Are you watering the family tree?

Including younger family members in the estate planning process can enable a successful transfer of wealth and help build advisor-client relationships across generations. Here are some key factors to consider when drawing up a family inheritance plan.

Mar 29, 2022

6 minutes

Marc Lindley
Including younger family members in the estate planning process can enable a successful transfer of wealth and help build advisor-client relationships across generations. Here are some key factors to consider when drawing up a family inheritance plan.

Authored by

Marc Lindley
Product Specialist

In a recent article titled Do you know your NextGen investors?”, our Head of Product, Daryll Welsh, highlighted the impending global transfer of wealth from current asset owners to the next generation. We believe this trend will shape the advice industry over the next 20 years.

The statistic that struck us the most was that 70% of heirs planned to leave their parents’ financial advisor when their parents have passed away, which creates a material threat to advisors’ revenue. The silver lining, however, is that our research highlighted that 75% of generation X and 80% of millennials surveyed would consider retaining the services of their parents’ advisor – if that individual was involved in structuring the inheritance plan. This provides an opportunity for advisors to put measures in place to help manage this threat. Many of our advisor partners are appointed executors in their clients’ estates which increases their chances of retaining assets on death. We would also like to highlight the important role that product structures and digital functionality can play in facilitating the inheritance plan.

Tax-free savings accounts (TFSAs)

Investing in a TFSA on behalf of a young family member can provide the opportunity for the individuals making the contributions to gradually reduce the value of their estate while they are still alive. These investments have an educational benefit as they allow the young family member to become familiar with investments at an early age. The advisor linked to the TFSA also has an opportunity to build a relationship with the TFSA holder. The longer the investment period, the bigger the benefit that the TFSA offers, which makes it suitable for young investors. The article, “Making the most of your TFSA”, explores how best to tap into the benefits that a TFSA offers.

Life products and the cascade of wealth

Older generations of families are often concerned that those taking over the family assets are ill prepared to continue the family legacy. But they also want their inheritors to develop their own sense of purpose and identity. If they are involved too late in the process, it could result in a failed transfer of wealth, which could also have negative implications for advisors. Life products, such as the Ninety One Life Portfolio, Ninety One Global Life Portfolio and Ninety One Living Annuity, can play an important role in the estate planning process. Because these products offer beneficiary nominations, they create an inherent link between the current owner of the asset and the individuals who stand to inherit the wealth. This provides a structure where advisors can encourage the current owners to include younger family members in the estate planning process at an appropriate age. Such a proactive approach will help younger family members understand how their decisions around their inheritance could materially impact the preservation of wealth and the value they ultimately receive.

The benefits of these products are multi-faceted. They address several of the challenges involved in the cascade of wealth, creating desirable outcomes for heirs and ultimately their advisor through the retention of assets. Some key benefits include:

  • Provide efficiency of succession – an efficient process exists to transfer ownership of the investment from the deceased to the beneficiary, thereby reducing the potential for leakage of assets on death.
  • Create liquidity – beneficiary nominations ensure that these investments fall outside of the control of the executor and the Master’s Office. This means that heirs can have access to capital and/or income within a short period of time following the death of the original owner.
  • Preserve wealth – circumventing the involvement of the executor also means eliminating the associated fees. Using these products can therefore provide a saving of up to 4.03%. Where a benefit changes hands on death, it is also a ‘rollover event’ in terms of capital gains tax – irrespective of who the beneficiary is. The combined benefit of these fee and tax savings can have a significant impact on the amount that can be received on death.
  • Provide an income – living annuities provide for efficient succession. ensuring that those left behind can receive an income while other assets in the estate are being wound up. Ultra-high-net-worth individuals who wish to ‘control from the grave’ can nominate a trust as a beneficiary. Such a strategy can help protect the interests of vulnerable heirs and also ensure that the investment is sustainable and can be enjoyed by multiple generations after their passing.
  • Provide a plan B – all Ninety One life products on our investment platform offer alternative beneficiary options. Death without a nominated beneficiary means that assets have to be paid out to the estate, which can have negative tax implications. Having alternative beneficiary options provides for a scenario where the beneficiary predeceases the owner, which means that these unintended tax consequences can be avoided.
Ninety One Family Office – helping advisors maintain and care for the family tree

Research shows that many families want a more personalised service, where the advice they receive is tailored towards the family’s specific needs rather than based on a narrow range of options from a large corporate structure. We believe that our advisor partners are well positioned to meet the needs of this client base, thanks to their depth of experience and ability to source solutions from the entire market.

Investment platforms can play an important role in providing the tools and functionality that help enhance the services that advisors provide. Ninety One Family Office is the latest step in this evolution. It encourages families to consolidate their investments in one place so that they can experience the benefits of efficiency and scale.

Disciplined reporting provides the foundation for successful intergenerational wealth preservation. Time, however, is a limited commodity and creating and maintaining a meaningful reporting structure is time intensive. This is where the Ninety One Family Office works with advisors to fulfil this requirement through enhanced reporting that is consolidated at family level.

Rewarding families that save together

Many investment platforms today calculate their fees at client level which reduces the need for individuals to split their investments across different platforms. In our view, the industry can do more. We believe an investment platform should also reward families that plan together. Family sharing via the Ninety One Investment Platform is a meaningful step forward for the platform industry. It provides the first fully digital experience that allows for families to consolidate their investments on one platform and to leverage their combined scale to reduce administration fees across the entire family group. Importantly, all family members continue to benefit as these assets grow. It also provides the opportunity for advisors to bring other assets into the advice net that may be sitting in bank deposits, direct unit trust investments or on other platforms.

We believe it is a win-win for advisors and clients alike. Clients benefit from combined scale as their money works harder for them. Advisors benefit because they remove the drag on their business by not having to deal with multiple providers for what is essentially one pool of assets. The improved efficiencies mean that advisors can service more clients with the same amount of time, which can enhance their revenue.

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