Not all families experience such a once in a lifetime injection of capital.  For some, surplus wealth may accrue gradually, and, without relevant advice, the wealth holders might not realise they are in that surplus phase, where part of their wealth may safely be distributed. However, when a family acquires a glut of wealth, sometimes much more than they had anticipated, through an inheritance or a successful sale of a business, this is an opportune time for an adviser to assist their client  through some very complex thought processes. If the adviser does this well, then there is great opportunity for  new clients to be won from the next generation and for long-lasting relationships to be forged.

 

Crunching  the growth and the income and the tax numbers is important,  but there may also be a vital need to coach the wealth holders through some tricky decisions regarding when and how they want their capital to be allocated to their children or grandchildren.  This distribution of wealth could be achieved by gifting to family, to charity or good causes or by accepting a reduced level of financial return on investments that offer residual benefits, such as environmental and social impact or personal  satisfaction.  Financial  advisers are accustomed to offering a range of products and strategies that  can reduce (quickly or slowly) an individual’s  potential inheritance tax liability (IHT). 

 

It is likely that the wealth holders are seeking to deliver financial security and a better life to the next generations,  perhaps a good education or the opportunity to travel or pursue passions. Typically however, they do not want the gift of money to create a lack of  purpose or responsibility. 

 

Depending on the age of the beneficiary,  the adviser may speak to them directly  or speak to the donor or an appointed Trustee about how to invest or apply the capital.  Introducing the possibility of investing for environmental and/ or social  impact, or for a safer, fairer world, is a great way to engage and enthuse the family about the positive power that their wealth can have.  Having a positive  purpose stitched through the conversations and decision making can keep all parties focussed when other aspects of the wealth distribution process become arduous.  If the process entails the establishment of Trusts, or family companies or multiple different investment vehicles, there may be a paperwork and complex information overload!

 

The adviser may help the wealth givers to establish a generally sustainable or positive impact investment strategy that is aligned with a more secure future for the next generations.  This may seek to avoid funding  harmful activities, such as those that destroy  wildlife habitats or pollute  soil and water and/  or seek to invest in activities that align with a cleaner economy and fairer opportunities.  Some wealth givers will feel that  they are best quipped  to oversee the investment decisions with their trusted adviser, having had more investing experience.  Nevertheless, they will be ready to accept that  the new goals for the next generation’s capital might benefit from a fresh, future-focussed investment approach. 

 

Alternatively, it may be possible to create varying investment strategies for each of the beneficiaries, aligned  with their personal values.    Depending on the solutions and services that the adviser offers the family, it may be possible to give the beneficiaries some say over how the money they have received has been invested, without giving them full and immediate access to the capital. 

 

For some families,  where there is ample wealth being distributed, then a layered approach may be possible, and solutions may be highly tailored to the needs and personalities of each child and grandchild.

 

For example, there may be three adult children to parents who have sold their business for £8 million pounds. The parents are at retirement age and, after allocating two million for their own future financial security and  comfort, they wish to allocate £2 million pounds to benefit each of their children.  Their adviser determines that the parent’s  high-level aim for their capital is  to assist their children  with pursuing  their chosen  paths in life,  removing any specific financial problems or insecurities and creating a  long-term foundation for the children and grandchildren. They do not want the “windfall” to divert the children from their current lifestyles or path in  life.  

 

The adviser determines the following details about the circumstances, needs and potential solutions of each of the adult children.

 

Their oldest son is 39 and has two small children, works long hours as  a solicitor in a City law firm and has a large mortgage  on a house that is barely large enough for the growing family’s needs. For this family, time is more of a pressure than money. They opt to use a large proportion of the capital their parents have given them to  reduce the mortgage and fund an extension to the property, giving the grandparents a separate space to stay  and come to London and help out with  the children periodically.   A solution that has benefits for all three generations of the family.  

 

The remaining capital is invested, with the help of the adviser, in Trust for the grandchildren, with a view to funding university fees and the associated costs of higher education and perhaps a gap year volunteering overseas. The family will be investing this  sum for at least 15 to  20 years and given that there are likely to be many social, environmental and economic challenges during that time,  the parents have expressed a preference for the investment to have a sustainable focus or impact. They would wish in future that their children are employed by and utilise the products and services of businesses that are mindful of their responsibilities to people and the fragility of the natural world.

 

The middle child is a daughter aged 34. She is a single Mum to one five- year-old child, earning a  modest salary working part-time for an environmental charity, which aligns with her strong views on climate change and the need to protect nature.  To manage both her financial needs and her strong environmental impact investment preferences, 75% of the gifted capital is invested to provide income and growth to support her and her child’s living expenses over the long term.  

 

The adviser establishes the level of income required presently and in future and how much needs to be invested to have good prospects of maintaining this for at least 20 years.  Given the daughter’s  high conviction regarding avoidance of environmentally harmful  activity,  this is invested in a diversified portfolio that excludes fossil fuels, deforestation and companies with poor environmental ratings and focuses on businesses that deliver environmentally and socially positive goods and services.  The main aim of this portfolio is however to deliver the long-term financial returns and management of investment risks that will support the  family’s income needs. 

The daughter then has the freedom to pursue  her wish to maximise the environmental impact that she can achieve with the funds.  She uses some of this money to buy some land which the charity she works for  will  use to create regenerative community food hub and nature area, invests  some in a local community energy scheme installing solar panels on the roof of the school and leisure centre and lands some to a group creating a bike to school scheme, via peer to peer  lending arrangement.  

 

The third and youngest son is 30 and has special needs. They will always need support with their finances and will need ongoing care.  The family are keen that the money  for this son is invested conservatively for long term needs and that risks are managed very carefully.  However, they believe that a society and economy that values fairness, equality and human rights will be a better place for vulnerable individuals like their son.   They therefore request that this capital is invested with a discretionary portfolio manager who will encompass some investment in aligned and supportive businesses and activities. 

 

The adviser can connect the family to a  suitable investment manager and arrange a platform, guardian/ attorney and arrangements and tax vehicles that make the long-term management of the son’s financial security blanket as seamless as possible.