When clients seek financial advice from us, they come with a range of goals and priorities. However, for those with dependents, securing their future is often high on the list of things they want to achieve. Financial planning goes some way to delivering this, but legal expertise is often needed too.

While as financial planners we may help parents or guardians invest and save for a dependent’s future, there are numerous examples of where both financial and legal advice can help give clients the reassurance they’re looking for. This could include these three examples:

1. Putting a will in place

We encourage all clients to think about their legacy and ensure they have an up to date will in place, whether they have dependents or not.

However, it’s an essential part of providing security for dependents where this is a priority. As a result, it’s often a step we help clients take, but legal advice is valuable in the majority of cases.

One of the aspects we help clients with when it comes to legacy planning is understanding the size of the estate they will likely leave behind and how they want it to be distributed. This will often involve looking at their current lifestyle and goals over the coming years, forecasting how it will affect their assets over time. It can provide a picture of what would be left behind for loved ones at different stages of their life.

Where dependents are involved, taking steps to ensure an inheritance would be appropriately managed becomes a priority too. In some cases, this will mean putting a trust in place to ensure long-term financial security or naming a trusted guardian that will act in their best interest and care for them.

While some clients opt to take a DIY approach when writing a will, when it comes to ensuring the future of their loved ones, we often find legal guidance is essential. Not only does it mean the intent of wishes is accurately noted in the will but it provides peace of mind too.

2. Creating a trust to pass on wealth

For passing on wealth to those that can’t take ownership of assets, whether temporarily or permanently, a trust can be a vital way to ensure their future.

By allowing trustees to manage assets on behalf of beneficiaries, guardians can feel more secure about the future of their dependents, even if something should happen to them. The options available with a trust means it’s a solution that can be adapted to suit each family’s needs and goals.

For instance, those with young children may choose a trust that hands control to a trustee that will manage assets until the dependent reaches adulthood. Alternatively, for those with dependents that are mentally incapacitated and unable to fully handle their own finances, a trust that provides a lifetime income can create long-term stability.

With many different types of trust available and sometimes complex financial arrangements to be made, this is an area where we’d suggest clients seek legal support to complement the financial advice we’ve provided.

3. Inheritance Tax planning

Where a client’s entire estate is worth more than £325,000, there may be concerns about Inheritance Tax. With a standard tax rate of 40%, Inheritance Tax can significantly reduce the amount that is left to dependents, potentially affecting their financial future.

While Inheritance Tax receipts have been rising since 2009/10, there are often steps families can take to reduce the eventual bill but clients need to be proactive. In 2018/19, HMRC collected £5.4 billion through Inheritance Tax, an increase of 3% on the previous year, highlighting the cost of inaction. Many of the steps we’d advise clients to take to mitigate Inheritance Tax can benefit from legal advice, including:

• Gifting during their lifetime: For some individuals, gifting during their lifetime can mean they get to see the benefits of their generosity and reduce Inheritance Tax. While we can offer advice relating to gifting allowances, there are times when legal knowledge can be valuable too, for instance, where large sums are being gifted or the benefactor wants to attach certain conditions to a gift.
• Placing assets in trust: We’ve already mentioned why trusts may be used to create security for dependents. However, when ensuring as much wealth is passed on as possible, they also play a role by taking assets out of the estate for Inheritance Tax purposes.
• Taking out a Life Insurance policy: A Life Insurance policy doesn’t reduce the amount of Inheritance Tax due, however, the resulting lump sum can be used to cover the bill. It’s a step that can allow families to grieve and support dependents. Legal advice is important here because a Life Insurance policy intended for this purpose should be placed in a trust, otherwise the payout will be added to the value of the estate, increasing the amount of Inheritance Tax due.
• Leaving a charitable legacy: When 10% or more of an estate is left to charity, the Inheritance Tax rate is cut from 40% to 36%. For some families, this will mean they leave more behind for dependents while supporting causes that are close to their heart. Where this is appropriate, a charitable legacy is something that should be addressed when a client writes their will.

A combination of financial and legal advice can ensure clients have taken all the necessary steps they need to be confident of future security for dependents, even when things don’t go according to plan. We work closely with professional connections to provide clients with holistic plans that deliver reassurance where it’s needed. If you’d like to learn more about how we could work together, please contact us.