Why it pays to talk to clients’ beneficiaries

It was a horrible situation. But it could have been even worse.

The adviser rang me and said, “We need to get this done quite quickly.”

I head up the Estates and Probate team at Octopus, and “this” meant transferring an investment from a deceased client’s estate to his beneficiaries. The client had an investment with us that needed to go to his wife and son.

The adviser had a relationship with the family, including the client’s beneficiaries, so he knew that the client’s wife wasn’t well. He also knew their son was critically ill.

As I say, a horrible situation.

The investment with us could have been liquidated and passed on as cash to the son. However, that would have meant losing out on valuable tax benefits that were highly relevant to his circumstances.

That’s because the shares in question qualified for Business Property Relief (BPR), a government-approved relief from inheritance tax. So, instead of cashing out, the adviser arranged for the son to receive his inheritance in the form of those qualifying shares.

The result was that the son’s estate could benefit from succession relief, meaning he himself could pass more wealth to his beneficiaries free from inheritance tax, just as his father had done.

The importance of seeing the whole picture

This planning worked because the adviser had everyone involved. He had a relationship with his client’s beneficiaries, to the extent that he understood their financial and personal circumstances. He also took the time to understand the options, so that the estate was able to make an informed decision about what was best for the wife, the son and their loved ones.

In this particular instance, it made sense for the son to receive his inheritance as BPR-qualifying shares. But there are risks to consider whenever a beneficiary is thinking about retaining a BPR-qualifying investment for its inheritance tax benefits. These types of investment put capital at risk, and the value of an investment can fall as well as rise. Investors might not get back the full amount they invest.

In addition, the tax benefit to each investor will depend on their personal circumstances, and tax rules can change in the future. Tax relief also depends on the portfolio companies maintaining their BPR-qualifying status. Liquidity cannot be guaranteed and BPR-qualifying shares could be hard to sell.

This is why it’s important that the estate and the beneficiaries receive financial advice. By engaging with beneficiaries at the earliest opportunity, advisers put themselves in a good position to provide this advice. This can yield considerable benefits for the client’s estate, for the beneficiaries and for advisers themselves.

There are more pros than cons to engaging with clients’ beneficiaries

Advisers I speak to tell me that engaging with the next generation is a priority for them. But, they add, there’s already enough red tape to deal with. They think involving clients’ beneficiaries makes things messy.

I understand the concern. However, I’d counter that the benefits of building a relationship with beneficiaries far outweigh any perceived drawbacks.

For starters, it can have a direct and positive impact on planning outcomes. The very nature of estate planning is that it’s done on someone else’s behalf. So, while everything you do will of course be done in the client’s interests, it’s only logical to have an eye on beneficiaries’ circumstances if the client plans to leave a legacy.

Second, trillions of pounds will pass between generations in the UK over the coming years. Advisers who want to retain assets under advice when their clients pass away would do well to engage with beneficiaries at the earliest opportunity. Again, this isn’t at odds with your client’s interests. Sometimes it’s as simple as just introducing yourself, rather than waiting until a beneficiary is recently bereaved.

Increasingly, advisers are realising that the intergenerational planning they do for clients goes hand-in-hand with legacy planning for their own business. New research commissioned by Octopus shows that the majority of those who expect to inherit do not yet have a financial adviser [1]. This includes those who expect to inherit substantial six- or seven-figure sums. Chances are at least some of your clients’ beneficiaries are in that position.

My team spends every day helping advisers and their clients navigate the probate process. We understand there can be barriers to involving a client’s beneficiary. But we also see advisers who are overcoming those barriers and reaping the benefits, such as better client outcomes and taking on beneficiaries as new clients.

Encouraging clients to involve their beneficiaries can make things far easier when it comes to probate

I’ve had a few advisers tell me they’d love to engage with clients’ beneficiaries more, but they just don’t have the time. I’m concerned that advisers who don’t make that time now are storing up problems for later.

There may be aspects to the planning you did for your client that a beneficiary or solicitor won’t be familiar with. Beneficiaries may not be sure what to do with the investments they’re inheriting, and so would benefit from financial advice.

As an example, I remember one case a little while back where an adviser’s intervention meant that the estate avoided taking out an expensive bridging loan to pay inheritance tax. And we’ve had numerous cases where advisers have helped beneficiaries hold on to tax benefits they would otherwise have lost.

Because you advised the client, you will be far and away the best-placed person to help their executors and beneficiaries when they pass away. But it’s still an awkward moment to say hello for the first time. A bit of time spent now, so that they know who you are, can make a world of difference.

What if I wasn’t able to speak to beneficiaries beforehand?

There will, of course, be times when you do speak to a beneficiary for the first time just after their loved one has died. It’s not ideal, but it’s far from an insurmountable barrier. My team and I have worked with plenty of advisers who do very valuable work in exactly these circumstances.

We recently had a call from a solicitor requesting a withdrawal after the client had passed away. Up to this point, the beneficiaries had not had a huge amount of money. That means inheritance tax planning hadn’t been required.

What they hadn’t considered was that the assets they received now created an inheritance tax problem. This gave the adviser a good reason to engage the beneficiaries. As a result, the beneficiaries were able to take advantage of the planning the adviser had done for the original client.

