What will your
family inherit?

David Nicklin00:00

They’ve got to ask a simple question: what has your family inherited? Has it inherited net wealth, or is it going to inherit a liquidity crisis? The majority of the time, it’s going to inherit a liquidity crisis.

Alastair Hoyne00:14

Welcome to The Property Escalator. I’m Alastair Hoyne, founder and CEO of Finanze Group and author of The Finanze Framework: Property Strategy & Finance Success.

I wrote the book around a simple idea. Property decisions work better when strategy, finance, tax, legal, valuation, delivery and exit are treated as one connected system. The Property Escalator takes that thinking into real conversations with people who operate at different points in the property journey.

I’ve got David Nicklin here to talk about legacy, estate planning, building a resilient portfolio, succession plans and protection. A property portfolio can become a complicated operating system, with the owner holding all the passwords, lender relationships, company knowledge and decisions in their head. David, welcome and thanks for joining me.

Alastair Hoyne01:07

At what point should a growing property investor stop thinking about the next acquisition and start thinking about what happens to the portfolio if they weren’t around to run it?

David Nicklin01:20

All businesses are the same, whether an investment business holding property or a trading business. People spend all their time in the business, making acquisitions in the case of property companies, and build it for years without thinking about the legacy. What are they doing it for, and how will they pass it on? They’re so busy building the business that little thought is given to that.

They reach an age where they think about mortality and what happens when the portfolio passes down, or someone mentions an experience that triggers them to look at it. It’s never too late, but planning should start very early in the journey of building a business.

Alastair Hoyne02:22

I remember your anecdote. I can vaguely remember where I was in the car when we spoke. You said that, if property investors aren’t thinking about estate planning early, they might as well write HMRC on the title deed, because it will take 50% of the property after death if they haven’t planned properly.

David Nicklin02:53

People don’t realise that assets in investment companies form a standard part of the estate. They don’t get business property relief. Each property adds to your wealth, although leveraged, but the equity in that company forms part of taxable wealth for inheritance tax.

Post-2027, pensions are also being included in the estate, so it encapsulates most of your wealth unless you have a trading business buying and selling property, or making things. Unless you want HMRC on your will for 40% of your assets, it’s time to plan.

Alastair Hoyne03:55

That brings us to the first point: succession and protection should grow with the complexity of the assets and responsibilities, not wait for a crisis.

David Nicklin04:08

Absolutely. Ask: what is your family inheriting? Net wealth or a liquidity crisis? The majority of the time, it’s a liquidity crisis.

Before this call, we briefly discussed personally owned properties and Section 24. It’s bad enough paying tax on income you haven’t received and not offsetting mortgage interest. I’ve seen pretty much every eventuality play out.

Imagine inheriting a personally owned portfolio with Section 24 problems and no planning. You’re renegotiating the mortgages and debt. What do you do? The income from that portfolio can be negative. You have a tax bill and are essentially paying tenants to live there. Watch out when passing down personally owned properties. Planning can be put in place.

Alastair Hoyne05:30

That brings to mind a case from, I think, last year. A broker approached Finanze Capital for a client buying a large portfolio of blocks in mid Wales. An elderly owner had more than 20 properties, all freehold blocks with the opportunity to split them.

From memory, he was willing to sell for £1 million, against the broker’s block-value estimate of £2 million. This was mid Wales, not south-of-England pricing. There were comments such as, “I’ll throw this garage in for free, or a pound.”

I asked why the discount was so significant. We don’t regard properties reduced over time from an overpriced level as below market value. We look for circumstances such as distress, probate or inheritance problems.

He’d asked his three children to take over, and none wanted it. They thought it was unwieldy and too much hassle. Some properties needed works; they didn’t want tenant issues. They all had corporate jobs. Rather than sell piecemeal, not knowing how long he had left, he decided to sell the lot.

