially when they reach significant life milestones, such as buying a house or having children, or maybe it can be helping grandchildren perhaps with their long-term saving using the “normal expenditure out of income” exemption.

An intergenerational wealth plan, designed with your children and grandchildren in mind, can help you pass wealth when it is needed in a tax-efficient – and timely – way.

5. Tackle both the psychological and practical issues surrounding gifting

As well as the practical and financial aspects of passing on wealth, it’s important to remember the psychological aspects – both from your and your child’s perspective.

Many parents are concerned that they will “spoil” the next generation by passing money on. You may be worried that it encourages a lack of ambition in a child, or that they won’t work as hard knowing there is money coming down the line.

However, we have noted that attitudes are subtly shifting in this regard, with more and more clients wanting to see their hard-earned wealth pass to the next generations, not to HMRC.

Also, parents and grandparents are acknowledging that times have changed. It is undoubtedly much more difficult for young adults to get onto the housing ladder than it was for baby boomers or other generations.

In my own family’s case, having lost my mum to cancer in her 60s, my own goal has been to build experiences and memories with my children with memorable events and holidays together. My dad was very keen to support that and enabled this for us.

Many clients understand they can play a positive role in helping younger family members to get ahead or enable them to make choices that they would have wished they could have made.

Of course, transferring wealth to younger generations can also encourage them to take risks. Knowing they have financial support may enable them to pursue less reliable careers – perhaps as an intern or in the arts. They may also be bold enough to set up their own business.

From the recipient’s perspective, there are also psychological issues to consider.

In a research paper examining intergenerational wealth, sociologists Liz Moor and Sam Friedman say: “Intergenerational gifting is sensitive. It can elicit feelings of guilt, embarrassment, even shame, and therefore often goes unspoken in everyday life.”

Some of the younger people they interviewed felt judged by friends for “not having made it on their own”, while individuals with more liberal views can sometimes struggle to reconcile personal gratitude with their political conscience.

Interestingly, in the research, many children justified the financial help they received by focusing their emphasis on their parents’ early-life struggles and working-class background, rather than their own.

Explaining your own attitude to gifting can help your children with their own thoughts about receiving wealth, turning possible negatives into positives as the act itself can become aspirational and the receipts themselves more valued.

Your financial planner can help formulate a plan that’s appropriate for you

With all this in mind, when formulating an intergenerational wealth plan, you’re likely to have to consider both yours and the recipient’s feelings about the inheritance.

Having a more open discussion about wealth, your own expectations and hopes, and knowing your children’s hopes and goals can only help formulate your own plans should you be considering IHT planning.

If you would like to know more about how to best prepare for your family following the inevitable – whether it is expected or unexpected – or how you might to begin planning for wealth transfer, then do get in touch with your financial planner and they would be glad to help.

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That’s the conclusion of a major report by insurer Aegon, which reveals that the strength of your connection to your future self can have profound consequences for your health, happiness and financial wellbeing.

Just as picturing yourself driving down Route 66 or sipping a cocktail on a tropical beach can motivate you to save towards your goal, having a clear idea of what your future self might look like can boost your financial security. It can also improve your wellbeing in a range of other ways – read on to find out how.

If you have a clear vision of your future self, you’re likely to be more financially secure

Many people have a clear vision of their future self and see themselves in years to come as an extension of their current identity. These people are often more financially secure and tend to be more ethical in their treatment of others, as they are keen to act in a way that will make life easier in the years ahead.

Conversely, if you find it hard to imagine your future self – perhaps you see them as a separate person with little connection to the person you are now – you are likely to be less worried about the long-term effects of your decisions now.

This is not a new idea. In 1736, philosopher Joseph Butler wrote: “If the self or person of today, and that of tomorrow, are not the same, but only like persons, the person of today is really no more interested in what will befall the person of tomorrow, than in what will befall any other person”.

The notion of a link to our “future selves” also compelled Hal Hershfield, associate professor of marketing, behavioural decision making and psychology at the University of California, to study the idea.

Hershfield suspected that a disconnection from our future selves might explain some of the irrational elements of human behaviour, including a reluctance to save for retirement.

In his study, he showed participants the graphic below with overlapping circles representing the current and future self.

Participants had to identify which pair of circles best described how connected they felt to their self 10 years from now.

It’s an interesting process to go through – which pair of circles represents your relationship with your future self?

Hershfield then compared the responses to various financial planning metrics.

For example, he presented the participants with several scenarios in which they could either receive a smaller reward soon or a larger reward later. As you might expect, the participants who felt a greater connection to their future self were much more likely to wait for the bigger sum.

The professor then looked at the participants’ real-life savings. And, in line with his suspicions, he found that the participants who were better connected with their future selves had saved more.

The Aegon research came up with very similar conclusions. They found that people connected with their future self tend to:

• Be more responsible with their money
• Have a rainy day or emergency fund in place
• Be less likely to have debt
• Be more likely to pay off a mortgage
• Save more.

Of course, thinking more clearly about the future can have wider benefits than just boosting your financial security.

As an example, in a later study, Hershfield found that people’s identification with themselves in years to come could also predict their exercise behaviours and overall fitness.

His research revealed that if you identify strongly with your future self you are more willing to look after your body to make sure that you experience better health in the years ahead.

Financial planning can help you create a better vision of “future you”

Despite the clear benefits of thinking more closely about your future, Aegon found that less than a third (28%) of people have a specific picture of themselves in years to come.

So, what can you do to create a better relationship with “future you”?

Firstly, financial planning can encourage you to consider this issue. A financial plan is not generally designed just to “generate positive returns” – it’s there to enable you to reach your goals, whatever they might be.

A good financial planner starts by asking you about what you want to achieve in the future. That might be:

• Early retirement
• Providing financial support to children or grandchildren
• Leaving a legacy
• Starting your own business
• Enjoying a comfortable lifestyle in later life.

Only when a planner has established your goals – essentially a picture of your future self – can they create a plan to help you get there. And, you’re more likely to stick to this plan because you have clearly envisioned how you want your life to look in the years ahead.

If you are struggling to do this, there are a couple of simple ways you can try and connect with yourself 10 or 20 years from now.

The first is to use an app or other simple software to “age” yourself in a photo. Many smartphones let you upload a photograph of you now, and the app will add 10 or 20 years to your image so you can see what you might look like in a decade’s time.

When Hershfield did this with his participants, he found that they subsequently showed greater responsibility in their financial decision-making.

Alternatively, you could write a letter to yourself 10 or 20 years from now, describing what is most important for you now and your plans for the coming years.

This will also encourage you to feel a greater sense of connection with your future self and, consequently, lead to positive change.

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