It’s time to talk about estate planning

Helen Morrissey reveals the results of this month’s Inquiry and explains why there has never been a more important time to think about estate planning

Massive house price inflation over the years means more families than ever before could find themselves subject to inheritance tax (IHT). This situation will only grow worse now that the IHT threshold has been effectively frozen at £325,000 until at least 2015.

Estate planning processes such as making wills and using trusts can all play a part in saving clients vast amounts of money. It also gives them the peace of mind of knowing who will benefit from their assets when they are gone.

However, such processes are often ignored by clients or else not undertaken until it's too late.

This Retirement Planner Inquiry looks at the challenges advisers face when working on estate planning and asks what can be done to improve client awareness. As with previous Inquiries, we sent out an online questionnaire to Retirement Planner readers, with 119 advisers taking part in the survey.

The first question we asked was whether these advisers provide an estate planning service to their clients. More than 80% (82%) of those who responded said they did. Those who said they didn't provide such a service were screened out at this point.

We then went on to try and gauge the level of awareness clients have about estate planning issues. Just 13% of survey participants thought there was a high level of awareness of estate planning among their clients, while a further 65% said there was some level of awareness of this issue. However, more than a fifth (22%) said there was little awareness of estate planning issues (see chart one).

We then asked how advisers approached the issue of estate planning with their clients. Only 39% said they covered it during review processes, while 38% said they dealt with it according to the specific needs of the client (see chart two).

We then went on to ask what aspects of estate planning were proving most popular with clients. By far the most popular estate planning issue raised was IHT mitigation strategies (i.e. the use of trusts) - this was highlighted by 95% of survey participants.

The next biggest issue for clients appeared to be writing wills. This was highlighted by 78% of participants, with 65% mentioning power of attorney. Other areas brought up by advisers included care fees planning and how to protect investments from long-term care (see chart three).

The main challenges
We then asked about the potential challenges advisers face when advising on estate planning issues. Client apathy was highlighted by more than half of survey participants (55%) as a major challenge. This was followed by the clients' reluctance to lose control of their assets (27% - see chart four).

When asked to provide further information, several advisers also said that clients were put off estate planning by the perceived cost. Another adviser said many clients were unwilling to act now as their circumstances may change in the future and they would need to revisit their plans.

Despite these challenges, when asked if current estate planning methods met their needs, the overwhelming majority (83%) said they did.

One adviser said they felt that the "combination of direct gifts and trusts, both during lifetime and under wills, seems to minimise liabilities and uncertainties sufficiently to greatly improve the situation."

Another said current methods were suitable only as long as they were undertaken early enough as the client would need to live a further seven years after the gift was made for the assets to pass out of their estate.

But another adviser said: "You can take a horse to water, but you can't make them drink it. Sensible clients will do something about it, others won't. It doesn't matter what methods are available."

The survey then went on to ask what advisers think needs to happen to make clients consider their estate planning strategies more closely. Increased education was chosen by almost half (47%) of participants, while a quarter(25%) said increased press coverage would do much to increase awareness.

One adviser said there was a need for the press to highlight the costs involved in not making adequate estate planning provisions.

Almost a fifth (21%) of those who answered the question said they felt the system needed to be simplified if people were to be encouraged to engage more actively in their estate planning.

So, as the need to make adequate estate planning provision continues to grow, advisers find themselves facing an uphill battle in getting their clients to actively engage. More work needs to be done to raise awareness of the importance of this issue and the potential implications that inadequate provision can bring.

Chart One: How much awareness do you think there is among clients of the importance of estate planning?
13% - There is a high level of awareness of the need for estate planning
65% - There is some level of awareness of the need for estate planning
22% - There is little awareness of the need for estate planning
0% - There is no awareness of the need for estate planning

Chart Two: How do you approach the issue of estate planning with your clients?
39% Review
38% Specific client needs
17% Depending on client knowledge
4% Process
1% At retirement

Chart Three: What estate planning issues do you discuss the most with clients?
95% Inheritance tax mitigation strategies (i.e. trusts)
78% Writing wills
65% Power of attorney
24% Other

Chart Four: What challenges do you face when giving estate planning advice?
55% Client apathy
27% Lose control
16% Cost
8% Client's expectations
6% Bespoke solutions
5% Solicitors
3% Type of assets
2% Regulation