It was a good transaction for our borrower. We could lend 100% on that deal because of the overall leverage against the portfolio purchase. The borrower was doing the vendor a favour. You see this need to realise the value and leave children cash rather than a messy, potentially poorly structured portfolio.

David Nicklin07:48

Ask what you’re actually leaving. Is the family inheriting a liquidity crisis or net wealth? Do they have the experience to carry it forward? Do they understand it, have your skills, interest, drive and enthusiasm? Is there a roadmap? Are the markets right at the time?

There are mortgages outstanding, potentially needing renegotiation, tenants and leases. On death, where’s the roadmap? Do they need to liquidate? Is it the right time, or is the market in a slump?

Alastair Hoyne08:47

Who even knows where the spare keys are?

David Nicklin08:51

Do they have expertise in disposing of properties, or will they fire-sell to reduce the mortgages? It’s not just having a will; it’s a roadmap. Bloodline planning comes first, as the foundation. Then you work on inheritance tax and how to pass the estate to the next generation financially, without a liquidity crisis, so the legacy lasts as intended.

Why build it if passing it down creates a crisis? How do we remove that? Join the dots rather than isolating the planning. I’m passionate about correct planning. It’s never too early to start, or at least discuss it. Be informed. If you don’t know what happens to your legacy when you aren’t here, the business has a point of failure.

Alastair Hoyne10:22

Key-person dependency is an operational risk as well as an estate-planning issue. Complexity needs documenting so someone else can operate or unwind things if necessary.

Alastair Hoyne10:44

How should investors think about debt and guarantees when considering family protection and succession?

David Nicklin10:50

Lots of portfolios carry debt, leveraging to release money and reinvest. Is the inheritor happy with that debt? Are they happy with £2 million of debt on a £3 million portfolio? Do they know they’re inheriting debt as well as wealth? Do they share the original investor’s mindset? Has it been explained?

Alastair Hoyne11:18

Should protection planning consider the liquidity needed to deal with debt as well as the assets’ value?

David Nicklin11:27

Absolutely. Do you want to pass a net asset down without debt, leaving them to run it? They might choose to use money from life insurance to take the portfolio further rather than clear debt, if they understand it. That’s up to them.

Debt coverage is important. There’s an amazing inheritance-tax win from using life insurance efficiently to pass down something free of debt in an IHT-friendly way.

Alastair Hoyne12:11

Can you add colour for our hopefully entertained listeners? I remember speaking about this while I was in Leeds in the wind, trying to listen to the idea. We were discussing my parents’ situation; as an only child, I have to consider everything.

David Nicklin12:35

If you own a portfolio with substantial debt and consider the capabilities of the inheritors, would it be nice for them to inherit it without debt? How do we achieve that?

You set up life policies under the Rysaffe principles. Keep the life assurance coverage, the sum assured, below £325,000 for each policy, and set them up and assign them to trust on different days.

Keeping it simple, with £1 million of debt, I would set up four £250,000 policies on different days and assign them on different days into different trusts. On death, the policies pay separately to each trust. The beneficiary borrows from the trust and pays off the mortgages. The debt still exists because it’s in the trust.

Normally, repaying debt creates equity and increases estate value. Here, estate value stays the same as if it still held debt, but rental income flows without having to service the mortgages. There’s no refinancing of existing deals.

Alternatively, the beneficiary might say, “I understand I can clear the debt, but I have experience and want to put the money into the investment company to buy more property.” You protect the legacy and allow it to move forward without roadblocks or the friction of remortgaging. That’s key to successfully passing a portfolio down, as originally intended.

Alastair Hoyne15:05

Property wealth and debt must be considered together for resilience and succession. It’s all about planning. Failing to plan is planning to fail.

A coherent plan reduces uncertainty and delay for whoever acts when the owner can’t. If they’re family or a trusted friend benefiting under a will, they’re also emotionally distressed. Someone close has died. The last thing they want is a messy estate to piece together.

