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Fear of ‘running out of money’ prevents estate planning

7 Feb 2020

Huge opportunity for advisers who can help clients overcome this – with three quarters saying estate planning has helped grow assets under advice

New research reveals that a fear of losing access to assets is preventing people from doing estate planning with their financial adviser – with more than half (55%) of advisers surveyed saying this was a common barrier among their clients.

Nine in ten (89%) also reported that their clients have become more mindful of needing access to their money later in life, as expected lifespans1 and care costs2 continue to rise.

The findings are taken from a new report from Octopus Investments, which polled more than 550 financial advisers in partnership with VouchedFor.

The biggest barrier to estate planning was a perceived lack of urgency, with 57% of advisers saying clients want to put it off until a later date. This is often amplified by clients that don’t want to think about their own death, with one in three advisers also citing this as an issue.

What stops your clients doing estate planning?
They don’t see the urgency 57%
They don’t want to lose access to their assets 55%
They don’t want to think about their own death 33%
They don’t know they should be doing it 25%

Business Property Relief as a solution

Many financial advisers are using Business Property Relief (BPR) qualifying investments in order to overcome concerns around losing access to assets, with six in ten of those surveyed offering it as part of their estate planning solution.

As BPR qualifying investments held for 2-years are IHT exempt, it also offers a solution for clients who have delayed estate planning, with speed of IHT exemption the top reason that advisers use it.

Why do you prefer to use BPR qualifying investments as opposed to other estate planning solutions?
Speed of IHT exemption 89%
Retain access to their assets 78%
Potential for investment growth 32%

Jessamy Walker, Brown Dog Financial Planning, said:

“There’s often a control aspect where clients are worried about whether they can afford to give their money away. That’s where BPR qualifying investments come in, which tends to make the conversation a lot easier. People are also living longer. If you can do some planning that means they feel able to live a good life and retain the ability to pay for care if they need it, that can be really powerful.”

Paul Latham, Managing Director at Octopus Investments, said:

“This kind of planning is really about the kind of life you want to live and leaving a legacy for your family. In the UK the average woman at 65 is now predicted to live until 861, and many will make it well into their 90s. Increasingly people want to make the most of their later years and ‘live well’, while also balancing a desire to pass down wealth with the potential of care costs.

“That’s why the flexibility offered by BPR investments has become a crucial part of estate planning, a trend we expect to continue. Some investors also like the fact their money is helping to stimulate the UK economy by backing smaller companies or financing sustainable projects, such as solar farms.”

Growing assets under advice

While estate planning has obvious value for clients, allowing them to pass on more wealth to their families, there are also benefits for advisers, with three quarters (76%) saying it has led them to advise on new assets and grow their business.

This might be from taking on new clients in the family – eight in ten (82%) of advisers said they involve beneficiaries in estate planning conversations. In some cases, it is a result of increased visibility of a client’s entire assets, while in others it may be due to the transfer of previously illiquid assets, typically property, into new investments.

With £5.5 trillion expected to be passed between the generations by 20473, it is also a growing area for advisers. Almost half (48%) said they were doing more estate planning compared to 5 years ago. Only 6% said they were doing less.

Jane Finnerty, Joint Chair – Society of Later Life Advisers, said:

“People are often anxious about gifting too early and tend to delay planning in later life as everyone tends to underestimate how long they might live and worry if their money will last. With the right advice from a financial adviser that understands the issues of longevity and the financial hurdles that typically lie ahead, clients can ensure that their plans fit not only what they want but can also be regularly reviewed and adapted throughout their later life”.

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Additional adviser quotes:

Felix Milton, Philip J Milton Wealth Management and Financial Planning, said:

“We see estate planning as part of our normal processes as it’s incredibly important to make sure clients’ beneficiaries aren’t left in the lurch. Even if there’s no inheritance tax consideration, making sure their affairs are in order and knowledge of how to access these accounts is really important.

“Sometimes I ask clients who own buy-to-let property whether they have considered giving this away now, or perhaps selling the property and even downsizing their home and doing something more tax efficient with the capital. These are assets that we otherwise wouldn’t advise on, as they tend to be wholly client driven.”

Ken Bannister, Active Wealth Independent Financial Advisers, added:

“Talking to clients about inheritance tax planning leads to conversations about their entire estate and has sometimes resulted in us advising on assets we hadn’t previously. For example, we’ll often find that people have investment bonds and large ISA accounts, which we wouldn’t necessarily have touched before starting their estate planning.”

-Ends-

Notes to editors:

(1) 2019 – ONS National life tables, UK: 2016 to 2018.

(2) 2019 – Knight Frank, Care home fees continue to rise across the UK

(3) Kings Court Trust, Passing on the Pounds: the rise of the UK’s inheritance economy

Methodology – Polling conducted by VouchedFor among 561 advisers between 4 December and 9 December 2019.

For journalists in their professional capacity only. The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest. Tax treatment depends on individual circumstances and may change in the future. Tax reliefs depend on the portfolio companies maintaining their qualifying status. The shares of the smaller companies we invest in could fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell. Personal opinions may change and should not be seen as advice or a recommendation. We do not offer investment or tax advice. We recommend investors seek professional advice before deciding to invest. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. We record telephone calls. Issued: February 2020.

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