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Recently a lot of column inches in the press have been on the subject of inflation. This has implications for gifts made in Wills too…
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It is not uncommon for a person to want to leave a financial gift to a friend, relative or charity. For example, £10,000 to my Aunt Mary Smith.
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When making this gift, the intention is usually to provide the recipient with a memento of the relationship. Sometimes the size of the gift is intended to convey how much a person meant to the testator during their lifetime. In the case of charitable donations, there may be an element of tax planning as well as wanting to support the charity.
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Impact of Inflation on Financial Gifts
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If I died yesterday my Aunt Mary would be able to buy £10,000 of goods and services to remember me by. However, if I died in, 10 years’ time, the same £10,000 gift would only be able to buy the same as about £6,000 today (assuming 5% inflation). If I live for 20 years, the gift would only be worth approximately £3,700 in today’s money. Still worth having but not quite what I had in mind for Mary.
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Gifts in Foreign Currencies
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For expats who work in multiple currencies, this problem is further compounded when making gifts in a foreign currency. If I gifted Mary US$10,000 instead of £10,000 the exchange rate when I die will significantly affect the amount she would receive in sterling terms.
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Large Financial Gifts
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Whilst smaller gifts run the risk of being worth less than intended. Larger gifts may not be able to be met. For example, a person may be wealthy now and wish to gift £250,000 to a specific person. However, when they die, they may have spent or given away all of their assets in their lifetime.
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Fixing the Problem
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Wills should be reviewed regularly or when there is a birth, marriage, divorce, or death of any of the people mentioned in your Will. This includes you, your executors, and guardians, not just beneficiaries.
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When reviewing your Will, you can amend the gift accounting for inflation and changes in your personal circumstances. However, none of us know what assets we will have at the time of our death or the value of them.
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Another potential solution is for gifts to be a percentage of the overall estate. If I gifted Aunt Mary 1% of my estate, and my estate was worth £1 million on my death, she would receive £10,000. But if my estate was £2 million she would get £20,000. There are other benefits to gifting percentages:
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- bequests are proportionate,
- the estate has sufficient money to meet the bequests,
- gifts maintain relative value and
- you do not need to incur the cost of updating your will just to keep track of assets values and inflation.
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When making bequests to specific people, the preferred solution is a percentage of your estate for the reasons above. If you have any questions or you would like to review your will or guardianship arrangements, please contact me on stuart@greatbritishwills.com or call/What’s app me on +971 (0) 50 594 5217.