Post-RDR, more Financial Planners are focusing on estate planning as changes to legislation open up new opportunities and the demands of clients to secure wealth transfer tax effectively grow.

The market is huge with an estimated £4.8 trillion of non-State Pension wealth in the UK and a growing number of options, says Standard Life. There are already many estate planning options
which planners will be familiar with including discretionary trusts, investment bonds, gifts, unwrapped funds and the like. However, there are new options emerging in the area of pension wealth transfer, according to Standard Life, which sees strong potential in this area.
In this article, Julie Hutchison, head of customer wealth transfer at Standard Life, explains why pension wealth is growing due to an increasing
volume of baby boomers and why these individuals are demanding more flexible pension options.
She also looks at ways Financial Planners can benefit from the boom by expanding their estate planning offering.

In this post-RDR era, there are two clear areas where clients are seeking (and paying for) advice. One is the traditional heartland for Financial Planners: retirement income and pensions advice. The second is linked to that: estate planning and supporting how wealth is passed on within families.

• Gifts from grandparents to support school fees (often using a bare trust, or alternatively direct payment to the school)
• Unwrapped funds held in designated/ nominee accounts for young children
• Trusts and investment bonds combined, in Discounted Gift Trusts and Loan Trusts
• Portfolios which hold AIM shares, exempt from inheritance tax after two years
• More complex trust-based structures
• Traditional Discretionary Trusts holding funds for a range of beneficiaries for the longer term
• Trusts used to receive pension death benefits Regular gifts from surplus (pension) income

These are some of the areas where Financial Planners can take a lead with wealth transfer advice. This article will take a look at the current landscape, with a particular focus on pension wealth, as well as some pointers on how advisers can best position themselves in this market. With an estimated £4.8 trillion of (non-state) pension wealth in the UK**, it's worth knowing how families will access pension wealth after someone dies, and what choices are available to help control and protect that money.

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How big is the market?
Some £3.1 billion was paid in inheritance tax
(IHT) in tax year 2012/13*. This figure has risen each year since 2009/10, for a combination of reasons. Firstly, asset values are recovering after the stockmarket fall linked to the banking crisis of 2008. Secondly, the IHT-free segment of a person's estate (the nil rate band) has been frozen since 2009, at £325,000. These factors will gradually bring more and more people inside the net for IHT.
With so many exemptions and reliefs, IHT lends itself to being minimised through forward planning. Since the nil rate band looks to be frozen until 2018 at least, there is a clear opportunity to work with clients to help them reduce the impact of this tax on their estate.
Those who will benefit from advice in this area generally have combined wealth of £650,000 or more (as a married couple). This is also the
relevant figure for widows, for example, who have inherited their late husband's estate, where no IHT was paid since the spouse exemption applied. The transferable nature of the nil rate band, which has been with us since 2007, has certainly changed the landscape for will writing, since it's no longer vital to use the nil rate band on first death. Have your clients reviewed their wills in the last six years, if their will pre-dates this change in the IHT rules?
Pension wealth inherited by families
The inheritance of pension wealth is a topic which perfectly blends together retirement and estate planning advice. At one time, this wasn't a complex area, since there were few inheritance choices involved.
The game changer happened, however, on 6 April 2011. From this date, modern personal pensions such as Sipps became inheritable in a new way. But how many clients have taken action to make the most of the changes?
This is where your opportunity could lie, in engaging your existing clients in update and review activity.
Only 53 per cent of people in a recent Standard Life survey had completed an Expression of Wishes form, relating to their pension. So it's a gap in many people's forward planning. A person's Will does not normally control who inherits their pension, which was an area of confusion for those involved in our research. Over half were unsure whether a Will did or did not control who inherited their pension. A Will generally only plays a role with the older styles of pension, for example where a section 32 or 226 policy pays out a lump sum to the deceased's estate.
The key change in pension wealth transfer involved the new rule relating to a client's "income pot" (that is, the part of their pension pot which is in drawdown; or for those aged over 75, the way their whole pot is treated). This can now be paid out as a lump sum on death, after 55 per cent tax has been deducted. A capital sum of 45 per cent is therefore available to be passed on – but to whom?
It is sometimes the case that a surviving spouse will continue in drawdown after the first spouse dies, which does not involve the 55 per cent charge. The question is then – what happens when the surviving spouse dies? Again, it's back to the Expression of Wishes form which the surviving spouse completes, in general terms recording a preference for who receives the remaining 45 per cent lump sum at that stage.
A trust could come into play here, either when the original client dies, or when their surviving spouse dies. Although there are good reasons why a client might want a lump sum paid to an individual, there are also good reasons why it could be beneficial to use a trust to receive pension death benefits.
All this flexibility sits in contrast to how more traditional forms of pension behave, when viewed through an inheritance lens.
If someone buys an annuity, it generally dies with them (unless they buy a joint lives annuity or have a guarantee period built-in). And with a defined benefit pension which is in payment when the member dies, the scheme rules would generally dictate that a pension was paid to a surviving spouse or civil partner (typically two- thirds of the sum formerly paid to the pension member).
How can Financial Planners position themselves to benefit from this market?
To really engage with clients on wealth transfer themes, there's a range of ways you can improve how you position yourself.

