BR Update - Stellar

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- Van Hoang, Investment manager, Blackfinch Investments

The clearer market environment post-Brexit, as well as a tighter grip on the pandemic, creates an outlook conducive to increased listings on AIM.

“It’s good to talk”:

“It’s good to talk”: Intergenerational wealth conversations and the role of Family Trading Companies (FTC) post-budget

role, Intelligent Partnership

Smaller stakes have little choice

Unfortunately, individual retail investors are unlikely to hold a large enough stake to change the outcome of these votes. But, on the other hand, in the vast majority of takeovers seen in the first half of 2021, there was a substantial bid premium where the share price increased during the offer period. The highest was an eye-watering 79%, although more commonly, it was in the lower, but still very pleasing 20% - 50% range.

After years of soaring asset prices, more and more people are being caught in the inheritance tax net, and the recent budget has made mitigation more difficult, changing rules to Agricultural Property Relief, Business Relief and the qualifying status of AIM… and the inclusion of pensions into an estate has moved the dial significantly! Add to that the confirmation that the current IHT thresholds will remain frozen until April 2030, and suddenly the net is a whole lot bigger. This is making estate planning and discussion of the benefits from an intergenerational conversation, even more important.

Interview with John Fearon, Head of Third-Party Relations, Stellar Asset Management

Intergenerational wealth conversations and the role of Family Trading Companies (FTC) post-budget

In today’s world, you don’t need to be a billionaire to have inheritance tax problems.

So, with a huge swathe of the population now affected, is it best that we soften the stiff British upper lip of ours and start the intergenerational conversation earlier? As Bob Hoskins used to say back in the 80’s, “it’s good to talk”. It was very clear that asset-backed investments emerged as the Business Relief winner in the wake of the recent budget. To dive into this and the wider inheritance landscape further, we recently sat down with John Fearon, Head of Third-Party Relations over at Stellar Asset Management, a market-leading Inheritance Tax Services provider with over 20 years of experience helping families establish their own Family Trading Companies (FTCs) for the purpose of IHT mitigation.

Hi John, it's great to have you in the hot seat today. So, let’s dive into it, why is now the time to be talking about intergenerational wealth management? Well, as the old saying goes, “Father time always wins. But he can be fickle”...we all know we’re going to die… we just don’t know when… but the Tax man is ever-ready! So, with the Great Wealth Transfer hanging over our heads – which is now valued at an estimated $84 trillion – the need for open intergenerational conversations with your children about life, death, and legacy, is becoming more important than ever. These discussions, though often uncomfortable, are essential and need to start sooner rather than later, and our involvement can provide the perfect catalyst. Is it not better to have an uncomfortable conversation now rather than risking future conflicts down the line? Or even worse, face the possibility of the evaporation of your wealth as a result of poor planning and/or poor decision making done by your beneficiaries? I’m not suggesting “control beyond the grave”, but by putting a framework in and articulating the rationale and desired outcome certainly helps beneficiary decision making. I have 2 daughters and even at 33 and 31 they still welcome their dad to make certain decisions for them… it takes the pressure off they tell me! Do you get a sense of the urgency in the wider market when you are out talking to IFAs? I think we are generally seeing that for the super wealthy there is often a dialogue with children going back many years. They know what they’re inheriting, their responsibilities, the legacy objective and their ownership. But for the mass affluent market this may all be new and therefore a framework that facilitates dialogue, involvement and engagement can be extremely useful. As I say, I know this conversation can be awkward, but our involvement can provide the perfect catalyst. To be honest, some of the stats we have seen are fairly troubling and supports this exactly. According to the Fidelity Investments State of Wealth Mobility survey, 56% of beneficiaries said their parents never spoke of money, whilst a huge 81% said they believe they’d have benefited if they had. Now if Americans aren’t talking, the Brits certainly are not! Allegedly, most Americans (72%) report that they don’t feel confident to manage a large influx of money by themselves, per a Citizens Bank survey of 1,500 U.S. adults. But a little bit of preparation beforehand could help enormously in readying them for an inheritance and prevent them making poor decisions that will see your inherited wealth evaporate as opposed to cascade down the generations. Where do you suggest family start when it comes to opening the intergenerational dialogue? I think having your children read your will is the most beneficial starting point, and have that conversation to understand what assets you're bequeathing to whom and why. Get them to understand the rationale behind what you’re doing, the logic behind your decisions and the responsibilities they will encounter upon your death.

Allegedly, most Americans (72%) report that they don’t feel confident to manage a large influx of money by themselves, per a Citizens Bank survey of 1,500 U.S. adults.

I think we have seen time and time again that things can quickly deteriorate after a parent dies. Families can be left in disarray, unprepared, in the dark. Grieving children squabbling with each other about how money is divided up and distributed. Who gets what and what they’re meant to do with it can cause friction, tension and fallout… everything the deceased didn’t want! And a lack of knowledge of the estate status and bequeathment only serves to exacerbate things. I’ve been around a while now and have seen families driven apart by the dictates of a will and gifting, leaving them unhappy, confused, resentful, and sometimes angry. On the other hand, a prior discussion around gifts, benefits, communal responsibility and legacy planning can be of a huge benefit. It’s all about sharing your insight before death, whilst you can, and address the “why” questions in regard to decisions made when you’re not around to answer them. The solution has to be clarity, communication, no surprises. Gifting can be a nightmare, so keep it simple. What are some of the solutions that you are providing at Stellar Asset Management to help facilitate effective estate planning and spark the intergen conversation earlier? As I said in my last article on Family Trading Companies (FTCs), at Stellar we believe we have the solution: Asset backed BR arrangements have to date successfully helped families mitigate IHT using BR. But the typical “TopCo” approach that pools investors’ money, issues shares in TopCo and collectively invests in underlying qualifying business activities for the purposes of IHT mitigation using BR rules often fails to facilitate an ongoing intergenerational approach. It doesn’t encourage engagement with the beneficiaries, those who are set to inherit, or articulate a legacy plan designed to cascade down the generations, or generate a sense of ownership and/or protection of it. Neither does it bring the financial adviser into close and ongoing contact with a cross section of family members. We believe such engagement dynamically benefits the client, the beneficiary (and their beneficiaries) and the adviser themselves who can then remain engaged with the asset post- death to stay involved with the next generation of planning. It’s a win, win, win! And this is exactly what a Family Trading Company arrangement can offer. In many cases beneficiaries are directly involved in the FTC that are run as a business, fostering engagement, knowledge and understanding as to the legacy objective and can be remunerated for their involvement. That all sounds great, and how do you think the impact of the recent Budget comes into these conversations? Post-budget it would appear asset-backed arrangements will be favoured given that the relief has remained unchanged for assets under £1 million. This could see a huge increase in interest and demand, the first port of call being “TopCo” collective agreements but why not consider a FTC? It doesn’t cost the client any more, they can be more flexible, facilitate retrospective contribution and be more robust to rule change. FTCs offer the opportunity for a personally owned trading company that operates effectively within the true spirit of BR. When making your choice consider all the options… and above all, look at the bigger picture.

stellar-am.com enquiries@stellar-am.com

Head of Third-Party Relations, Stellar Asset Management

john fearon

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