Even after taking advice from you or an insurance broker about these policies and wrappers, write it down so the inheritors understand how it works.

David Nicklin16:09

Always have an emergency asset and operational register: everything listed, points of contact and passwords.

Alastair Hoyne16:22

All your passwords.

David Nicklin16:25

Absolutely. The file with wills, LPAs and articles of association. Articles are important, because a will can’t appoint a director to a limited company just because you’ve inherited the business.

Have good articles and trust arrangements stored, with the family understanding the structure. After putting planning in place, I find a family meeting helpful: bring adult children together and explain what we did, why, and where the information is.

Alastair Hoyne17:11

That’s important. I have a friend who is an heir to the Siemens family in Germany. They have a family office and are taught young about succession and managing money so it doesn’t disappear.

That exists for high- and ultra-high-net-worth families here too. Everyday people, especially those building wealth rather than inheriting it, should consider protection on a smaller scale. You don’t want a lifetime’s assets, intended to support children for generations, wiped out in one go.

Can we discuss trusts in a little detail? Not too much, because people should speak to you about personal circumstances. There are domestic trusts and QNUPS depending on residency, with variation in the assets inside. Pensions are a form of trust. Then we’ll discuss wills and LPAs, although we shouldn’t rush that.

David Nicklin18:45

Allowances have been frozen, with fiscal drag. They’re behind where they should be, and house-price inflation pushes more people over inheritance-tax limits of £1 million. Frozen allowances mean more people fall into IHT.

Inheritance tax can’t be solved by trusts. The first planning is bloodline planning, getting money to the right place at the right time. There are small IHT wins from that, but trusts in relation to IHT concern how you gift money.

Each parent could put £325,000 into a discretionary trust, but has to live seven years. There’s no point coming in your eighties: how many seven-year cycles remain? Maybe one. This is a lifetime’s work, and earlier is better. Trusts aren’t the answer to IHT. The best strategy I know is spending your money.

Alastair Hoyne20:28

Or moving to a country without inheritance tax.

David Nicklin20:33

I’ve researched that. Apart from obvious places such as Monaco and Dubai, countries that removed inheritance tax have brought it back later. It’s never stayed.

Alastair Hoyne20:47

I remember you telling me, perhaps while I was driving, about a House of Lords member, although I could be wrong, saying inheritance tax is something only uninformed people pay.

David Nicklin20:58

Generational inheritance tax is even worse. That’s where trusts come in. If you pass the estate or portfolio absolutely to the next person, it becomes part of their wealth. If they’re already over the £1 million barrier, you compound it, and it’s taxed again when they die.

Alastair Hoyne21:33

Below the threshold, it’s a great gift. Above it, there’s an administrative burden, particularly when HMRC expects payment before you can take possession of the wealth.

David Nicklin21:57

With good bloodline planning, if something happens to both parents, the wealth sits in trust. The children might already be independently wealthy and be pleased not to inherit it absolutely on top of what they have. But they still want access.

Most likely, they borrow from the trusts, creating debt to their estates repayable when they die. The asset bought with that loan doesn’t form part of their estate; it stays as debt. That’s multi-generational planning. Most people won’t get by with a basic will any more.

Alastair Hoyne22:47

If the will isn’t current for the family situation, a child of a loving relationship, perhaps a second child, could inherit nothing despite the parents’ intentions. The unchanged will sends it to family they don’t even speak to.

David Nicklin23:18

We see that a lot: inheritances going somewhere they shouldn’t, even to people the deceased never knew existed.

Alastair Hoyne23:34

A charity, or…

David Nicklin23:40

It’s gone completely sideways. Someone inherits generational wealth, doesn’t sort the will, and it goes down the line to someone who never met the originator. A bloodline trust controls who the potential beneficiaries will be, so it can’t go to people never involved with the family.

Alastair Hoyne24:16

Like foundations universities set up.

