August 2024: The Wealth Transfer Dilemma

This week, my wife and I have been discussing finances with our eldest son who is about to go to university. We’re keen that he has enough to cover his costs and enjoy new experiences but also want to ensure that he doesn’t have too much. We’ve agreed that if he wants to do or spend more, he’ll have to earn some money or use the money from his student loan, which he’ll then be responsible for paying back.

This delicate balance of preparing children for the reality of living independently as they leave home without being overly generous is often the first steps we take as parents in the “wealth transfer” dilemma.

Most investors' primary motivation for financial planning is to ensure they don’t outlive their money. Disciplined investors, and those who are supported by a competent and caring financial adviser, can, however, reach a position where it becomes clear that they will never spend all their money in their lifetime.

While this position is a luxury, it is well deserved and can be traced back to their decisions over multiple decades. Some investors can be convinced to increase their spending on activities and causes that bring them meaning, but many will still die with a sizeable net worth. They are driven by a desire to leave a legacy to those they love, and their wealth becomes a river that will flow to the next generation.

Studies suggest we will witness one of the most significant wealth transfers in history over the coming decades. This presents opportunities and challenges for families and raises important questions about how and when to pass on assets.

The Traditional Approach

For a long time, most families have defaulted to the conventional method of wealth transfer, leaving an inheritance after death. This approach offers several advantages. It allows investors to maintain control of their assets throughout their lifetime, insuring against unforeseen setbacks or expenses. The extent and cost of future medical care are difficult to predict, and more wealth only means more freedom and opportunities.

However, this traditional model also comes with potential drawbacks. One significant concern is timing - your heirs may not need the money when they finally receive it, possibly being close to retirement themselves. By waiting until after your passing to transfer wealth, you miss the opportunity to witness and guide the impact of your generosity. There's something uniquely rewarding about seeing your hard-earned wealth make a difference in your loved ones' lives while you're still here.

Additionally, depending on your jurisdiction, there may be higher estate taxes compared to lifetime giving strategies, potentially reducing the amount your beneficiaries ultimately receive. The traditional inheritance model offers security and control, but it's important to weigh these benefits against the potential missed opportunities for impact and guidance.

The “Warm Hand” Approach

An alternative to the traditional inheritance model is the "warm hand" approach - giving while you're still alive. This strategy has gained popularity in recent years as more people recognise the potential benefits of transferring wealth during their lifetime.

One of the most significant advantages is the ability to witness the impact of your generosity firsthand. There's a unique joy in seeing how your financial support can change lives, whether helping a grandchild through college or giving your children a head-start with weddings, house purchases or business projects.

The warm hand approach also allows you to provide guidance alongside your gifts. You can share your financial wisdom, helping recipients learn to manage and appreciate the wealth they're receiving.

However, this approach has its challenges. Giving away assets during your lifetime gives you less control over your wealth. You also risk jeopardising your financial security if you give away too much too soon. Ensuring you retain enough assets to support yourself through retirement and potential healthcare needs is crucial.

Many people start by using annual gift allowances, which can provide tax benefits while gradually transferring wealth. Contributing to education costs is another popular option, whether paying school fees or funding university costs and tuition. Some choose to help with major life expenses, such as providing a down payment for a child's first home.

Crafting Your Strategy

Navigating the wealth transfer dilemma often involves not choosing one approach over the other but rather finding the right balance between lifetime giving and traditional inheritance. This balance will be unique to each individual and family based on various factors.

As your financial advisers, we’re here to help you understand your options, consider the implications, and create a personalised plan that aligns with your goals and values. By taking a thoughtful, balanced approach to wealth transfer, you can create a legacy that provides financial support to your loved ones and imparts your values and wisdom to future generations. It's a powerful way to ensure that your life's work continues to have a positive impact long into the future.

Making an Impact

Some Wealthwide clients recently sold their business paid off their mortgage and loans, covered the professional sale fees and set aside enough for the tax liability. We were then able to ensuring they would remain financially secure for the rest of their lives, and could comfortably gift their children £50,000 each to help them with their first property purchases. Gifting with “warm hands” - the next step for them in the Wealth Transfer.

The Stock Markets (Updated 31 July 2024)

The key benchmark you should care about, is achieving all of your financial and life goals without running out of money.

Inflation -The Real Enemy (updated July 2024)

The number one enemy of the long-term investor is the financial dragon called inflation (the silent but steady increase of prices over time). An investment in the global share market has consistently provided

protection from this enemy. To earn this return, you had to be willing to see your investment value temporarily decline by about -15% on average every year without being panicked into selling.

 Wealthwide negotiates new deal with Parmenion

We have recently held discussions with Parmenion with the aim to lower the fees our clients pay. After several rounds of negotiations, we have secured a 0.09% reduction across all account values, which, equals a total yearly saving for our clients of approximately £65,000. We aim to implement the new charges within the next month, and we will also send a report to affected clients to outline their personal savings and how the new arrangement will work.

If you have any questions on the above in the interim, please contact your adviser or client relationship manager.

What’s happening

On the theme of the Wealth Transfer, I’m talking more about this at Richmond Hotel, London on Thursday 12th September from 18:30 -  you can register here 

I’m also presenting a Webinar the following week on ‘Creating a successful legacy’, click here to secure your spot.

I hope you enjoyed this month’s newsletter. Please let us know what you enjoyed, or write back with any of your own news. If you really liked it, please do forward the email on and help us spread the word!

As always, we're here for you.

Enjoy the rest of the summer and see you next month.