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Powerful estate planning tools ignored or forgotten by wealthy Brits

Canada Life IHT Survey 2016

  • Only a quarter of wealthy Brits have sought professional estate planning advice to ensure their families don’t pay more tax than required
  • More than a quarter don’t even have a will and just one in five have gifted money
  • Many say they do not need these tools but families would face substantial inheritance tax (IHT) bills without any planning
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Wealthy Brits over the age of 45 are forgetting or ignoring simple estate planning tools that could help them to pass on more of their estate to their families, according to Canada Life’s annual IHT survey.*

The research found that over a quarter (27 per cent) of those aged 45 or over with enough assets to trigger a potential IHT bill did not have a will, leaving their inheritance plans unclear and meaning their wealth could pass to relatives they did not intend to provide for under intestacy rules.

Another simple and effective estate planning strategy is to gift money to relatives, but just a fifth of respondents had done so, with over half (51 per cent) saying they didn’t see a need.

One of the main reasons that simple estate planning tools are being ignored by people with enough wealth to benefit from them is a lack of understanding that could easily be rectified by better use of financial advice. However, Canada Life’s research found that just 27 per cent of wealthy Brits over the age of 45 had sought professional advice on IHT planning.

This is despite the fact their families could face higher than expected IHT bills as a result and illustrates a widespread failure to look to the future and plan adequately.

Opinions of wealthy split on usefulness of other inheritance tax planning tools 

Most commonly used estate planning tools

(% of consumers that have used them)

Most unpopular estate planning tools

(% of consumers that have no intention of using them)

Writing a will 73% Take out life insurance 46%
Take out life insurance 37% Setting up a trust 40%
Gifting money 21% Gifting money 27%
Setting up a trust 13% Writing a will 2%

Base: 1,001 UK consumers aged 45 or over with assets exceeding £325,000

Almost half (46 per cent) of respondents said they would never take out life insurance as part of their estate planning. Nearly three-quarters (72 per cent) said they didn’t see a need to use life insurance, suggesting a lack of understanding of how this can be a successful estate planning tool and that greater education is needed from professional advisers.

Trusts were the second most unpopular strategy, with 40 per cent saying they had no intention of using them. 19 per cent said setting up a trust was too time consuming or complicated when, in reality, it is a straightforward IHT planning strategy and presents an opportunity for advisers to discuss this with their clients.

However, a significant minority (13 per cent) said they had used them, showing that these continue to be an important part of estate planning for people who want to pass on their wealth in a controlled manner.

Almost one in 10 wouldn’t seek advice

Although just a quarter had already sought financial advice for estate planning, others were open to the idea of seeking advice in future. While the majority (51 per cent) would seek advice from a financial adviser, followed by a solicitor (34 per cent), more than a quarter would rely on the internet or their own research (28 per cent).

However, almost one in 10 (8 per cent) would not seek advice for IHT planning from anyone.

This is concerning when you consider the amount of money some expect to leave. 43 per cent of respondents expected to leave an inheritance of over £500,000, which exceeds the current individual IHT threshold and would lead those who failed to plan ahead with substantial tax bills for their families. One in 10 would leave an inheritance of £1m or more and would therefore benefit significantly from some form of estate planning.

Most people intended to leave their wealth to a spouse (60 per cent) and/or descendants (59 per cent). 29 per cent would also leave an inheritance to other younger relatives, for example, nieces, nephews or grandchildren, and 17 per cent would leave money to charity.

Commenting on the findings, Karen Stacey, head of Technical Services at Canada Life, said:

“Far too many wealthy people do not view estate planning as important and risk leaving it too late, thereby potentially placing the burden of substantial bills on their loved ones. The lack of understanding about different inheritance tax planning tools and their benefits is a concern, and suggests not enough people are aware of the options for protection and passing on their wealth.

“There is also a perception that planning is too complicated and time consuming, which is not the case. Writing a will is an absolute must, while gifting money is incredibly simple. Even options seen as complicated, such as setting up a trust, can be very simple when consumers know who they want to benefit from their estate and get advice from a professional on how to achieve their objectives.

“With the end of the tax year fast approaching, acting now rather than later could potentially reduce their IHT bill.

“There is a strong relationship between the lack of understanding of simple estate planning tools by the wealthy and the lack of take-up of financial advice. The low use of even very simple estate planning tools shows the important role financial advisers have to play in educating potential clients on every aspect of the estate planning process.”

*Survey of 1,001 UK consumers aged 45 or over with total assets exceeding the individual IHT threshold (nil-rate band) of £325,000. Carried out in September 2016. Percentages may not add up to 100 due to rounding or multiple answer questions. Research conducted by Atomik.

Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland.

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