Five steps to avoid Succession-style family war over inheritance

Ian Dyall is head of wealth planning at asset manager Evelyn Partners.

Due to the bickering and power games on the TV hit show Succession, the handover of Logan Roy’s company has been anything but smooth.

But you don’t have to leave a media empire to your family to have misunderstandings or friction.

Uncertainty over the transfer and distribution of estates is not uncommon and conflicts can arise over assets of any size.

Lack of communication during your lifetime, poorly drafted wills, assumptions around the family home, ignorance of estate tax rules, and strong emotions, each or in combination, can make the division of an estate problematic and interfere with the transfer of wealth.

In addition, inheritance tax is now a mainstream issue. Growth in asset values ​​coupled with the fact that the zero-rate band, unchanged at £325,000 since 2009, will remain frozen until at least April 2028 means that many more estates of relatively modest size are entering the inheritance tax net each year.

Inheritance tax revenue for the year to March was £7.1bn, up £1bn from a year earlier. And the Office of Budget Responsibility recently predicted that the Treasury will collect £45bn in estate taxes over the next five years.

That’s more than last November’s £42.1 billion estimate, although even this looks like it could easily be exceeded.

The irony is that most such problems can be avoided or mitigated by some careful steps in estate planning.

In Succession, it’s clear that Logan Roy isn’t as concerned about his kids’ peace of mind as he could be, so it might come as no surprise that he failed to arrange a simple transfer of wealth.

Since most parents are a little more caring, they’ll want to pass on their estate with as little stress as possible for their grieving loved ones—and without too many tax returns.

Here are five steps you can take to avoid inspiring your own family drama:

1. Involve family and discuss inheritance intentions

Clear communication during your life can prevent many misunderstandings.

It is usually preferable if the executor and beneficiaries are notified that they will be named in the will.

Beneficiaries are often relatives and since many families apply the standard “spouse inherits and children inherit upon second spouse death” format, this can be straightforward.

More complicated or perhaps even controversial divisions may be more difficult to discuss, and those who do not wish to do so in their lifetime may want to consider a “letter of wish” to explain and clarify their intentions alongside the will.

Even if the transfer of key assets from an estate is fairly straightforward, disputes can still arise over issues like who gets to keep items of sentimental value or family heirloom if not discussed in your lifetime.

2. Make a clear, correct will and keep good records

It is estimated that 60 per cent of adults in the UK, about 30 million people, do not have a will and if they continue to do so, their estate will be divided according to the rules of probate.

Those who want to avoid that outcome should make a will, preferably with legal advice, and have the signature properly attested.

It’s easy to be confused by probate rules, and some people assume that assets go to a loved one – a long-term partner, for example – when the law dictates otherwise.

It will also help the executor in the distribution of the estate if clear records are kept of all assets and can be easily found along with the will.

To highlight what can go wrong, in a recent case someone left a will that was invalid because only one person witnessed it. Most of the people named in the invalid will were not related by blood—and those who did benefit couldn’t agree on whether or not to respect the spirit of the will.

Not only that, there was a tax bill in the end that probably could have been avoided with some planning.

In other words, there was a lot of clumsiness, extra administration and expenses that could easily have been avoided.

3. Gift during your lifetime and consider a trust

The “seven-year rule” allows you to give away as much as you like during your lifetime, since those assets leave the estate for estate tax if the giver lives another seven years.

But giving is not just a matter of reducing inheritance tax: for many of the so-called post-war baby boom generation, it is done to help their adult children and their families, so that the giver gets the benefit of their gift making their loved ones financially secure.

This is particularly relevant amid the cost of living crisis.

To avoid a bad feeling, most parents will try to divide the gifts they make between the children – but there is also the option to make up for inequality in lifetime gifts with the division of assets in a will.

Again, this could be clarified with a wish letter.

Many parents want to make large donations during their lifetime, but fear that their money will run out before they die, especially if they eventually have to pay for the care.

Cash flow planning can be used to calculate how much access is needed to ensure that enough money is available to pay for care if needed, and careful use of specialist trusts can maintain adequate access while minimizing estate taxes.

However, there may be some other tax implications to consider, and as this is generally a complex matter, it is best to arrange trusts with estate planners rather than on your own.

4. Consider the family home

There can be sticking points between siblings who have an equal share in the family home if their second parent dies, as the beneficiaries may differ on what should happen to the property.

This can be especially tricky if a sibling has lived in the property – whether that’s all their lives, or since the parent needed home care or moved into a home – and wants to stay there.

This can be a difficult problem to tackle. It may be possible for one party to purchase the other portion of their sibling’s property, either by using their own money and share of the liquid assets in the estate or by mortgaging the property.

In some cases, providing a larger share of the home to the child who took care of the parent later in life is seen as fair compensation, especially if they have cut their careers short to do so.

Again, communication of the reasoning will help avoid family disputes.

5. Don’t forget your pension

Defined premium pension pots are not legally part of your estate and are therefore exempt from inheritance tax.

If the pensioner dies at age 75 or older, no inheritance tax is due, but income tax is levied on the nominated pension recipient at their normal income tax rate when the money is withdrawn.

In the event of death before the age of 75, no income or inheritance tax has to be paid. Until recently, this was limited by the lifetime allowance, which meant that big pots over £1.07 million could receive an additional tax of up to 55 per cent.

The lifelong supplement has been canceled in the last Budget, so that there is no longer a limit to how much can be saved in a tax-efficient pension pot.

However, the lifetime allowance has become a bit of political football and it remains to be seen whether its abolition will last past the next general election or whether it will be reinstated in some form.

Either way, those who have carefully planned their estates can use up other assets before retirement, based on the fact that less estate taxes are likely to be owed on the estate.

Most defined contribution occupational pension schemes call for an ‘expression of wishes’ or ‘nomination of beneficiaries’ indicating who will receive your pension pot on death – so it’s important to ensure that such details are up to date on old pension pots.

More than one person can be named as a beneficiary so the pot can be split. A pension can be the second largest asset, after the home, and sometimes the largest asset.