Leaving wealth behind for their loved ones is likely to be a main estate planning aim for your clients, with a significant portion of the estate left in the form of a large family home.
Clients often do this in a very well-meaning way. However, this can sometimes mean they stay in a big property long after it’s stopped being practical for them, even to their detriment.
This could be due to bereavement, leaving them living alone in a place that was fine for a family but too big for one person. Alternatively, decreasing mobility or medical needs make getting about more difficult, especially in houses with multiple levels.
An Integrated Retirement Community (IRC) can help clients boost their wellbeing and lifestyle during their later years, while still gifting their wealth and potentially reducing their loved ones’ Inheritance Tax (IHT) bill.
Here’s how to talk to your clients about the benefits of an IRC.
Leaving the family home can often be a sticking point, although it could have Inheritance Tax implications
As a financial advisor, there’s a good chance you’ve heard words to the effect of “I’m not leaving my family home” or “I want to stay in my family home for the rest of my life”.
Indeed, research from Aviva found that 17% of over-55s would never sell their house regardless of the offer, and 47% say they wouldn’t move even if they won millions from the lottery.
The research discovered that the top five reasons over-55s who plan on retiring would want to stay in their current home include:
– Familiarity and comfort (42%)
– No financial need to move (37%)
– Proximity to friends and family (34%)
– A sense of security and stability (29%)
– Emotional comfort of staying in a place where they’ve built a life (23%).
While all of these reasons are perfectly understandable, there are often financial implications involved with staying put.
For example, current IHT-free thresholds for an estate are £325,000, with up to an additional £175,000 if the property is left to direct descendants. However, the portion of an estate that exceeds this value could be subject to IHT at 40%.
So, holding onto a property purely for its market value can actually dent the inheritance for your clients’ loved ones, who could end up facing a larger-than-necessary IHT bill.
The deferred fee benefits are often overlooked, but are a key part of later life estate planning
The FCA is placing an increased focus on retirement planning and advice, with advisors now expected to take a more holistic approach to these conversations.
This opens up a natural opportunity to discuss retirement living options with your clients. Here, you can take the discussions from pure pension planning into a more balanced approach which considers both finances and wellbeing.
Many IRCs operate using a deferred management fee. This is typically set at around 30% of the sale price and is used by the IRC to cover such things as facilities management, infrastructure maintenance, and upkeep of communal areas.
While your clients – and often, their families – can initially see this as a negative, it is in fact a clever and often-overlooked benefit of financial and estate planning.
Firstly it can enable the monthly fee to be reduced, in some cases by 50%, while also automatically reducing your client’s estate by the relevant amount, reducing exposure to IHT.
Framing these conversations to highlight this as a significant benefit can help your clients realise this is a highly effective way to help potentially lower their loved ones’ IHT bill after they die. Equally, it presents further planning opportunities, enabling gifting to be carried out earlier which is not subject to the seven-year rule.
The lifestyle aspects of an IRC can also make a big difference to your clients’ wellbeing
Wellbeing is a big part of the FCA’s push to shift the focus of retirement planning conversations. The lifestyle benefits of an IRC can make a big difference to your client’s enjoyment of their later years.
These include:
– Making friends and enjoying social activities
– A range of entertainment options, like cinemas and digital golf rooms
– Leisure facilities, such as a spa, a swimming pool or gym
– Wellbeing activities, like yoga or fitness classes
– Hobbies and recreational pastimes.
Many facilities also offer care packages, which can reassure your clients that, if they do need to access care at some point, they can do so within the IRC.
Together, the financial and lifestyle benefits of an IRC combine to offer your clients an attractive package.
They can enjoy a new lease of life in a property that fits their needs, maintaining independence but with plenty of social connections, amenities, and future care options.
They can use their wealth to enhance this stage of their life, without keeping it tied up in property. And it still enables them to leave wealth to their loved ones after they die, with the deferred fee model helping to reduce their estate for IHT purposes.
Get in touch
Riverstone Living offers an elevated retirement living experience, with wellbeing and fulfilment at its heart.
To find out more, please visit https://www.riverstoneliving.com/advisors, email bruce.ely-johnston@riverstoneliving.com, or call 0207 993 9061.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate estate planning or tax planning.
