I have a lot of conversations about the subject of inheritance. Often when I’m having conversations with my clients often part of their aspirations is to give money away on their death to help their kids or grandkids. 

But here’s the thing. The UK budget in October 2024 has increased the number of assets which now are included as part of the calculation for the purposes of inheritance tax. 

And as I write this, the conversations I’m having with clients are less about investing in assets which are free from inheritance tax and the two most simple ways to avoid inheritance tax. 

The first way is to spend more.  

The second is to give money to the people you want to benefit of it earlier than typically earlier. 

There are two main reasons this is important. 

Firstly, gifting early might mean that you can plan to mitigate inheritance tax better. 

Secondly, you get to see the benefit of the gifts you get to make whilst you’re still around.  

I’m a big believer in gifting with a warm hand (giving money to the people you love whilst you like) instead of gifting with a cold hand (waiting until you’re not around anymore until the kids and grandkids inherit) 

So, in today’s blog I’m going to talk about the advantages and disadvantages on gifting.  

We’re going to talk about when you should gift and when you shouldn’t gift. 

We’re going to talk about what the ancient philosophers talked about gifting and what we can learn about tit. 

and 

We’re going to talk about the 3 factors you need to work out before adopting a gifting strategy that not only works for you but works for generations to come. 

Seneca was pretty blunt when he said… 

“Putting things off is the biggest waste of life. It snatches away each day as it comes and denies us the present by promising the future.” 

You see the ancient stoics felt that waiting until later was a risk and whilst we live in a different time there is a recent book which shares Senecas perspective… 

Die with Zero by Bill Perkins is a call to spend money on life experiences on making us happy and aligns with Senecas quote by urging us to live more for today than tomorrow. 

However, my own personal opinion, and one which aligns with both Die with Zero, is that you also need to consider the right balance. Spending your hard-earned wealth on things you’re going to remember is important but so is spending unsustainably putting your future self in the poor house! Ultimately, it’s a balance. 

However, whilst Seneca didn’t talk that much about gifting whilst still alive one of the other prominent Stoic philosophers talked about it quite a lot! 

You see Marcus Aurelius wrote an entire Treaty on gifting highlighting the fact that we should “Give as we should receive. Cheerfully, Quickly and without hesitation, for there is no grace in a benefit that sticks to the fingers.” and Epictetus had a great quote… 

“Never second guess an instinct to be generous, especially with friends and family” 

However, let’s be real for a minute…there are some factors (I believe there’s three that are really important) we need to work out when thinking about how we gift. 

1. Work out your ‘why’ 

When you’re thinking about gifting you might believe the right way to start with the numbers. I’d suggest there’s something we need to consider before we think about giving money away. 

Our ‘why’ 

For some of my clients gifting is about supporting the people you love and like and seeing the wealth they’ve accumulated work whilst they’re still around to see the benefits. 

For some of my clients gifting is about helping causes they really believe in. 

And 

For some of my clients gifting is about protecting a legacy. 

So, before you think about the numbers, what do you want to see by making a gift? 

Is it to help the people you love? 

or 

Make a positive impact in the world? 

or  

Protect the assets you’ve accumulated in your family? 

All are entirely valid reasons but taking the time to understand why you might want to gift is certainly worth doing. 

2. Work out your ‘enough’ 

I’m an advocate of kindness and gifting generously. However, I’d also recommend that first your kind and generous to yourself by making sure you’re able to live the life you want with the money you’ve got. 

I believe the starting point is to get clarity on your ‘enough’ and have a robust plan and one of our most popular videos on ‘what happens next’ shows you the steps you can take, without the help of someone like me, to get closer to understanding what you might need to get there. You can find this video here.

This doesn’t mean to say you shouldn’t gift before you’re financially independent however, it just means that knowing your number (the amount you need to be financially independent) and having some clarity on how you’re going to get there allows you to consider the right balance between spending, gifting, saving and investing. 

3. Work out your ‘how much’ and ‘how’ 

Once you’ve worked out your ‘why’ and your own ‘enough’ you can then decide on two ‘how questions’.

Firstly, knowing that you’ve got a clear plan to financial independence allows you to work out ‘how much’ you can afford to gift. 

And 

Secondly, knowing your ‘why’ allows you to work out ‘how’. 

Why it comes to ‘how’ there’s a number of factors to consider. 

Firstly Control.  

Is a direct gift to the people you love right? Or would a trust arrangement be better? 

If you’re making a charitable gift, how do you ensure that the money has a positive impact? What power have you got over where the money is used? 

Secondly tax. 

As I mentioned earlier in this blog, in the UK recent and upcoming tax changes has meant that gifting is going to become a more considered and sensible inheritance tax planning strategy. 

My one tip here is to plan with plenty of time to spare. If you do want to make gifts to reduce inheritance tax it’s worth speaking to a professional to understand how to do this in a way which is effective. 

The reality is that normally for a gift to completely fall outside of your estate for the purposes of inheritance tax it typically takes 7 years, although the rules are nuanced and that’s why professional advice is worth getting to ensure you’re planning in the right way. 

And lastly, and I’d suggest just as important (if not more important) than the last two, Impact. 

I had a client recently who wanted to give a low 6 figure sum to pay off their daughters mortgage. 

After working out they can afford it and it wouldn’t impact their financial plan the client said something interesting… 

“Thanks Chris. Being able to take the worry of debt away from my daughter is something I’m grateful to be able to do.” 

I like the idea of understanding your why and then working out your ‘how’ so that the money you gift can have as much impact as possible. So it’s worth asking the question every time… 

How do I make this gift so it’s going to make the most positive impact? 

Doing so allows you to ensure that not only is the beneficiary of the gift as happy as possible, but you get the emotional benefits of doing a great thing too. 

So, gifting when you’re in your 50’s, 60’s and beyond is something you should certainly consider but take those three logical steps… 

Work out your why 

Work out your version of financial enough 

And that will allow you to answer the important questions of both “How and How Much” 

For more information about ‘how much is enough’ you can watch this video… 

And 

For more stoic insights into planning for retirement this video might be useful…