Legal risks abound when people do not take financial advice before they inherit money, the head of private client and family at law firm Howard Kennedy has said.
These comments followed recent findings that 67% of UK-based inheritors expecting to receive more than £250,000 ($328,000, €287,000) do not have a financial adviser.
The report from UK fund manager Octopus Investments’ also found more than 80% of those inheriting less than £250,000 do not have an adviser either.
Howard Kennedy’s Liz Palmer told International Adviser: “The Octopus report reinforces what is already known regarding the scale of the imminent generational wealth transfer and highlights some of the risks associated with it.
“From a legal perspective, those risks centre around lack of understanding about the succession regime and the impact that inheritance tax can have.
“Effective and successful succession planning usually involves a well-drafted will and an appropriate level of advice depending on the complexity of a client’s affairs. This needs to be done sooner rather than later and firms are endeavouring to get that message out there.”
James Badcock, partner at Collyer Bristow, who also spoke to IA, said: “Failure to take action can result in unnecessary tax charges, family disputes and legal costs dealing with issues involving mental incapacity.
“It is incumbent on advisers to have conversations with their clients about this and encourage them to assist and educate their heirs.”
Targeting clients
The Octopus Investments study found most advisers surveyed said they had an existing advisory relationship with only 20% of their clients’ beneficiaries.
The majority (58%) of respondents said they are actively trying to develop these relationships, however almost all (95%) said they faced key barriers, such as 39% who had clients where it is simply not discussed.
Palmer added: “The complexities and risks of the transfer of wealth, as the Octopus report highlights, need clear, cogent financial and legal advice.
“Legal advisers in the wealth planning space often emphasise how important it is for certain clients to involve their children in their succession planning as early as possible.
“This can reduce risk and manage expectations. It can also bring the heirs into the conversation at an earlier stage so that they understand the aims of their parents and in some instances the intricacies of their parents’ affairs. It can, of course, also mean continuity of advice as well.
“Some legal repercussions of our succession regime are misunderstood, and the impact of inheritance tax can often be underappreciated. If the next generation knows what to expect it can also mean that they organise their affairs more effectively.”
