For younger generations trying to pave their own paths, the world is now undeniably a tougher place to get yourself well-established. Property price inflation over the last 20 years and soaring costs has meant that property ownership has either become unattainable all together or isn’t something that is achievable until much later on in life.
Therefore, the older generations within families naturally have a strong desire to provide a helping hand to give their children or grandchildren a head start. We refer to this as building generational wealth and it is now a common goal for many of the people that we look after. Successfully building generational wealth will provide long-term financial security for your loved ones and set your family up for generations to come.
If your aim is to build generational wealth, it’s a good idea to put a plan in place early. This will help to ensure that you build up enough wealth to pass on, and that this wealth is not lost as it is passed down through the generations over time.
What is generational wealth?Â
Generational wealth is wealth that is accumulated to pass down to your children and grandchildren. Sometimes called ‘family wealth’, it can come in many different forms including savings, investments, businesses, real estate, collectibles, and other financial assets.
Building generational wealth has many benefits. Not only can it help to ensure that future generations have the best opportunities in life, but it can also create a sense of legacy and belonging, helping to bring families closer together.
How to build generational wealth
To successfully pass on wealth, you need to have built up your own wealth first.
Now, it’s no secret that investing can help build wealth over the long term. By investing via a diversified investment portfolio that utilises asset classes such as Equities, Fixed Income and Alternatives you give yourself the ability to generate attractive returns on the capital invested and indeed benefit from compound growth.
However, achieving consistent and positive returns on your money is only part of the equation when it comes to building generational wealth. You also need to think about how to structure your affairs and ways to reduce tax for high income earners, after all, taxation is the single largest drag on personal wealth. Â By understanding the various tax wrappers and breaks that are available to you and placing your investments within tax-efficient investment vehicles you can build generational wealth much faster.
Optimising wealth requires professional help and can only be achieved by having a comprehensive plan that incorporates saving, investing and tax minimisation. The plan gives you guidance to make well informed financial decisions and understand the subsequent financial impact of these decisions. Understanding the impact of a decision before you actually make it gives you the confidence to make good choices and provides the peace of mind you are looking for when thinking about your financial future.
Passing wealth on efficiently
A proper financial plan will also incorporate estate planning, which is crucial in order to build generational wealth. This is the process of developing a strategy to pass on your assets efficiently both during your life, and after your death. Without an estate plan in place, you will not effectively pass on your wealth in a way that suits your needs or maximises the amount of wealth that remains within the family.
One of the biggest benefits of putting an estate plan in place is that it can help to minimise Inheritance Tax (IHT). Inheritance Tax is a voluntary tax and therefore without a IHT strategy, you will most likely be giving the lion’s share of your wealth to the government. If not properly planned for, IHT can cost family members a significant amount of money. For the 2022/2023 tax year, HMRC collected £7.1 billion[1] in IHT receipts, up from £5.3 billion two years earlier.
Our IHT strategies would usually incorporate the following methods:
- Gifting
- Trust structures and offshore bonds
- Insurance policies
- Pension funds
- Use of Business Relief (BR)
Overall, there are a wide range of estate planning strategies that can help you build generational wealth and pass it on tax-efficiently.
[1]Statista
Financial education is important
Of course, financial education is also important when it comes to intergenerational wealth transfer. Your wealth won’t last long if it is quickly squandered by future generations. So, make it a priority to pass on your financial knowledge to your children and grandchildren and instil smart financial habits in them. Discuss your financial goals, the basics of saving and investing, what you hope to achieve with your money, and how building generational wealth can potentially benefit them. This should help to protect the wealth you have accumulated over your lifetime.
A plan will help you build generational wealth
Building generational wealth does have its challenges. Like many things in life, it takes time, effort, and discipline. Yet it is possible to achieve. And it’s worth striving for, as it can have a profound impact on your family’s future. With the help of an expert, you can set up your assets to provide financial support for family members for decades to come.
At Bowmore, we understand the challenges you face in this area of wealth management, and we can assist you in tackling them. Want to find out more about how to build generational wealth effectively? Get in touch with us today.
Bowmore Financial Planning
01275 462 469
enquiries@bowmorefp.com
Bowmore Asset Management
0203 617 9206
enquiries@bowmoream.com
Bowmore Financial Planning and Bowmore Asset Management Ltd are authorised and regulated by the Financial Conduct Authority.
The Financial Conduct Authority does not regulate Estate Planning, Inheritance Tax Planning or cashflow planning.
Bowmore Financial Planning and Bowmore Asset Management Ltd are not regulated to provide tax advice.
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
The tax treatment of certain products depends on the individual circumstances of each client and may be subject to change in future.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.
