Gifting, as part of an estate plan, is a great way for your clients to avoid paying too much inheritance tax. It’s a common strategy and it will have direct and indirect effects on the funds under your management. Here are some considerations to keep in mind, positive and negative:

Reduction in Funds Under Management (FUM): When clients engage in gifting as part of their estate plan, they may transfer assets out of their investment accounts or other managed accounts to gift to beneficiaries or set up Trusts. This can lead to a direct reduction in your FUM. The value of the assets under management will decrease as the gifted assets are no longer part of your managed portfolio. Gifting may well be the right approach for your client, but you will need to take this into consideration when forward planning and when considering your risks, especially if you have a lot of clients within a certain age bracket.

Opportunity for New Assets: On the other hand, gifting can also create opportunities for you to manage new assets. If clients have significant wealth and decide to gift assets to family members, charitable organisations, or other beneficiaries, those recipients may seek guidance on how to manage the gifted assets. As the gifting clients’ trusted advisor, you may have the opportunity to continue managing these newly acquired assets on behalf of the beneficiaries.

Retaining Control through Trusts: In some cases, gifting may not result in an immediate reduction in FUM. Clients may use Trusts to retain control over gifted assets while still ensuring their intended beneficiaries benefit from them. As the trustee of these trusts, you can continue to manage and oversee the assets on behalf of the client and the beneficiaries. It also automatically creates a relationship with you and your clients’ beneficiaries.

Intergenerational Planning: Gifting can be an essential aspect of intergenerational wealth transfer. By helping clients with gifting strategies, you can strengthen your relationship with your clients and their families. Building strong relationships can lead to increased client loyalty, potential referrals, and the opportunity to manage assets across multiple generations.

Tax Planning Opportunities: Gifting can be a powerful tax planning tool, allowing clients to reduce their taxable estate and potential estate tax liabilities. By assisting clients with tax-efficient gifting strategies, you can demonstrate your value in preserving and maximising your clients’ wealth.

Educational Opportunities: Gifting can be a complex area, and clients may need guidance on understanding the implications and options available to them. As an advisor, you have the opportunity to educate clients on the benefits and potential drawbacks of gifting as part of their estate plan. Demonstrating expertise in estate planning can enhance your reputation and attract new clients seeking similar guidance.

Client Retention and Satisfaction: By offering comprehensive estate planning services, including gifting strategies, you can increase client satisfaction and retention. Clients may value the holistic approach to financial planning, which can lead to long-lasting relationships and increased FUM over time.

In summary, gifting as part of an estate plan can directly impact an advisor’s FUM by reducing the assets they manage. However, it can also present opportunities to manage newly acquired assets and enhance client relationships through comprehensive and valuable estate planning services. As a financial advisor, being well-versed in gifting strategies and their implications can help you navigate this aspect of estate planning effectively and benefit both your clients and your business.