Changing expectations around inheritance

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arbitron

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BBC News: "I'd rather pay thousands on a holiday: Meet the pensioners spending the kids' inheritance"https://www.bbc.co.uk/news/articles/cje8y3w2zdpo​


Sarah and Geoff are part of a global personal finance phenomenon that has been dubbed "skiing", which stands for spending the kids' inheritance. It is challenging the notion that assets will get handed down to the next generation.
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Never count your chickens before they hatch. Until you have the promised goods in your possession it's risky business to assume anything when it comes to wills and inheritance. I don't know whether there really is a significant change in behaviour among parents but it's good that it's being discussed. People need to be aware that they could end up with nothing at all and plan accordingly.

I know several people who lived in very basic conditions in old age only to leave their relatives large gifts in their will. Not only is it sad on a personal level but it's surely bad for the economy to have all of this wealth hoarded away doing nothing?

On the other hand you have this person keeping the VAT flowing while improving her health by staying active:

Karen Green, 60, says she has been very upfront with her children. "I have been quite explicit to say there is unlikely to be a legacy because I'm anticipating spending it all."
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Originally from Berkshire, Karen has lived in Provence in the south of France for the past 11 years, and spends more than £10,000 a year on holidays.

"This year, I'm going to a yoga retreat. I did one in March in Morocco," she says. "Then in October into November I'm going to Vietnam and Laos to do a little bit of a tour."
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A friend and her two siblings were left nothing by their mother when she died- not a photo, nada. All went to the one child who never married and who remained at home. The problem is he’s not mentally fit to look after the house or himself properly. It’s a very valuable property and it’s falling into disrepair.
I think the mother just wanted to cause trouble between the siblings when she died. No one contested the will as they didn’t have the money to take a High Court case and couldn’t afford to lose.
Not the only case I know of personally.
 
I knew the woman concerned. Not a nice individual. She absolutely was trying to set people against each other. She didn’t do the son any favours leaving it to him. He has learning difficulties and a personality disorder. It would have been better for all concerned if she had provided properly for him by leaving him a third of the value of the house or even half.
Anyway the siblings have let it go. It was hers to leave as she wished.
 
Sarah and Geoff are part of a global personal finance phenomenon that has been dubbed "skiing", which stands for spending the kids' inheritance. It is challenging the notion that assets will get handed down to the next generation.

One in seven UK parents of children of all ages (15%) now plan to prioritise enjoying their money in their retirement over leaving an inheritance, according to a March report by pension provider Standard Life.
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15% plan to spend their money in retirement which means that 85% are planning to leave something to their children. Of course, many have nothing to leave to their children or anyone else.

But the overall sense is the same. The majority of parents want their children to benefit from their wealth either by way of gifts when they are alive or through their will.

I am guessing that of the 15% who plan to enjoy their money, most intend to leave a property to their children.

If attitudes have changed, I would say that they have changed in favour of the children. Helping them to get on the housing ladder seems to be a higher priority now as most people need help to get on the property ladder. In the past, they could buy a house without their parents' help.
 
And there could be cultural differences between the UK and Ireland.

But the lack of CAT on gifts makes gifts more attractive than inheritances in the UK.
 
Brendan Burgess said:
But the lack of CAT on gifts makes gifts more attractive than inheritances in the UK.
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Shouldn’t we be encouraging this?

My friend lost their parents this year. My friend is already retired, mortgage paid off, good pensions.

That’s probably a little outside the norm but things are going that way.

Better to help people when needed and get money moving.
 
On the other hand, if at the age of 70 I give the bulk of my assets to my children and/or grandchildren, and then ten years later my physical or mental frailty is such that I need expensive supports or expensive residential care, how am I to pay for that?
 
arbitron said:
I know several people who lived in very basic conditions in old age only to leave their relatives large gifts in their will. Not only is it sad on a personal level but it's surely bad for the economy to have all of this wealth hoarded away doing nothing?
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Maybe changing the way tax is levied on inheritances from CAT to Income tax might get the future disponer to spend while living
and also at the same time increasing the small gift exemption to encourage distribution of that wealth to their dependants when they most need it
 
The CGT exemption on death should go. It forces people to hold onto assets that they would otherwise sell e.g. an older person holding onto an investment property.

It would also stop discouraging people gifting money while alive. If I gift an investment property to a child, I pay CGT. If I leave it in my will, there is no CGT.
 
In Germany, the 10-year rule (§ 14 and § 16 of the German Inheritance and Gift Tax Act / ErbStG) means that personal tax-free allowances (Freibeträge) reset every 10 years, and all gifts or inheritances received from the same person by the same beneficiary within a rolling 10-year window are aggregated together. (AI summary of this Source).

A use it or lose it system is, in my opinion, a vastly superior model both socially and economically.
 
Why is that better?

Daddy gives his son €100k or whatever the allowance is.
Waits 10 years and gives him another €100k.

I don't see the advantage of this over the equivalent lifetime limit of €200k.

It might suit Daddy to give cash now and not suit someone else whose wealth is tied up in their home.
 
Corola said:
Or skipping a generation. What use is a 60 year old inheriting from their 90 year old parents when their 30 year old children can't buy a house.
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Differential CAT rates make that uneconomical in Ireland.

Better to gift the first 44k direct to the grandchildren but after that gift to the 60 year old child and let them pass it on after 3 years.
 
The system in Ireland doesn't stop you from giving early... When your children are in there 30, 40s...Apart from the cgt issue.
There's a system in France where each parent can give 100k free if tax every 15 years. Inheritance tax threshold after death is also 100k from each parent.
I would be concerned that this type of system can also put undue pressure on the parents to be generous as it has a clear tax advantage.
 
Premos said:
I would be concerned that this type of system can also put undue pressure on the parents to be generous as it has a clear tax advantage.
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There's a bigger concern in that this system favours people who, over and above the value of their homes, farms and/or businesses, have substantial liquid wealth that they can transfer to their children in tranches over their own lives. That's a fairly small cohort of taxpayers and, perhaps, not the ones whose interests we should prioritise in designing our CAT regime. Adopting this system would do nothing for people who inherit family homes that take them over the threshold — in fact, if we adopted the French limits, it would make their situation worse.
 
There's a lock-in effect from Ireland's relatively high CGT - if you've made substantial capital gains you've a disincentive to realise the gains. So the odds of them getting involved in inheritance and potentially avoiding taxes of any kind is likely higher here.

Ireland and the UK both used have inflation indexing which helped counter the lock-in, but both countries dropped it.

If a longer term investment made most of it's gains in the first few years and since then has been broadly in line with inflation - it's easier to justify disposing of it. If it's property - chances are the gains aren't too far off inflation over a long period anyway.

What some other countries do instead of indexing is they lower the CGT rate after a period of years, the US, Australia, Luxembourg for example. Some countries will have intelligently designed savings investment accounts which will reduce the need for people to expose investments to CGT in the first place.

What we see in Ireland is sometimes they'll have thoughtfully introduced a policy - indexation on gains - then the institutional knowledge of why that was done disappears and the policy gets permanently undone.
 
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