The benefits of early engagement with your client’s beneficiaries

Throughout the lifespan of a client relationship, IFAs work tirelessly to ensure that a client optimises their financial planning outcomes including when it comes to inheritance and estate planning.
With nearly £5.5tn due to pass between generations in the next 30 years, according to Kings Court Trust, IFAs will understand the need to focus on ensuring that a client’s wealth is transferred in the most tax efficient way.

There is also an opportunity for IFA’s to continue managing the funds in their client’s estate after probate is completed. However, IFAs do not necessarily involve a client’s beneficiaries in planning conversations and often don’t have an established relationship with a client’s family members.  

In this article, we outline why IFAs should consider engaging with the beneficiaries of an estate at an early stage, both to provide optimal financial planning advice and to start building a wealth management relationship.

How early engagement helps clients, beneficiaries and advisers

Improve outcomes for your client and their beneficiaries

Crucially, an IFA’s timely recommendation can make a big difference to the degree of tax exposure an estate is subject to under inheritance taxes. In giving this advice, IFAs need to understand not only their client’s circumstances but also those of their beneficiaries.

For example, where an adult child who is a beneficiary have children of their own an IFA may recommend a client to distribute inheritance in a slightly different way in order to reduce tax exposure, without going against the wishes of the client.

Alternatively, advisers could suggest using a funding source such as equity release to tap into property wealth to help family members get on the property ladder, enjoying the financial benefits of property ownership earlier in their lives.


Trigger and support key conversations

Dividing an inheritance is typically more complicated than merely equally distributing the proceeds of liquidated assets. Often clients are hesitant to discuss inheritance planning with their beneficiaries, but IFAs should encourage clients to start doing so sooner rather than later. Aside from clarifying a difficult conversation, it will also reveal tax planning issues that can be addressed in a timely manner.

A personal rapport with beneficiaries also allows IFAs to play an important role during probate. In doing so IFAs can steer beneficiaries towards making the right financial decisions. This may mean, for example, recommending that an investment is not liquidated at death so that the beneficiary can continue to enjoy the tax advantages of business property relief.  

IFAs may even be needed on hand simply to get to grips with the extent and nature of a deceased’s investments. However, without prior conversations with beneficiaries, their advice may never be called on.


Advisers retain money under management

Finally, financial advisers often “lose” funds under management when a client passes away because the funds now belong to someone else. While it can be challenging to convince beneficiaries to keep funds under an IFAs management, building a long-standing relationship with a beneficiary improves the chances that this will happen.

In fact, a financial adviser can play a reassuring role in a client’s family when a client passes away. Providing answers to difficult financial questions during this time is likely to endear an IFA to a client’s spouse, children and other beneficiaries. With so many people managing their finances without the advice of a professional adviser’s help the opportunity to step in may be wide open.


Steps IFA can take to get in touch with beneficiaries

Broaching the subject with a client is, of course, the first step. IFAs can find out who stands to benefit from an estate, by requesting a family tree for example. In doing so advisers should avoid making the error of only going down the immediate family line, as often beneficiaries include family members who are parents or siblings, particularly where those are dependents.

A good understanding of family relationships can help an IFA to contribute to every aspect of estate planning and offers the chance to build a working relationship with a client’s beneficiaries by including family members in regular email communications, for example.


Early discussions can reveal important solutions

In conclusion, IFAs should consider talking to beneficiaries at an early stage as chances are that it will reveal opportunities to improve financial outcomes. It may involve reducing inheritance tax bills using better planning such as retaining investments rather than selling up. It could also reveal that beneficiaries stand to benefit greatly from equity released from property to make an early gift.

As an IFA, do you find that your client involves beneficiaries in estate planning discussions? Or are family members and others kept at arm’s length? Do you consider beneficiaries your future clients? Get in touch – and let us know if you’d like to know more about how equity release can help beneficiaries.