Cashflow Planning is often thought of as just that, a tool to plan the income and expenditure of clients and assess the likelihood of producing an income surplus or income deficit based on spending habits. But it’s so much more, do you use it to its full capacity?
One of the key uses I find it useful for is Estate Planning. Many estates are likely to face IHT liabilities in future but are fearful of relinquishing control of property, and investments. With concerns of beneficiaries being too young or wasteful with the proceeds of inheritance and rightly so. However, showing them the impact of how gifts out of the estate over the long term can be structured will pay dividends, carrying out this exercise may even ensure that your clients children will understand the premise behind the advice, ensuring they continue to stick to a plan of sorts long after the death of the Benefactor.
You may have clients who you want to advise on the impact death will have on their young family, yet struggle to make sure they take the right level of protection or any at all, yet Cashflow Planning can demonstrate the impact of this and also show what would happen to their family should they “die too early”. This will help assess whether the client can afford to die.
On the contrary, the likelihood of your client reaching older age is increasing, many families do not have the support they require, with their children often living many miles away and not having the family support, how will they ensure they are covered should they need the type of care they deserve in the last years of their life? How are we as a profession demonstrating the effects of clients in “sandwich generation”?
Whilst the phrase never let the tax tail wag the investment dog will always ring true, its important to show the effects of tax planning and tax to be paid and the impact of this on a clients plan and how it can be reduced. Would you rather pay the government or your beneficiaries and even a charity on your death? This can be applied regardless of the type of tax, be Income, CGT or IHT etc. better yet lets show the impact of leaving a legacy of whilst you are still alive.
It is also instrumental in showing tax to be paid now and in future, careful planning can ensure that you don’t start the process of reducing the value of your estate, too early. Of course the key consideration here is establishing you have enough provision to see you through your natural life, but there is no such thing as too much planning over “over insuring” also. Beyond that it is also good to plan and allow plenty of time to make sure your beneficiaries are in receipt of your assets, would clients rather be taxed again ….. or pay their heirs?
The ultimate decision is deciding if you want to pay what some would call an unnecessary tax, this is on top of the tax that clients would have already paid, (tax evasion schemes not included), or would they rather you as their financial planner/IFA develop a long term plan which enables them to reduce the value of their estate, ensuring the security of the next generation(s).
At Prudent Paraplanning, we make sure that all of the financial planners/IFA’s we work with are working efficiently by providing the right support in the right manner, by integrating into your team: helping advisers with the analysis, development and implementation aspects of financial planning process, and also reviews as well as other services. Effectively making sure you spend less time in the office and seeing your clients, doing what you are good at.
The question remains, how do we ensure Cashflow Planning is being used properly? There are many Caveats.
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