Contemplating on whether to give your children's inheritance to charity?
In the realm of financial planning, high-net-worth parents are increasingly embracing charitable giving as a means to create a meaningful legacy, support causes dear to their hearts, and potentially pass on a greater share of their estate to their chosen beneficiaries.
A study by wealth manager Rathbones reveals that more than half (53%) of these parents have increased their charitable donations over the past two years. This trend is driven by the dual benefit of doing good while reducing tax liabilities, including Inheritance Tax (IHT) liability.
One of the primary concerns for high-net-worth parents is the potential negative impact of large inheritances on their children's lives. The sudden influx of wealth can lead to family disputes, poor financial management, destabilization, and tax complications.
Family disputes and strained relationships are common, with unclear wills, unequal distributions, or perceived favouritism often causing conflicts, legal battles, and emotional distress within families. The risk of irresponsible or poor financial management is another concern, leading some parents to set conditions for access to funds or to favour trusts or charitable donations.
Sudden wealth can also undermine recipients’ motivation and independence, and isolate heirs or make them vulnerable to manipulation by others. To mitigate these effects, many high-net-worth parents are considering charitable giving, trusts, or conditional inheritance strategies.
Inherited assets like property or stocks can trigger unexpected tax liabilities if heirs are unprepared, including inheritance tax or capital gains tax. Proper planning is essential to avoid financial pitfalls, yet many heirs lack awareness until after the fact.
Beyond money, physical assets with sentimental value often provoke conflicts because they are hard to divide fairly and may carry emotional weight that exacerbates disagreements. Complex family dynamics, such as second or third marriages and blended families, also increase the likelihood of inheritance disputes and challenges in passing wealth smoothly between generations.
In response to these issues, many high-net-worth parents are turning their attention to charitable giving, trusts, or conditional inheritance strategies to encourage responsible wealth stewardship among their heirs. Donations made during one's lifetime can boost the value of donations by 25% through Gift Aid, and higher-rate taxpayers can reclaim additional tax relief through their self-assessment.
Nearly two-thirds (65%) of high-net-worth parents consider making access to assets conditional on achievements, such as qualifications. Contributing up to £2,880 a year into a child's pension, topped up to £3,600 with tax relief, could be a good option for those concerned about dampening their children's ambition.
As many as one in eight (13%) high-net-worth parents plan to leave money directly to grandchildren. Another 26% are considering it. Loved ones may qualify to pay inheritance tax at a reduced rate of 36% if the deceased leaves at least 10% of their net estate to charity.
More HNW parents are increasingly turning their attention to charitable giving, according to Gooch. Gemma Gooch, head of charities distribution at Rathbones, stated that many wealthy parents fear the impact of too big an inheritance on their children's aspirations and drive.
However, concerns about divorce risks and the potential misuse of funds also play a role in the decision to skip a generation. Nearly six out of 10 parents say their adult children already have enough money, and there are more important uses for their assets. More than half (52%) of those skipping a generation cite concerns their children would misuse the funds. A quarter (26%) of HNW parents who skip a generation worry about divorce risks.
In conclusion, high-net-worth parents are increasingly recognising the potential negative effects of large inheritances and are turning to charitable giving, trusts, and conditional inheritance strategies to mitigate these issues and encourage responsible wealth stewardship among their heirs.
- In light of the potential negative consequences of large inheritances, such as family disputes, poor financial management, and tax complications, many high-net-worth parents are considering various strategies, including charitable donations, trusts, and conditional inheritance, to encourage responsible wealth stewardship among their heirs.
- To fully realise the financial and tax benefits of their charitable giving, high-net-worth parents can utilise strategies like Gift Aid, which can boost the value of donations by 25%, and higher-rate tax relief, providing additional tax relief through self-assessment for donations made during their lifetime.