Benefits of using a trust

• To keep pension money 'in the family' should the surviving spouse re-marry. It prevents the funds being inherited by the new spouse, which might otherwise cut-out the children of the first marriage.
• If there are health concerns about the surviving spouse, a trust could instead settle bills and expenses on behalf of the surviving spouse, useful if power of attorney is not in place.
• If the intended recipients of the lump sum are young, the trust can hold funds until they are older
• Regarding IHT, the trust may preserve more funds for the family because the pension money is not inside the surviving spouse's estate, but rather sits inside the trust.
• The trust itself does pay IHT, generally at a maximum rate of six per cent every 10 years. But using the trust means that on the death of the surviving spouse, the "inherited pension pot" (which sits inside the trust) is not subject to 40 per cent IHT.

Credibility as a specialist
Firstly, how good is your knowledge and how credible are you as a specialist? In recent years, I've come across more Financial Planners who also have a law degree. This combination is clearly helpful when it comes to standing out from the crowd. But there's other ways to build your knowledge.

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Professional qualifications
If you want to brush-up on your knowledge of trusts and estate planning with a qualification which is aimed at Financial Planners, you could follow the path adopted by over 300 financial advisers already. The Society of Trust and Estate Practitioners launched a QCF Level 4 Certificate a few years ago, and continues to receive new enrolments, which demonstrates the appetite among Financial Planners for continued development in this area.
For some, later life advice is an increasingly common financial advice area. Understanding the framework for powers of attorney, and what happens if an elderly client loses capacity without a power of attorney in place, is covered in this course. (I should declare an interest here as editor of the course manual.)
Moving up a level again, there are also increasing numbers of TEPs to be found in the financial services sector – those who have complete the full STEP Diploma. The four Diploma exams are a greater time commitment and are pitched at a more complex level, but would be worth it for those who find their day job regularly involves advice for high-value trusts, for example. It would also be a recognised "currency" when working with professional connections.
The next generation of Financial Planners?
If you're reflecting on business succession planning, law graduates are worth considering
as a pool of talent, when it comes to looking for the next generation of Financial Planners. There's never enough law firm traineeships to go around and someone who has studied tax as part of their law degree could be well placed as your new-start. Depending on where they studied, the candidate may also have a Financial Planning qualification under their belt already – this sometimes forms part of the post-graduate legal training programme. Law graduates will generally have learned the ropes, in terms of wills, trusts and powers of attorney. When it comes to advising families on how to preserve and pass on their wealth, these are essential tools of the trade.
Working with professional connections
For those looking at integrated legal and financial advice, a range of new possibilities exist as a result of changes in the regulation of law firms. Alternative business structures are now emerging. Some law firms have Financial Planning as part of their services. In other firms, it has broken away.
For some financial advisers, the majority of their referrals come from law firms or accountants. For others, it is a smaller source of business. But given the nature of the advice which "at retirement" clients need, it's obvious that financial advice on its own is only one side of the coin – the opportunity is to make sure the legal advice is in place too. Otherwise, a great financial plan could be seriously undermined by the lack of a Will or Power of Attorney.

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Closing thoughts
In a book I read recently, one quote stood out for me, along the lines of "we're about to see the biggest transfer of wealth in history". This was referring to the baby boomer generation, those born between 1946 and 1964, who started to reach the age of 65 in 2011. The analogy with planets aligning is apt: vast amounts of pension wealth now enjoy more flexible rules around inheritance, just at a time when the post-war generation is consolidating its pensions and deciding how best to access its pension wealth – and they need good advice - and lots of it - to make sure they make the right choices.