David Nicklin24:21

Yes. People ask whether it adds complications. It does, but if your estate is growing and you’re worried where the legacy ends up, those complications are worth it. Have the right people around you.

David Nicklin24:49

Coming back to insurance through your limited company, or covering debt in an investment company, property investors focus on acquisition, which is great. But legacy needs covering in the acquisition strategy to protect the wealth.

That may mean insurance premiums, which should be treated as a strategy cost, not just a life-insurance bill. You’re paying for something you hope not to claim on.

Alastair Hoyne25:35

Insurance can be considered a basic necessity, so it wouldn’t be cancelled in receivership. Suitable policies for different events could make a significant difference if a property is repossessed and a personal guarantee brings the rest of your position into view.

David Nicklin26:03

Take advice. We bring in accountants and use a multidisciplinary approach. Don’t isolate the advice. Consider what’s happening around the owner, what’s being put in place and whether it creates later problems or conflicts with existing planning. Never presume. Bring in the accountant, who knows the business better than the estate planner.

Alastair Hoyne26:47

Exactly. You use a power team to buy and manage properties; have a team for when you can’t act, alive or no longer here.

Alastair Hoyne27:00

I know you dislike companies offering free online wills. Why?

David Nicklin27:09

I’m dealing with a man who got a cheap will at a post office. There’s no attestation clause, and the witnesses were people who went to the post office. Two years later, the probate office won’t issue the grant. It’s a poorly written will, and it’s being kicked around the probate office.

Always take advice. A basic will ticks a box, but generally won’t do the job you need, even if it ticks the box in your head.

Alastair Hoyne27:49

They’re generally mirror wills. It stops the Crown taking all your assets.

David Nicklin28:04

It’s the difference between paying £170 and a couple of thousand for proper planning. Some people see a cost issue or don’t consider it important enough. They tick a box to clear it from their mind.

But with mirror wills you leave everything to the next person. What if they marry, die, their new spouse inherits, and then leaves everything to their own children? What about your children? It happens. A proper trust structure stops that.

A trust addresses unintended consequences of life’s curveballs in the next generation. We talk about IHT as the biggest risk, but the bigger generational risk is where money goes through marriage, death and marriage after death. Have a will trust and good trust structure.

Alastair Hoyne29:35

People work hard to prevent theft but give little attention to protecting their estate similarly. Not with a Rottweiler and alarm, but by protecting a spouse, partner and children through these conversations.

Don’t quote me, but I’m pretty sure I saw an email saying the FCA was shocked by weak support for protection policies, especially in investment. I think only around 40% were having protection conversations when taking investment properties.

That matches my experience. We don’t personally do regulated business, but most mortgage lenders in that area require a fixed-term policy so the mortgage is repaid on death, normally a decreasing, asset-linked policy.

In investment, where people often build wealth exceeding their home’s value, you ask about protection to clear mortgages, buy-to-let or bridging, accident, sickness and unemployment cover or key-person risk. They tick “I’ve read your form and don’t need advice” and buy another property. Nobody wants the conversation.

Insuring an investment portfolio should be just as important, if not more, than a home. Consumer protection makes repossessing a home difficult; it’s easier to take an investment property.

David Nicklin31:37

The effort and consideration focus on acquisition, not what happens to the legacy, the strategy for passing it down or why you’re building wealth. Life cover is seen as unnecessary cost. For someone with a family, it’s a responsible way to provide financial breathing space.

For portfolio owners, it’s the difference between passing net wealth and a liquidity crisis. These policies are part of the strategy, with inheritance-tax and generational benefits from setting them up correctly. Not every broker understands the Rysaffe principles. Setup is key. Treat it as strategy rather than necessity.

Alastair Hoyne33:05

With Rysaffe, you have separate policies settled on different dates for different amounts. Surely that’s cheaper than a fixed-premium whole-of-life policy guaranteeing a payout on second death? I’ve seen £500,000 cover costing £3,000 or £4,000 monthly for the rest of your life.

