Why don’t people discuss their financial plans with those it involves?

Steven High

Steven High

Financial Planner

10 April 2024

Historically, conversations with parents around their Will, money and future plans were either quickly brushed aside or simply didn’t happen, often due to a generational mindset where the social culture was to not talk about money with your family.

Then the day came when Mum and Dad were no longer around and, often, the family were left to take on the role of financial detectives, trying to find out if there was a Will, where it was kept and who the executors are. They would then be left to ascertain what financial assets were held and whether there was an appointed adviser. This all led to additional stress on the family at an already emotional time and could have been avoided by having those discussions earlier.

If a positive from the COVID-19 pandemic could be found, it would be that many families have become more open in discussing their financial plans. A 2022 report by Prudential found that one in five families will openly talk about inheritance and have discussed their Will.

Breaking the mould

We encourage our clients to introduce their family to both their financial adviser and solicitor at an early stage to make them aware of who to speak to when the time comes, and also to involve them in their plans. Prudential’s research highlights that one in three clients now share the same adviser with another generation of the family.

The benefits of this are numerous, from having joint discussions on the most tax efficient way of passing down wealth to mitigate inheritance tax, to discussing plans and requirements for later life care should this be needed. In addition, by introducing family to your adviser, you can rest assured that your family’s needs will be addressed, and put plans in place to protect their long-term future in the event of premature death or illness.

The changing role of pensions

The Pension Freedoms legislation in 2015 provided more flexibility in passing wealth down the generations and a key area is the importance of having an up-to-date Expression of Wish in place. The introduction of “inherited pensions” or Nominee Drawdown allows monies to be retained by the beneficiary in the tax-efficient pension wrapper outside of the estate.

The Expression of Wish document is completed by the pension holder and is, in effect, a statement to the pension Scheme Administrator or Trustees confirming whom they wish to receive their unused pension funds. The beneficiary then has the choice of receiving a lump sum, setting up a beneficiary pension plan, or using the funds to buy an annuity to provide a guaranteed income for life.

The Scheme Administrator or Trustees retain discretion as to who the benefits are paid to and would ordinarily follow the expressed wishes of the pension-holder. If no nomination has been made, the Scheme Administrator or Trustees can designate monies to spouse and lineal descendants.

Taking advice on completion of the Expression of Wish is very important, especially in the following examples.

John and Sue

John and Sue have no children and Sue has a pension fund which she has nominated John to be the sole beneficiary of. While they have no children, they do have nephews and nieces who are the intended beneficiaries of their estate.

Sue unfortunately passed away and the pension fund then passed to John. However, tragically, John also passed away before a Nominee Drawdown plan could be set up for him.

As there were no lineal descendants, the legal ruling was that the pension fund was deemed to have paid out as a lump sum to John and therefore was included in his estate. As a result, there was  a substantial Inheritance Tax bill to be paid.

If the Expression of Wish had detailed that in the event of such an occurrence that the nephews and nieces were to be considered as beneficiaries, then this would have been sufficient to allow the pension monies to be passed to them outside of the estate.

Alice and Steph

Alice and Steph are married and have three children. Alice has a substantial personal pension and has nominated Steph as the sole beneficiary of this in the event of her death.

On Alice’s death, Steph decides that the personal pension is surplus to her requirements. She has sufficient income and other assets to meet her needs, so she’d like to pass Alice’s pension on to their children instead.

Because the children were not nominated as potential beneficiaries of the pension fund by Alice, the Scheme Administrator doesn’t have the flexibility to give them Nominee Drawdown plans of their own. The pension fund can be divided into three lump sums and paid out to the children that way, but they’ll lose the significant tax benefits of having these monies held within a pension plan, where they could have continued to grow free of personal taxes until they were needed.

The importance of clear discussion

These examples highlight only some of the reasons why it is important to talk over financial matters with those involved in the future plans, and have a joined-up discussion involving both financial and legal advisers. 

We are fortunately seeing a move towards this happening and families are becoming more open with discussing their finances, which is a good sign for the future. If you haven’t yet spoken to your family about the arrangements you’ve made for transferring your wealth after you are gone, don’t delay it any longer. You never know what the future holds and it pays to be prepared.

Find out more

If you would like to discuss your own circumstances and the best course of action for your planning, please don't hesitate to get in touch with myself or a member of our Wealth team.


Disclaimer: This communication is based on our understanding of tax legislation as at 03/04/2024. The value or benefit of any specific tax reliefs or allowances will depend upon your own situation.

All statements concerning the tax treatment of pension contributions and pension benefits are based upon our understanding of current tax law and HMRC practices. Legislation and the levels and basis of reliefs from taxation are subject to change and depend on your individual circumstances. The financial conduct authority does not regulate tax and estate planning

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