Often it will be a case of helping beneficiaries understand the planning that was done and what it means for them. I’ve seen advisers do this successfully, achieving better outcomes for beneficiaries and, in several cases, taking them on as clients.

While the client is the decision maker, their beneficiaries will one day receive the assets

There’s another, more hard-headed reason why it’s a good idea to take the time to engage with clients’ beneficiaries. Building that relationship now increases the likelihood of retaining assets under advice when a client passes away.

For some advisers this may not matter. An adviser who’s nearing retirement and has no plans to sell their business clearly doesn’t have as strong an incentive – at least from a commercial perspective – to engage with client beneficiaries.

They may still do so, of course, in order to deliver better planning outcomes. But I can see why it might not be a priority.

But where advisers and firms do care about retaining assets under advice, it’s worth their time talking to those who will inherit their clients’ wealth.

The biggest transfer of wealth in history is happening before our eyes, and will continue for years. Advisers should make time for engaging clients’ beneficiaries if they want to make the most of this opportunity.

The good news is that this can be a lot easier than you may think.

Clients are generally open to involving beneficiaries in their planning

Our research shows that, by and large, clients are open to talking to their beneficiaries about their planning.

There will be exceptions, of course. However, 81% of the retirees we surveyed said they have already spoken to their children about their will. Another 12% said they haven’t but do intend to. That leaves just 7% of people aged over 60 who say they don’t actually intend to talk to their children about their will.

Chances are, you will have clients who are open to talking to their children about their planning but haven’t got round to it yet. Others will have had that conversation in some form but might benefit from revisiting it.

Some clients may appreciate gentle nudging from their adviser. Our research found that a lot of people who haven’t yet spoken to their children about their inheritance are putting it off until their next milestone birthday. So people in their sixties are waiting until they’re 70, and those in their seventies until they’re 80.

It may be worth finding out if this applies to any of your clients, and finding out why exactly they’re waiting. Usually, there won’t be any particular reason. Depending on the client, you could offer to facilitate such discussions, and introduce yourself to beneficiaries that way.

Remember, for a lot of clients a fair amount of their planning is likely to be done with their children in mind. So it makes sense to look ahead and consider what might happen when beneficiaries get their inheritance. What are their circumstances? How will the inheritance affect that?

This can give the client peace of mind that all the nuts and bolts are in place, and their planning will work as they intend.


Do you have details on file for solicitors and likely executors?

At the very least, it’s a good idea to make sure you have details on file for a client’s solicitor, as well as contact details for any beneficiary who is likely to be an executor. Our research found that, on average, advice firms have beneficiary details for only about half their clients, and solicitor details for about a quarter.

Quite often, advisers will expect solicitors to involve them at probate. It rarely happens. Not so long ago, I dealt with a case where a solicitor called up to withdraw an investment the deceased client had made with us. Once I asked some questions, it became clear that some of the beneficiaries could be foregoing tax benefits if they went ahead. We suggested to the solicitor that they involve the adviser.

Advisers need to be proactive to make sure they stay involved. That starts by making sure you get the details you’ll need while your client is alive.

Most beneficiaries don’t yet have an adviser. This is a huge opportunity for advice firms

A lot of advisers I speak to say their clients’ beneficiaries are already advised. In fact, it’s probably the most common reason I hear for why they don’t seek to engage with them.

Obviously this will be true in a lot of cases. However, our research suggests there will be many instances where it’s not. Advisers who don’t have a strategy for engaging the next generation could be missing out on a huge opportunity.

Here are some findings from our research:

  • 86% of people aged 30–60 who have at least one retired parent say they don’t have a financial adviser.
  • For those expecting to inherit between £100,000 and £250,000, 83% are unadvised.
  • For those expecting to inherit over £250,000 the figure is 67% – meaning a beneficiary in this situation is still twice as likely not to have an adviser as they are to have one.

An adviser who has done good work with a client will often be in pole position to take on their beneficiaries. But it requires a proactive approach, or else this advantage will go to waste.

Think national, not regional

Today’s technology means it’s no longer essential to live physically close to one’s adviser. This removes another barrier to working with clients’ beneficiaries, who will in many cases be far more open to things like video calls than their parents’ generation. It also makes it easier to take them on as clients themselves.

Indeed, as we head into the 2020s it’s important for the whole industry to think nationally, not regionally. Many people seeking an adviser would rather have someone who they know did a great job for their mother or father than an unknown quantity who happens to be in a nearby postcode.

As more wealth is passed down the generations, many of those who are currently unadvised will find themselves in situations where they want professional financial advice. Whether they get that from you or from someone else will, in a lot of cases, depend on what actions you take now.

If you want to have a chat about engaging with a client’s beneficiaries, you can call me on 0800 294 6826. If you’re interested in finding out more about our intergenerational research, you can read the full report here.

Ben Charrington
Head of the Estates and Probate team

[1] Research conducted by Opinium in January 2019, from a sample of 200 financial advisers, 1,000 retirees aged 60 and over, plus another 1,000 adults aged 30-60 with at least one retired parent over 60.

We do not offer tax or investment advice. BPR-qualifying investments are not suitable for everyone. Any recommendation should be based on a holistic review of your client’s financial situation, objectives and needs. Personal opinions may change and should not be seen as advice or a recommendation. We record telephone calls. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. Issued: February 2019. CAM07906.