Those who are aged under 30 and already fall into the high net worth bracket may have specific needs when it comes to future planning, as this article explores.

High net worth individuals aged under 30 are increasingly common, and it has been argued that they have particular wealth management needs, given their age and circumstances. This article, by Stuart Price, associate at law firm Thomson Snell & Passmore, considers some of the issues. The editors of this news service are pleased to share these views and invite readers to respond. This publication doesn’t necessarily endorse all views of contributors.

Recent HM Revenue & Customs statistics show a 33 per cent increase in the number of people under 30 earning in excess of £1 million ($1.28 million) a year. This is surely an indication of the growing entrepreneurship of young people in the UK. Wealth management and estate planning advice is absolutely vital to ensure the longevity of this young wealth. Traditional estate planning advice is still relevant to young entrepreneurs, but with some differences owing to their particular circumstances.

The basics
A will remains the foundation of estate planning, and everyone should be encouraged to have one. Preparing a will allows a business owner to name appropriate executors to manage their estate (and help ensure the survival of their business) after they have died. Married entrepreneurs should include a trust within their wills to secure business property relief, a valuable relief from inheritance tax which might come under attack from future budgets after their death.

Business owners should prepare lasting powers of attorney which enable them to appoint someone to look after their affairs (including a business) if they lose the capacity to make decisions for themselves. Without one, an application must be made to the Court of Protection to appoint a deputy to make these decisions, which is often a long and costly process. It is easy to imagine the disruption caused to a business should decisions be delayed for a long period.

With the increasing number of marriages ending in divorce being well documented, wealth at a young age only increases the importance of cohabitation agreements and pre-nuptial agreements. A well-drafted pre-nuptial agreement prepared in good time, where each party receives independent legal advice, will have significant weight in shifting the presumption that assets are to be divided 50/50 on divorce.

Surplus assets
Should an entrepreneur find themselves with assets in excess of their needs, they might look to gift them into a trust for the benefit of their children. If a reasonable sum is transferred into trust for the maintenance or education of a child, it will immediately fall outside of the estate for inheritance tax purposes, as long as the trust comes to an end either when the child turns 18 or when full-time education ceases. The child would become absolutely entitled to any remaining funds at this time. If this is undesirable, an alternative is to consider gifting into the more conventional discretionary trust for the same purpose. Although trusts are effective inheritance tax planning, any income generated by assets within the trust will still be due to the original owner for income tax purposes, until their child reaches 18.

The wealthy should also consider gifting (or loaning) assets to a Family Investment Company. A FIC is a bespoke private company, which can be used as a tax efficient alternative to trusts. A FIC is a flexible structure, allowing people to determine exactly how their family should benefit through different numbers of shares, or different rights attached to those shares. The directors and shareholders of the FIC will normally be family members. As with trusts, the structure of the FIC allows parents to retain control over assets, whilst accumulating wealth in a tax-efficient environment and facilitating future succession planning.

On the death of a parent, one might inherit assets of which they have no need and which will only inflate their estate for IHT purposes. A deed of variation can be prepared within two years of the relative’s death to “redirect” assets to somebody else, or indeed to a family discretionary trust. The owner will normally be a trustee and a member of the class of discretionary beneficiaries. Other family members will also be included as beneficiaries, and payments can be made to them, or indeed accumulated, at the complete discretion of the trustees. Although they will still be able to benefit from them, the assets within the trust will not form part of the original owner’s estate (regardless of whether they survive for seven years following the deed of variation).

Asset ownership
Often, wealthy individuals purchase property with another person. Where initial contributions differ, a declaration of trust should be prepared which establishes the beneficial ownership of property. It might state that, when the property is later sold, the sale proceeds are divided between the owners in accordance with their initial contributions.

Declarations of trust can also be used to shift liability to income tax in respect of an income generating asset. For example, if spouse A is a higher rate taxpayer and spouse B pays income tax at a lower rate, spouse A should consider transferring their share of the asset to spouse B to create an income tax saving.

Conclusion
While it is common for young, wealthy individuals to be surrounded by a team of professional advisers, that same person might be put off by the idea of discussing their own mortality. The wealthy should be encouraged to take wealth management and estate planning advice at an early stage, and it is important that professional advisors work together to provide effective, joined up advice. Estate planning advice is no longer the realm of the over 50s, and professionals need to tailor their advice to meet the needs of young and wealthy entrepreneurs, who might only become more prominent in the future.