This article is for professional investors only, and not intended for retail investors.

Over the last few decades a lot has changed in financial services, but one thing has remained the same: the difficulty experienced by many advisers in getting their clients to commit to estate planning.

There have been many articles detailing the continued rise in inheritance tax receipts, and as the continued freeze of nil rate bands drags more and more people into the IHT net, public awareness of IHT has never been greater. It is supposedly the one tax that nobody likes paying, so why do clients often shy away from doing something about estate planning?

Whilst every individual is different, and they all have their own reasons,  these challenges often fall into three areas.

  1. Starting the discussion – the challenge of discussing money and death with families
  2. Engagement and actions – connecting with hearts and minds
  3. Finding the right solution – balancing control, certainty and performance

Starting the discussion – the challenge of discussing money and death with families

Whilst the pandemic has made people more aware of their mortality, acknowledging this and then being able to discuss it with their nearest and dearest is often difficult for many people. And that’s before the discussion turns to how their wealth may be distributed amongst beneficiaries.  As a result discussions are often postponed for another day, but sometimes that can be too late.

As an independent expert in estate planning matters, a financial adviser is perfectly positioned to help families navigate these difficult discussions together in an objective, supportive and practical way.  Whilst helping families find a way through intergenerational matters can be challenging, clients will frequently say that a weight has been lifted from their shoulders once they begin this process with a trusted adviser.  It is extremely rewarding to see the impact that these discussions can have on clients and their families.  Playing such a role can also help advisers develop broader relationships within the family which may ultimately assist them with the question of intergenerational transfers and retaining an advisory relationship with the next generation.

Engagement and actions – connecting with hearts and minds

Whilst obtaining client agreement to start the discussion is the beginning, being able to engage with different family members in a positive and supportive way requires a certain deftness of touch, without which good client intentions remain just that. 

This is where the full range of an adviser’s skillset comes into its own.  Advisers will generally feel very comfortable playing that independent and objective role in these discussions and advancing the logical outcomes of alternative outcomes.  In addition, emotions surrounding the discussion will inevitably need to be managed so that family members all feel listened to and common ground can be established for without this last part, the family may not ultimately take any action or decisions may be delayed as consensus has not been reached.  These can be difficult discussions for us all to have, especially if we put ourselves in the position of the people being advised but advisers can nevertheless play this role very successfully.

Finding the right solution – balancing control, certainty and performance

Fundamental to the successful outcome above is the answer to the question advisers will inevitably be asked:  what do you suggest we do?  Sometimes, clients simply don’t buy the recommended solution as it isn’t compelling enough and decisions are put off for another day.  But without the right products and solutions, the financial plan may not fully deliver the outcome the client really needs, particularly if it involves an unacceptable compromise.

The objective of estate planning for most people is to provide the best possible legacy for their beneficiaries whilst allowing for their own life needs. At a high level this is simple. Plans must:

  • preserve capital
  • maximise growth
  • minimise cost (IHT often being the largest)
  • maintain access and control.

As we know, it is not easy to achieve that combination as some aspects conflict.  Many people find gifting and trust planning unpalatable due to the lack of access to capital. More flexible trusts have been popular in the past, but many are put off by the length of time they take to be fully IHT effective. They have also become expensive as the chargeable lifetime transfer, periodic and exit charges may erode the intended benefit.

As a result, many advisers have turned increasingly towards the use of Business Relief-qualifying investments to meet their objectives as the risk of planning failure due to mortality is reduced to two years. This only reduces the risk of failure – it doesn’t remove it. Insurance solutions can be added to actually remove mortality risk and ensure the effects of IHT are mitigated whenever a client dies, as long as the premiums are paid. The challenge with that approach is that premiums can be significant, and may erode the value of the inheritance over time. Costs remain too high for many to contemplate going down this route.

Advisers therefore also need help from product providers in the form of innovation, to furnish them with more compelling solutions which encourage clients to take action.

It’s not hard to see why estate planning falls down the priority list when talking to clients.  It’s not fun to talk about.  For anyone.  However, having the conversations about the emotional impacts for both them and their loved ones can really help ease clients’ fears, and move them toward a solid plan.  And with new services on the market every day, advisers can start building plans that are more likely to achieve their clients’ goals.

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