October 4, 2020
Cash flow planning: Tax planning and the affordability of gifting
Responsible financial planning doesn’t just mean suggesting where people should spend or invest their money; it also means making sure that the individual’s wishes are affordable in the short, medium and long terms. Financial advisers have a duty of care to their clients, so by working closely with them to understand their needs, goals and dreams, we can help them to plan sensibly and make informed decisions.
That’s why we believe that cash flow planning is an essential part of private client work – for financial advisers, accountants and solicitors alike. Understanding its importance means we can give better advice and that in turn allows our clients to make the most of what they have.
The affordability of gifting
Understandably, clients often want to gift assets to others – either outright or via a trust mechanism. There are many reasons for deciding to gift, including:
- Saving tax – gifting can be a straightforward way to reduce tax liabilities.
- Helping onto the property ladder – it’s becoming increasingly common for parents to gift a deposit to help children buy their first home.
- Bailing out in an emergency – unexpected circumstances can mean family members want to help out if they can.
- Creating a long-lasting legacy – establishing a trust or giving to a favourite charity are ways of ensuring your gift lives on.
For many, organising gifting is part of a financial planning and tax planning strategy. For others, it’s a big leap, and they can be afraid of committing to giving assets away. Some clients want to retain complete control of their assets – whether cash, investments, property or business – and are unconvinced that gifting should be part of their financial plan. Others worry that they will need the money in the future and can’t afford to give it away.
How cash flow planning can help
It’s our job as professional advisers to look at forward cash flow planning, both to make sure that the gifting requirements are affordable, and to give clients advice on when and how best to manage their gifts. This includes:
- Helping clients to visualise the short, medium and long-term effect on their finances
- Making sure they understand the long-term tax savings potential
- Test a range of ‘what if scenarios, including:
- stock market crashes
- they or their partner suddenly needs long term care
- roof falls off or other home disasters
Tax planning – quantifying the savings over the long term
For financial advisers, ‘long term’ often goes beyond the lifespan of the client – good tax planning is about having a positive impact that affects the next decades and the next generation of the family.
Tax planning means you can explain the value of your advice in this long-term scenario: it’s not just about being solvent for the next few years – it’s about the financial security of the client, their family, their business and their other interests. A service that often may seem expensive at the time brings huge dividends in terms of tax saved over this long-term period.
Justifying and Explaining the value of your advice.
For accountants and solicitors, good cash flow and tax planning enhances your legal advice and can help you to provide better, more compliant, less risky advice.
If you would like to know more about how Switchfoot Wealth can compliment legal and accountancy advice, please get in contact with Sebastian today.
I started Switchfoot Wealth to offer financial planning that matches the way we live and work today. Using the best technology and offering expertise gained through both formal qualifications and years of working closely with clients, we are bringing financial planning into the 21st century, helping people, businesses and professional advisers make the most of their time and their money.
– Sebastian Ewell
Switchfoot Wealth Founder
Read more about Switchfoot Wealth
It can be difficult for healthy clients to imagine being unable to make decisions for themselves. Even clients who are acting as attorneys for parents or are carers often think it won’t happen to me.
But drawing up a Lasting Power of Attorney is fundamental to good financial management and providing clients with the care they’ll need in difficult times. We must persuade clients to put one in place before it’s too late.
There are many legitimate reasons why people may want to make large gifts: for example, inheritance tax planning, supporting family members or ‘balancing up’ previously unequal gifts to family. When planning gifts, it is important that individuals take advice and document objectives and the effect of the gift, which can help protect them from an accusation of ‘deliberate deprivation’ in the future. Cashflow planning can help in this instance
Children growing up and sitting exams; parents requiring more care and attention; trying to keep your career on track – these are the challenges of the so-called ‘Sandwich’ generation. If this sounds familiar, it’s probably because you’re either already in this situation or you can see it looming on the horizon. It can be an extremely difficult time of life – and even more so if you have legal responsibilities to someone you love.
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