Many older people specifically save their money ‘For our children’ or ‘For our grandchildren.’ They often cite ‘So they can get on the housing ladder’ or ‘To reduce their debts’ as the reason. You may know someone who is not exactly short of money but always refuses to take a taxi ‘it’s a waste of money’ or to buy new clothes ‘I have loads already’. They are not seeking to be eco friendly, although we might take a lesson from them on the issue of waste; they simply don’t want to spend it on themselves.

As professional people we often effectively act as ‘asset protection’ consultants. We help people preserve, save and build up their money, eg by reducing the potential burden of care fees, reducing the cost of administering their affairs in the event of incapacity, saving inheritance tax and by handling investments effectively. But increasingly I am often left wondering ‘In whose interests are we really acting?’ And then, sometimes looking at the next generation(s), I ask myself ‘Is it really worth it?’

Apart from the psychological boost to the older person, who is relieved that we can enable them to achieve their objectives, what is the real impact of the passage of the national wealth on the next generation? Aside from the work being a steady stream of fee income for us lot that is. I have concluded that it is a curate’s egg. There is some good and some bad in it. But where it might possibly be bad, we might be able to help more than we think as professional-thinking people as much as professional advisers.

According to the International Longevity Centre (UK), in recently revealed research (selflessly funded by Norwich Union) the value of inheritances in the UK doubled in the six years up to 2004. The average inherited sum increased from £21,000 to £44,000. Approximately 2.5 per cent of the population, or over 1.2 million people, receive an inheritance each year, and most of them are aged over 50, and the average inheritance for the over fifties doubled to £60,000.

Apparently these inheritances fuelled the late lamented house price boom just as grandma expected it would. This somewhat perverse effect is expected to continue. ‘The highest rate of property ownership within any age-group is around 85%. This is the ownership plateau observable for the ages 35-70. So, even though property prices seem to be falling… we can still reasonably hypothesise that the average value of inheritances received will continue to increase.’ (ILC - The Age of Inheritance - 19th May 2008)

People who don’t inherit become victims of what the ILC describe as a ‘property vortex’, getting left ever further behind their peers. Class still matters, and of course the politicians think that the £1.1 trillion (and falling) of property belonging to the over 60s is called ‘assessable capital’ for means-testing. Your genes and lifestyle self select you, and your family, to be winners or losers. So in this context if you pass money to the next generation you are an evil stoker of property madness or just plain lucky and the most moral thing might well be to spend your money and give it away as you go along.

Does an inheritance make the recipient happy? Mammon has a psychological effect on both the donor and the donee. According to a paper published by Stevenson and Wolfers of the Brookings Institution in Washington, money does tend to bring happiness although it does not guarantee it. They say that, contrary to the famous Easterlin research carried out by the University of Pennsylvania on post-war Japan, which suggested that its boom did not improve the satisfaction level of its population, money does, really, and seriously, matter. Those with a higher income are happier than those without it. I would submit that we can therefore assume receipt of capital by inheritance should normally have a similar impact. But there are some serious points to watch out for:

Some youngsters, or indeed older people, suffer a ‘crisis of wealth’ when they inherit a large sum (for them), especially if they are not already ‘successful’ in their own right.

Inheritances can also be demotivating. Why work any more if you don’t need to? For younger beneficiaries, it does not seem to take some of them much so as to lose the will to get up in the morning, to get an education or a job. ‘Clogs to clogs in three generations’ as they say in Frinton-On-Sea. Reducing the sense of having to strive for material things, the risk of not having, the need to work, the purpose and structure it brings, can remove the sense of who we are as human beings. Ironically it seems to create anxiety and not eliminate it. For most of us ‘Who am I?’ is just an incidental. Making it life’s very centre looks problematic.

For older beneficiaries an inheritance can tip the balance between the social-psychological benefits of the camaraderie of work and the loneliness of an ill thought out retirement.

The super rich are often obsessed with protecting their children from the perceived toxicity of their own wealth. Bill gates, with his £29 billion fortune, says his children will only receive £5 million. I expect that will keep US trust lawyers going for years. Warren Buffett, worth some £31 billion, famously said ‘ I want to give my kids enough so that they could feel that they could do anything, but not so much that they could do nothing.’ You might add in a ghostly voice, quaking with fear ‘Remember Paris Hilton…’

In conclusion, inheritances can make a real positive difference to the lives of the recipient but it depends upon the nature of that recipient. Perhaps we should always ask our clients to more carefully consider the psychological makeup of their children, their grandchildren and other potential beneficiaries? I have tended to raise it if there appears to be a hint of uncertainty. Polite, non-intrusive questions can prove revealing. It is also potentially good business. Older people in particular are often highly perceptive about young sprog and are often relieved to think of a suitable trust, involving a professional person and a helpful letter of wishes as ‘a good thing’. Lawyers are such a dull lot. But we have our purpose.

David Coldrick
Consulting editor
david.coldrick@wrigleys.co.uk