David Nicklin33:36

This is about starting early, when premiums are cheaper, and getting planning done. Even later, depending on portfolio size, a second-death whole-of-life policy can help. From premiums versus payout, you’re on the winning side. Generally, you have to live to 102 or so, depending on premium and sum assured, before you’re out of pocket.

Alastair Hoyne34:10

In negative equity.

David Nicklin34:11

Yes. It’s a strategy for passing down net wealth. The Exchequer wants the estate’s equity. You may be leveraged, but it wants 40% of equity regardless.

Alastair Hoyne34:40

At 75% loan-to-value, it’s hard to unlock that equity without selling.

David Nicklin34:51

One strategy is rationalising the assets to leave mortgage-free properties. But does the beneficiary have that expertise? Wouldn’t it be simpler for policies to clear the debt and protect the legacy? Yes, you’ve paid premiums, but what a legacy, passing it down and supporting generational wealth.

That planning remains open. First protect generational wealth with bloodline planning, then consider further protection and IHT opportunities. There’s reluctance to take life cover. The average amount of insurance is something like £15,000.

Alastair Hoyne36:02

Some people might only have travel insurance.

David Nicklin36:04

It’s responsible to have at least some life cover if you have family, but in trust, because you don’t want it aggregating into your estate. People go online, get a policy without a trust, and it becomes part of the taxable estate. Always take advice.

People don’t see these products as part of life’s structure and planning. Building wealth is like building a house of cards. You’re near the top when a door opens and a draught knocks off layers. That could be ill health, critical illness or a death.

Alastair Hoyne37:05

That’s a good way of putting it, David.

David Nicklin37:09

Insurance puts a little box over the cards so nothing gets to them. Wealth stays intact instead of being knocked back because illness prevents you working. It protects what you’ve built.

Alastair Hoyne37:37

People enter property to quit the nine-to-five. They build portfolios and forget they’re now self-employed, perhaps through a company. If they can’t turn up, even with letting agents, tenants may move out or a boiler replacement could wipe out annual net income after mortgage costs.

Without another livelihood, particularly with a small portfolio and fewer income streams, giving up the day job creates a problem if they can’t work.

David Nicklin38:36

Exactly. Cover what could go wrong and the business’s points of failure. People acquire and build, then say, “I’m worth £3 million. What do I do about passing it on?” Usually a trigger or family event prompts them, then they question the cost because it could fund part of the next purchase.

Alastair Hoyne39:21

A full package for a complicated situation might cost around £10,000 for bloodline planning, a trust and LPAs if capacity is lost. Compare that with not doing it. £10,000 is absorbed quickly against an HMRC bill taking 40% of an estate: £10,000 versus £400,000 on a £1 million estate.

David Nicklin39:59

Rather than asking why it’s needed, ask the consequences of not having it.

Alastair Hoyne40:06

It’s not what it costs; it’s what you save.

David Nicklin40:15

You wanted to talk about LPAs. Most people don’t have lasting powers of attorney for personal finances and health. With a business, you need a dedicated business LPA unless your personal property-and-financial LPA has the same attorneys and a clause allowing them to deal with the business.

If you want different attorneys, you need a business power of attorney. Otherwise, who signs the cheques? It’s not just death. If illness incapacitates you, who runs the business? Does the LPA align with the articles of association? Do you still get on with your business partner?

Alastair Hoyne41:26

When a partner dies, a spouse may want compensation for the shares, or, potentially worse for the business, want to get involved rather than cash out.

David Nicklin41:44

Or not want involvement but want dividends from a 50% holding. If business isn’t good and there’s no money to buy them out, you keep paying a dividend. Where’s the planning, shareholder agreement or cross-option agreement? Do company documents match what’s happening? Has there been an audit?

A full audit is usually a good starting point for an owner with complex issues.

