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For many clients, leaving a legacy for their loved ones could be a key objective. If this is the case and the client does not use all of their assets for income during retirement, the treatment of different assets can maximise any legacy.
With more people living into their 90s, the average age to receive an inheritance is now 61, so children could be in their 50s or 60s at the point when their parents die. At these ages, they are likely to be financially settled. A ‘living inheritance’ gifted at a younger age could be more valuable. Any equity released from the home is tax-free and could be used to make a potentially exempt transfer and under current legislation, it’s free of Inheritance Tax if the donor survives for seven years after making the gift.
The traditional view of annuities been that they’re inefficient as a means of transferring wealth on death. That’s no longer the case. There are a number of ways annuities can provide financial support on death:
What's more, research conducted by Milliman in 2018 how death benefits over the long term can often be higher if, instead of using a mix of bonds and equities, the bond element of a drawdown portfolio is replaced with a lifetime annuity.
Leaving a legacy may not be your client’s only concern, they may have multiple objectives.
This could prove challenging for you as their adviser, but a holistic approach to retirement planning could support this. There are many ways to use and layer together solutions to help achieve a variety of client objectives, including maximising any legacy.