Should Legacy Goals Be Part of Your Retirement Plan?
Some of us want to leave a specific amount of money to our loved ones during our lifetimes. Others want to ensure that they leave a certain amount of money in their wills, while others don’t mind how much they leave to their families.
Inheritance tax has persuaded many of us to have legacy goals in the UK (even if the goal is to minimise the amount of that tax which our loved ones will have to pay).
We all have a “legacy goal”, even if that goal is to spend our last Pound as we breathe our last breath.
Figuring out how to plan for your legacy goals might seem like a nice problem to have. But that doesn’t mean you shouldn’t include them in your retirement plan.
After all, your legacy goals can seriously impact what your retirement will look like.
Including one type of legacy goal, such as leaving money to children and grandchildren, means you’ll have less to spend on yourself in retirement (and you may need to save more before you can afford to retire).
Including an alternative legacy goal, such as spending all of your capital during your lifetime, means you can spend more in retirement (and you don’t need to save as much before you can afford to retire).
There’s no right answer here – the decision comes down to what is important to you. How upset would you be to leave behind less than you anticipated, or even nothing at all?
What is your Legacy Goal?
Our experience is that most of our clients have one of (or a combination of) the following goals:
-We want to leave a specific amount to our family during our lifetimes.
-We want to leave some specific bequests in our wills.
-We don’t mind how much we leave to our loved ones, following our deaths, but would like anything left over to be divided fairly.
It’s important to decide which legacy goal you have, as part of your retirement plan. That way, your retirement plan can cater to your legacy as well as your own spending needs.
This peculiar tax can often result in people taking actions that they otherwise would never consider.
Often, people set up complicated arrangements, which have the potential to cause complications and conflict down the line, to avoid inheritance tax.
Many people are persuaded to take action to avoid inheritance tax, without first considering their other legacy goals.
Our view is that you should first decide what your legacy goals are, then work out how to minimise the amount of inheritance tax you will pay whilst achieving those legacy goals.
We do accept that minimising inheritance can be part of your legacy goals. But it’s unlikely to be your sole legacy goal (if it were, you could leave all of your legacy above the nil rate band to a charity or a political party).
Some of this tax is illogical (e.g. the annual gift allowances never seem to increase).
And, of course, inheritance tax can and will change (e.g. when the Residence Nil Rate Band was recently introduced).
Don’t ignore your legacy goals
A Financial Plan for retirement isn’t complete unless it includes consideration of your legacy goals.
These goals should be included in your plan from outset and kept under review throughout your retirement.