Why Giving Wealth Away Now Beats Leaving It In A Will

Most people receive an inheritance somewhere between the ages of 56 and 65. By that point in life, adult children have typically already bought their own home, raised their own families, and built their own careers. A lump sum at this stage is welcome, but in practical terms it rarely changes the course of their lives - the major milestones have already been reached, one way or another.

Compare that with providing the same level of support two decades earlier. A contribution towards a first home deposit, or help funding a grandchild's education, can be genuinely life-changing in a way that a later inheritance simply cannot replicate.

There is an old saying that captures this well - it is better to give with a warm hand than a cold one. Being present to see loved ones benefit from your support carries its own value, both for the person giving and the person receiving.

While the specific rules vary considerably by jurisdiction, most countries offer some form of mechanism to encourage or recognise lifetime giving. Common approaches include:

·       Annual Gifting Allowances - Many jurisdictions allow a certain value of gifts to be made each year without triggering tax consequences, meaning smaller regular gifts can be more efficient than one large lump sum.

·       Taper Style Relief - In a number of countries, gifts made a certain number of years before death are treated more favourably than gifts made shortly before death, with some becoming entirely exempt from inheritance tax after a set period.

·       Trust Structures - Placing assets into a trust can allow wealth to be set aside for future beneficiaries while retaining a degree of control or flexibility over how and when it is eventually distributed.

·       Gifting Appreciated Assets - Rather than gifting cash, transferring investments, property or other appreciating assets directly can, depending on jurisdiction, carry different tax treatment to selling the asset first and gifting the proceeds.

The right combination of these approaches depends entirely on individual circumstances, residency, domicile position and the jurisdictions involved, particularly for internationally mobile families where more than one country's rules may apply.

Lifetime gifting does not need to mean handing over a lump sum. Some of the most effective gifts take other forms entirely:

·       Contributing to a pension or retirement product on behalf of a child or grandchild while they are young allows decades of additional compounding, potentially transforming a modest contribution into a substantial retirement fund.

·       Transferring investment assets directly, rather than cash, gives a younger family member the chance to learn how to manage a portfolio while still benefiting from professional guidance.

·       Funding a business venture or a period of further education can provide a foundation that a later inheritance simply cannot replicate, regardless of size.

Each of these approaches shifts the focus away from a single transfer of value and towards building long-term financial capability in the next generation.

One of the most common reasons lifetime gifting causes difficulty within families has nothing to do with tax. It is a lack of communication. Gifts that are not clearly explained can be misread as loans, seen as unequal treatment between siblings, or create tension that outlasts any financial benefit the gift was meant to provide.

Documenting the intention behind a gift and discussing it openly with the family members involved protects against misunderstanding later. This matters not only for tax authorities, who may require clear evidence of when and why a gift was made, but for preserving the family relationships the gift was intended to strengthen in the first place.

The biggest obstacle to lifetime giving is rarely a lack of willingness - it is fear. With life expectancy continuing to rise and the cost of long-term care an increasing concern for many families, it is entirely reasonable to worry about giving away money you might later need yourself.

This is precisely why lifetime gifting should never be approached as a one-off decision made in isolation. A proper cashflow plan, one that models your likely income, expenditure and care costs decades into the future, can show clearly how much you can afford to give away without compromising your own financial security. For many people, this planning process reveals they can afford to give more than they assumed, and with far more confidence than they expected.

Gifting rules, allowances and tax treatment vary considerably depending on where you live, where you are domiciled, and the type of asset being gifted. For internationally mobile families in particular, cross-border rules can interact in ways that are easy to get wrong without proper guidance.

This is very much an area for regulated financial advice rather than a decision to make alone. A financial adviser can help you understand which gifting allowances apply to your situation, how much you can afford to give without compromising your own financial security, and how to structure gifts so that they are both effective and properly documented for inheritance tax purposes.

Thinking about lifetime giving does not mean abandoning careful planning - if anything, it requires more of it. Understanding your own financial position clearly enough to know what you can comfortably give away, without putting your own retirement at risk, is central to getting this right.

If you are considering how lifetime gifting could fit into your own estate plan, speaking to a regulated adviser is the sensible next step. Hoxton Wealth's advisers can help you weigh up the options for your specific circumstances, including cross-border considerations if you live and work internationally.

Contact us to chat to an adviser and find out more.