“The manner of giving is worth more than the gift,’’ someone once wrote.
Certainly, in financial terms, the manner of giving can make a material difference to the value of the gift.
With financial security achieved, some of you will be fortunate enough to be able to pass some of your wealth on to your loved ones. Being able to bring forward an inheritance in this way and watch your family achieve their dreams and goals in your lifetime is thoroughly rewarding.
But, if you want to gift money to others, unless you take expert advice, there’s a danger that the taxman may also be a significant beneficiary of your generosity.
Two Reeves clients, John and Ann Freeman are high-earning professionals, who will both have a guaranteed income in retirement from their defined benefit pensions in addition to other assets. In the event of one partner predeceasing the other, the survivor would still be comfortably off.
A review of their income and expenditure requirements and their retirement ambitions revealed that they will have more money than they need. They have decided that they want to gift some of their liquid savings to their daughter, Fiona, and grandchildren, Andrew and Emily, while they are still alive to see them benefit.
Fiona and her husband have always dreamt of moving to the countryside to be closer to John and Ann. They have been planning this for years, but have never been able to save enough. They have also tried hard to save for Andrew and Emily’s education but have never managed to put by as much as they wanted.
John and Ann consulted us on how to best to help their family. We advised them that, in broad terms, there are two methods of giving without paying tax: through a direct gift, or a trust. Both have pros and cons. Here are some of the factors to be considered with this type of planning:
As far as trusts go, there are several different types and we are always happy to advise on the most appropriate. As a trust is a separate entity there are different, tax rules depending on what trust you settle on. This is too wide a topic to cover here, but the important thing is to take advice before giving and we will be happy to help.
Following our advice, John and Anne gifted enough to Fiona and her husband to allow them to buy their dream home and they set up trust funds for Andrew and Emily. Now they can visit their children and grandchildren and see at first-hand how they’re benefiting from their generosity.
This article is for information only and should not be construed as advice or a recommendation. The investment strategies mentioned are examples only and may not be suitable for your particular: circumstances, tax position or objectives. Please seek independent financial advice before taking any action.
Investments carry risk, capital invested may go down as well as up and you may not get back the original capital invested.