Succession planning is a topic that can often be pushed to the backburner. Discussing the future of your wealth, particularly its transition after your passing, can stir up a cauldron of emotions. Yet, for those with intergenerational wealth or for budding entrepreneurs in the UK, understanding how to navigate this realm is essential. CamdenFB’s website has an excellent overview of some key topics.
Why Succession Planning Matters
While the idea of succession planning might evoke the vision of grand aristocratic houses passing down the family title, it has broader implications. Especially for families with intergenerational wealth and entrepreneurs, it’s about securing the future. It’s ensuring that the wealth you’ve worked hard to accumulate doesn’t vanish in a generation, but rather, benefits several to come.
For the uninitiated, there are varied approaches to succession planning. These hinge on individual or familial circumstances, their long-term objectives, and the timeline over which they aim to achieve these.
Lloyds of London: A Succession Favourite
A popular route many have taken over the years is investments at Lloyd’s of London. Known as the pinnacle of the global insurance market, families and individuals have trusted Lloyd’s to preserve their legacy. When investors entrust their capital to Lloyd’s, they’re pledging to a conglomerate of around 90 expert insurance syndicates. These syndicates shoulder a plethora of risks worldwide.
But what does this mean for the investor? In years where the insurance premiums collected are more than the pay-outs, investors reap handsome profits. However, the flip side is also true. In years where the claims surpass the premiums, there’s a limited loss. But over the past decade and a half, the statistics have been encouraging. Investors have seen an average return of 10% on capital. And this doesn’t even factor in the income and gains generated from the dual-use of assets when investing in Lloyd’s.
The Lloyd’s Edge in Succession Planning
Robert Flach, from Argenta Private Capital (APCL), a firm that guides investors in the Lloyd’s insurance landscape, emphasises the intrinsic value of these investments for intergenerational wealth transfer. The very design of these investment tools aligns with long-term horizons. Flach states, “Lloyd’s operates on elongated investment cycles. When we structure investment vehicles, we envision them as integral parts of a broader estate that will traverse generations.”
The allure doesn’t end here. There’s an inherent low correlation of Lloyd’s investment returns with conventional assets like stocks and bonds. This trait makes it a darling for wealth managers eyeing long-term balanced strategies that span generations. Plus, the cherry on top? There’s a tax boon. From the vantage point of the UK, these investment vehicles often qualify for Business Relief. This means a 100% relief for asset value concerning Inheritance Tax – an undeniable perk when planning for the future.
Plan Early, Plan Right
Timing is paramount. Andrew Palmer of LGT Wealth Management puts forth a simple principle. Those with notable wealth shouldn’t defer their planning until mortality looms large. Instead, the planning should coincide with the phase of wealth generation. William Stevens from Killik & Co mirrors this sentiment. He warns about the escalated repercussions of errors when planning is postponed. Ensuring that all stakeholders, primarily families, have cohesive expectations is key.
Gifting: A Simple Yet Powerful Mechanism
Beyond investments, there’s an elementary method to perpetuate wealth across generations. Palmer elucidates on this by citing the act of gifting. By systematically gifting amounts and channelling surplus income to successors, the inheritance tax net can be sidestepped. But it’s crucial that these transfers don’t dent your living standard.
Palmer showcases instances where clients have transferred millions to their offspring via this method. He stresses the importance of consistency in this approach, ensuring it isn’t just a sporadic gesture.
Balancing the Present and Future
While it’s noble to think of future generations, Shaun Robson of Killik & Co raises a prudent point. One must strike a delicate balance. It’s imperative not to go overboard and end up compromising one’s own comfort and security. After all, the future is uncertain.
Flach, on this topic, circles back to the versatility of a Lloyd’s portfolio. These portfolios offer elasticity. They can seamlessly transition across generations, inheriting tax benefits. But if situations shift, they can be liquidated, returning assets to the investor.
In Conclusion: A Dialogue for Tomorrow
The multifaceted world of succession planning demands open and frequent dialogues. By consulting with heirs and financial advisors, the road ahead becomes clearer. The decisions made today will sculpt the legacy left behind. For many, it’s more than just wealth; it’s about the continuation of a lineage, the fulfilment of dreams, and the protection of tomorrow’s aspirations.