Some months ago I wrote a blog on starting a dynasty. While all I said holds true I am increasingly aware of just what a significant first step is required.
Recently I have been working with a number of clients who share a similar experience. They have taken control of their finances, looked after their immediate needs, made appropriate provision for the future, built in a safety margin and still have surplus assets. In each case a suitable beneficiary for these funds is identified but when it comes to writing the proverbial cheque, the shutters come down.
Dig deeper and a host of reasons emerge – uncertainty about the future, an unwillingness to recognize their own wealth, an almost childlike belief that they will live forever….
To address their concerns I have suggested lending the money within the family under a formal loan agreement, not only does this provide a safety-net should their life plan be confounded, a loan remains part of their estate and must be repaid on death. Even with these precautions in place the reluctance remains….
So what is it? Why are these very intelligent people so reluctant to invest in their own family? In short ‘trust’. Inheritance tax has been defined as:
‘A voluntary tax paid by those who mistrust their family slightly more than they mistrust the Chancellor’
Go back to those Scottish dynasties who, for generations, have worked tirelessly to avoid inheritance tax – what is the difference? In short ‘trust’. In a dynasty the doner benefitted early in life by receiving the family wealth, but with that good fortune comes three imperatives – to do their very best, during their tenure, to improve that family wealth (imperative one); to look after other family members of their generation who have not benefitted in the same way (Imperative Two) and, above all, to make sure the wealth is passed on without being depleted by inheritance tax (Imperative Three).
Moving from one scenario to the other requires a huge leap of faith. To take it you must step back and learn to view your wealth as transient. You have worked hard to acquire it, so it is in your nature to fight to retain it – but you must pick your battles carefully?
Despite the belief of some Egyptian kings, you can’t take it with you so deciding what will happen to it makes sense. Having taken that decision, if you are in a position to put it to work early then why not? (Imperative One) Your money can continue to grow in stocks and shares with 40% of the increased value being paid away (Imperative Three), or it can be used to benefit other family members (Imperative Two). The choice is yours….