As longevity increases, many retirees can expect to live past the age of 90, which raises interesting issues around heirs and inheritance. With children likely to be at least 60 years old before their parents pass away, would a transfer of intergenerational wealth make more sense going to the grandchildren, who, aged around 30, would be at that financially challenging stage of their lives when they’re buying their first home and raising a family?
An inheritance to help grandchildren buy a home or educate your great-grandchildren may have a far greater financial impact if your own children are financially secure and entering their own retirement. It can also remove any financial obligation your children may feel towards assisting their own offspring financially.
Using life cover to provide an inheritance: If you have life cover in place that is no longer needed, but affordability is not a concern, then you could directly nominate your grandchildren to inherit. The policy benefits would not fall into your estate and so would not attract executor’s fees, but would be deemed property in your estate and thus could attract estate duty. The beneficiary of a policy is liable for the estate duty attributed to that policy, so the grandchildren must be sure to put at least 20% aside in case they are handed an estate duty bill.
Leaving money to minors: If the grandchildren are minors and the amount of life cover does not warrant the establishment of a testamentary trust, you could pay the funds to the parents with instructions to use it for the child’s education, for example. Alternatively, Liberty’s approach is that we pay into a bank account in the minor’s name, administered by the guardian/s. Not all life offices treat this the same way. In terms of their policy document, some insist on a trust being formed or the payment being made into the Guardian’s Fund. So you need your adviser to know his product and you must think the advice through carefully.
Using an endowment to create a legacy: You could consider the use of an endowment payable to your grandchildren on your death. This would fall outside of your estate and would result in a saving on executor’s fees, but not estate duty. As this is a life insurance policy payable directly to a beneficiary, you have the benefit of proceeds not being tied up in the estate and being immediately available to the beneficiaries.
Keeping a living annuity alive: Financial dependency does not apply to living annuities, which means that adult grandchildren could inherit upon the death of the surviving spouse. The policy benefits should not attract estate duty, but if a lump sum is taken, retirement tax is applied in the hands of the deceased. To limit the tax one could retain the benefit in a living annuity to provide a monthly income, which could help with school fees for the great-grandchildren or varsity fees. They are also giving their own retirement planning a boost. There is also the benefit that the funds do not attract investment tax and are protected from creditors.
Leaving a family history
Monetary assets are not the only legacy you leave your family; there’s also your family history and the memories of who you were. There may be items of value that you want to leave your grandchildren, such as a favourite painting, a coin, stamp or book collection, but more important than the actual item is the reason you ‘ve left it to them and the memories these items hold for you.
Belongings usually have a sentimental value that is more valuable than its material worth. Whether it’s a photograph that tells a story or a tea set you received for your wedding, use your time now to share memories with your grandchildren and great-grandchildren. While they may still be too young to really appreciate these conversations, as they get older they’ll want to know more about where they came from and the history of their family.
Having a conversation with your family now about what you want to pass on to them not only preserves the memories, but on a practical note, also prevents arguments later about what was promised to whom. It is therefore equally important that items are clearly detailed in your will and even add a note to your will giving reasons why you selected a specific item for each person. Remember to be consistent in your decisions and give cognisance to those items each family member treasures, because memories are very individual – one person’s junk can be another’s treasure.
Another way to pass on your memories and history is through a video recording, especially for young great-grandchildren who may not remember you very well. For the millennial and post-millennial generation, a short video clip is a great way to pass on family history. Make a recording about the day they were born and how you felt, as well as your own memories of having your children. A recording on the day of a grandchild’s wedding can recall memories of your own nuptials and how you met your spouse.
Take the time to decide what leaving a legacy means to you.
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