- Wealth transfer set to rise by 66% from £69 billion in 2017 to £115 billion in 2027
- Nearly £1 trillion expected pass to the next generation in a decade
- Average value of inheritances set to jump by 47% from £62,000 to £91,000 by 2027
- But independent financial advisers unprepared to deal with this phenomenon will miss out on this opportunity
The ‘inheritance economy’ is set to boom over the next 10 years, as rising wealth and higher mortality rates combine to raise the total value of inheritances to £1 trillion over the next decade, but IFAs who are unprepared for this shift in generational wealth are set to miss out.
The total annual amounts passing from one generation to the next are forecast to rise from the current level of £69 billion to around £115 billion by 2027, according to a ground-breaking report from estate administration specialists Kings Court Trust.
This 66% increase in intergenerational wealth transfers outlined in the ‘Passing on the Pounds’ report – developed in association with the CEBR – is expected to be heavily driven by the rise in property prices over the next 10 years.
Already in the last 20 years, the average house price has risen by 273%* and this has increased as the percentage of the average value of household net worth from 39% to 51% in 2015**, which are the latest available figures.
Christopher Jones, sales and marketing director of Kings Court Trust, said: “The revelation that inheritances will hit £1 trillion in the next decade is quite astonishing, but makes perfect sense given the amount of accumulated wealth being held by the UK’s older generation. However, IFAs who are not ready to make the most of this opportunity by finding ways to engage with the families of clients, rather than their clients alone, could see this opportunity slip through their fingers.
“Between 2012 and 2014 just over 1m people received an inheritance of more than £1,000 in a given year with around 870,000 receiving cash gifts of more than £500. But over the same period, the average inheritance rose from £43,000 to £54,000, so significant amounts of money are already passing into the hands of the younger generation.
“As mortality rates increase and the concentration of wealth in the hands of the older generations rises, the number of adults receiving higher amounts as an inheritance is also set to rise. By 2047, we could see as much as £335 billion a year passing to the younger generation, which is a staggering amount of money.”
This presents a problem for those passing on their wealth, and for those receiving it. Planning ahead to pass as much of this wealth on as possible without paying more inheritance tax than necessary is one thing, but the administrative burden can be equally difficult for those left behind, and IFAs play a vital role in helping families deal with this.
Yet if IFAs fail to build relationships with the children of their clients, they could find the wealth, which they have helped to build over the years, simply moving to be managed by another adviser.
Mr Jones added: “Many advisers struggle to find the best way to address the question of passing on wealth, especially if they have never had a reason to talk to their client’s children before. But simply asking clients the question ‘are you an executor in anyone’s will?’ allows advisers to begin this conversation with clients without the need to discuss their own death.”
Anyone who has been an executor will be aware of the difficulties it poses, as dealing with the death of a loved one is hard enough without the administrative burden that comes with it. For advisers, this is a key time when they can help the family with the right help and support.
Mr Jones said: “When families should be grieving, they often have to address problems such as finding accounts of the deceased that they did not know about, dealing with constant queries from banks, disconnecting utilities and even rehoming a much-loved pet. This is where using a specialist estate administration service can help families dealing with a death, as all of these issues will be taken care of, leaving the family to grieve at such a difficult time.”
Kings Court Trust provides a service for IFAs which allows them to retain clients in-house and also deal with the estate administration for the family when the time comes, rather than passing them onto a third party where it is much harder to determine what level of service they receive.
Mr Jones added: “We work with a growing number of IFAs who want to integrate estate administration into the service they provide. Increasingly estate administration is being seen as a financial, rather than a legal service. To make the most of the inheritance economy, we feel financial advisers need to take this seriously now, and consider how they can best help their clients, and their businesses moving forwards.”
To access a full copy of the report, please click here: www.inheritanceeconomy.co.uk