As families accumulate wealth and assets, it is essential to think about how to preserve and transfer these across generations. Without a solid succession plan in place, a family’s wealth can be at risk of erosion or loss, leading to a potential dispute down the line.

This is why it is crucial to start early and have proactive discussions with all the relevant family members as well as with legal, tax and financial advisers. Think about potential areas for dispute and discuss these with your adviser who can offer pragmatic advice to help build a successful succession plan.

When transferring and protecting family wealth, here are a few points to consider:

Be aware of the potential risk of dispute

Tackling succession planning should be thought about in terms of the tax implications as well as the risk of disputes.

Succession planning involves identifying and addressing potential risks and challenges, setting clear objectives and developing strategies that align with your family’s values and expectations. Although difficult, make sure potential family conflicts or disagreements are managed early on such as difference of opinions, aspirations, lifestyle etc.

Here are some ways to mitigate potential conflicts:

• Asset protection documents: If lifetime gifting, take legal advice on the extent you can protect that asset solely for the intended beneficiary to prevent unintended dissipation of that asset.
• Explanation letters: Prepare a letter of wishes and/or any other letter which fully explains why you have divided your estate in the manner you have to assist if a dispute arises. This may bring answers and understanding to your relatives once you’re no longer here.
• Capacity: Prepare lasting powers of attorney to avoid expensive and lengthy deputyship applications.
• Review: Regularly review your will and update it accordingly. Disputes usually come from old or recent wills.
• Transparency: Talk to your family and let them know your intentions – it is rare for a dispute to come from clarity.

Transfer and protect the family wealth

Here are ways you can protect your family wealth:

• Wills: Think carefully before you appoint your executors and keep this under review. This may involve giving them more exposure to different aspects of the family wealth and other family businesses if any.
• Governance framework: It is essential to outline the responsibilities and decision-making processes for family members including those not actively involved or familiar with the family wealth.
• Overseas assets: Consider a non-UK will to deal with non-UK assets as you may be subject to comply with local legislation.
• Trusts: They can be very helpful for succession planning but for most UK individuals these are effectively limited to £325,000 for an individual and £650,000 for a couple.
• Simplicity: Make sure to do all the simple and straightforward things first before considering more complex planning. This includes gifting; the so called Potentially Exempt Transfer (PET) which will leave the estate after seven years or gifts out of surplus income.
• Family home: Planning around the family home is difficult but possible strategies include equity release followed by a gift or co-ownership but only where there is an adult child living in the property with their parent.
• Life insurance: This has a key part to play in succession planning but consider getting this in place as early as possible to keep the premiums down and to guard against the risk of becoming uninsurable later in life. Life insurance can be used to cover the IHT that would arise on a failed PET.
• Family investment companies: These may be less attractive now due to recent rises in corporation tax and the tax charges that will inevitably follow an eventual liquidation.

By addressing these key considerations in a comprehensive succession plan, families can optimise the chance of preserving and growing their wealth over time, while also ensuring unity and collaboration within the family.

Ken Chapman is head of wealth planning at EFG Private Bank