Alastair Hoyne42:24

That leads to a first conversation with you. They don’t need to prepare much, just be willing to talk openly. Then you conduct a personal, family and business assessment: what they’re worth, what they’re about and, taking the line from a will, their wishes.

David Nicklin42:48

It’s holistic information gathering. What’s happening in the business? Why build wealth? What challenges have there been? Where are they heading, how will the business grow, how many children, and where should wealth go?

The first meeting gives a snapshot. Then gather more: existing wills and LPAs, and identify gaps. Fill them so the planning flows, with a backup roadmap everyone can follow. Correct problems in wills and make sure things run smoothly if something happens. Bereavement is difficult enough without a pile of problems.

Alastair Hoyne44:24

With adult children, although nobody likes discussing death, it’s better early. Could beneficiaries join a follow-up meeting so it’s explained in plain English?

David Nicklin44:42

We like doing that so everyone understands the rationale. Children may worry about why parents are putting it in place and whether they’re worried about mortality. We bring everyone together and explain that it’s generational planning, making sure things go to the right place and explaining what happens when parents pass.

It’s never nice to discuss. One reason people delay wills is not wanting to discuss mortality. That’s understandable.

Alastair Hoyne45:33

I well up when my parents say, “Before the end, we’ll put Post-it notes under the furniture saying who it should go to.” I say, “Don’t talk about it. Write it down so I’ll know, but let’s not talk.” Everyone feels that.

But I’ve taken steps to protect my daughter and wife, and my parents have done the same. It’s responsible and mature. You may not need everything unless ultra-high-net-worth, but need appropriate protection for your requirements.

David Nicklin46:14

The points of failure include missing cross-option or shareholder agreements, no lasting powers of attorney for incapacity, or no correct will with a business trust to take the shares.

You want the business to continue, whether trading or property, because that’s why you built it. Those points of failure remain until you sit down, audit and deal with them.

Alastair Hoyne47:12

I joked earlier, but it’s serious: without a will or identifiable heirs, the estate can go to the Crown.

David Nicklin47:24

It’s rare, but yes.

Alastair Hoyne47:30

It happens to dissolved companies as well.

David Nicklin47:35

Yes. We’ve had to restore companies for clients, which is difficult. It’s important that everything passes correctly and the documents are in place. It takes work, in partnership with the client, who also has things to do.

We don’t hand over the audit and say everything must be fixed immediately. There’s a planned timeline.

Alastair Hoyne48:22

It’s responsive and evolutionary. If circumstances change, review the position and documents.

David Nicklin48:32

It can be overwhelming, especially without time, so break it down and do things in order. It might take a year to put everything in place. It doesn’t happen overnight. Identify gaps and work with the owner or director over six months to a year.

Alastair Hoyne49:11

We’ve covered a lot. Anyone who hasn’t considered wills, LPAs, protection, insurance or trusts should have a conversation about their family and beneficiaries. Consider what you might inherit and have the courage to discuss it with your parents, protecting interests and smoothing things, especially if one parent dies and the other doesn’t know what to do.

As an adult child, support them through that and bereavement, alongside your own grief. David, how should people get in touch? We’ll share details. Start with a call and tailor it, coordinating with accountants and solicitors where appropriate?

David Nicklin50:26

Book a discovery meeting. We get to know each other and start gathering information. That leads to an audit of what exists and what’s missing. Build a relationship and set a timeline. Contact me through the website and meeting link to book that discovery meeting.

Alastair Hoyne51:13

David, thank you. We spend time in property talking about acquisition and growth, but a successful strategy also needs to survive its creator. Ownership, debt, authority, records and succession matter if wealth is meant to serve the family rather than become a problem.

Thank you for bringing that perspective to The Property Escalator. Two chapters in the book cover these subjects, but nothing beats professionally tailored advice. If you’re considering what happens when you, or someone you care about, is no longer here, speak to David about protecting everyone in your circle. Thank you, everyone.