Rich individuals often face a dilemma regarding tax planning: whether to transfer assets during their lifetime to mitigate inheritance tax or retain control. Many clients are reluctant to make outright gifts to their heirs, even with the obvious tax benefits. The primary reason cited is the desire to maintain control over family businesses, landed estates, or liquid assets, as this reinforces their authority. One client famously stated that his children receiving 60% of his fortune would still be "doing very well," indicating a preference for control over minimizing tax.
For those subject to UK inheritance tax, giving away assets during life offers significant advantages. If assets are given to an individual and the donor survives for seven years, no inheritance tax is typically payable on the transfer, and those assets are excluded from inheritance tax upon death. However, this requires surrendering control, which many wealthy individuals find difficult, often due to concerns about their heirs' competence in managing money or potential issues like divorce within the family.
Meanwhile, disputes over wills are on the rise, driven by two main factors: the "great wealth transfer" and changing societal structures. An estimated $18 trillion in assets is expected to pass from the baby boomer generation to their descendants by 2030. Concurrently, the increase in blended families creates more opportunities for disagreement. Lawyers and advisors also note a growing number of cases where wills are challenged based on the testator's mental capacity, a trend exacerbated by an aging global population, with dementia cases projected to increase from 55 million in 2020 to 78 million by 2030, according to the World Health Organization. These factors complicate estate planning and highlight the complex interplay of tax, control, and familial dynamics in wealth succession.
