Whether you’re a spouse, a parent, a grandparent or anything in between, guaranteeing the financial security of your nearest and dearest after you’re gone is a pressing commitment.
A great way to facilitate this goal, and to ensure personal peace of mind in the process, is to build a financial legacy and to create a plan for how and to whom it will be allocated when the time comes.
Building your financial legacy
First things first; in order to leave a substantial inheritance that will ease financial burdens on your loved ones in one way or another, you need to give careful consideration to how you intend to accumulate sufficient capital.
In the early years of your career, your focus may be on more immediate issues like paying off debts or buying a house, but even during this period, you can begin to lay the foundations of your legacy.
Here is a selection of methods to help you gradually build your wealth over time:
Making shrewd, informed investments in stocks, shares, bonds or cryptocurrency can have plentiful rewards, particularly as any profits from these investments build over time. However, due to the risk factor involved, such investments should only be made with surplus funds or savings – not with money you can’t afford to lose. Before initially investing, it is advisable to seek professional input from a stockbroker or to research various broker apps that are now available.
Investing in property is also a great way to add a sizeable asset to your inheritance. If you are in a healthy position financially and wish to invest in property, there are numerous benefits to doing so. Firstly, you are securing a concrete asset that will significantly boost your nest egg. Secondly, if you own a second property, which is not your personal residence, the money generated from rental payments will serve as an ongoing source of passive income.
Whether you have started a business from scratch or have been at the helm of a long-running family business for many years, it’s likely that you will want your life’s work – and a large part of your personal legacy – continued by those you love and trust. This is referred to as ‘succession’. In practical terms, an asset such as a business can spell huge opportunity and security for those it is left to. But with research suggesting that just 30% of family businesses experience a successful transfer to the younger generation, this is clearly an area that needs a lot of forward planning.
In order to ensure this asset continues to be a lucrative one for those inheriting it, you must make some important decisions regarding governance framework, stakeholders, division of shares and tax costs. Failure to prepare can lead to business demise, over taxation and sadly, the destruction of relationships. There are many ways in which your business can be best utilised as a part of your financial legacy, and by strategically planning your approach at the earliest possible opportunity, you will find a scenario that works best for you and your family.
Taking out life insurance is a prudent move when considered as part of a financial plan. Opting for a whole of life insurance policy is ultimately the best course of action, as it represents lifelong coverage.
While a life insurance policy is a great addition to an existing financial plan, it is a hugely important asset in its own right, facilitating the payment of end-of-life expenses in instances where the family of the bereaved might struggle to cover medical bills and funeral costs.
One of the biggest benefits of such a policy is tax-related; following your death, your beneficiary may receive the lump sum payment, which is exempt from tax. This could mean that every cent of the death benefit will go directly to the person or persons it’s intended for.
It is also worth keeping in mind Section 72 and Section 73 policies.
Section 72 policy is a life assurance policy that is set up under trust to your beneficiaries to pay off an inheritance tax they may get saddled with.
Section 73 is a life assurance savings plan that is set up with the intention of paying off gift rax.
Both of these can be discussed with your financial provider.
Inheritance tax exemptions and thresholds
Aside from those associated with a life insurance policy, there are other tax exemptions to consider when planning your inheritance.
An inheritance or gift passed down to an individual following the death of the benefactor is liable for tax relief based on specific criteria. For example, if the beneficiary is the legal spouse or civil partner of the deceased, their inheritance will not be subject to inheritance tax, or Capital Acquisitions Tax (CAT).
In instances when an inheritance or gift is left to another relative outside of this relationship, a certain amount of that sum will not be liable to tax (tax-free threshold), but there are certain thresholds to take note of. These are grouped into A, B and C and the amount of tax-free inheritance that applies in each of these instances is based on the relationship between the deceased and the beneficiary.
There are other various reliefs and exemptions to take note of relating to assets such as property and business. With so much to digest and consider in order to ensure your loved ones reap the maximum benefit from your lifetime of hard work, it is important to seek professional guidance from a financial advisor before you start planning the finer details of your financial plan.
Planning your financial legacy
A financial advisor will not only help you to navigate tax relief, investment opportunities and more, but they will also help you to achieve your personal goals. Perhaps your biggest wish is for a child’s third-level education to be paid for in full. Or your main focus might be to ensure that shares in your business are distributed in a specific way.
To help you decide how you would like your hard-earned wealth to be distributed, Symmetry Financial are on hand to guide you every step of the way.
Contact us today to book a consultation. Our team is standing by.
