Helping our family members financially will be important for many of us, but it is not necessarily easy to know how best to navigate this.
This blog outlines some of the common issues and the benefits of taking a more structured and cohesive inter-generation approach.
Inter-generational planning often involves families spanning three or four generations, with a wide age gap! Although grandparents or great-grandparents often want to help their grandchildren financially they are unsure as to how much they can afford to give away, especially when taking into account the potential threat of care costs.
Adult children or those approaching adulthood are confronted by their own issues and worries about the cost of higher education and finding their way onto both the career and property ladders.
Meanwhile, the couple in the middle, the so-called sandwich generation are maybe having to help their parents and at the same time support their children while thinking about their own retirement!
A lot of these pressures maybe carried on in silence!
Creating a family plan can help.
This would typically involve family members from different generations engaging with each other, with a willingness and openness to talk about potentially difficult and emotional issues. Quite often these are resolved once they are brought out into the open and discussed. The result could be better and faster help for those who need it because the picture of the family finances is clearer.
It may be best to engage the help of a professional here as they may have the software to illustrate whether it is affordable for one generation to transfer wealth to another.
Moving money between generations comes with tax considerations. Inheritance Tax (IHT) is the main one and is fraught with frustrations and complexities. However, both capital gains tax and income tax can also be impactful. Careful use of tax allowance and exemptions is vital, as is recording details of all gifts which are made. Seeking expertise in this field can make a massive difference.
Over the coming years trillions of pounds is likely to pass between family generations. However, in the absence of any meaningful planning, a significant proportion of this wealth transfer will not have been received when it was needed most and a big chunk of it will be paid to the taxman. It is best to have a plan in place and to start as early as possible.
Finally, a key concern around passing wealth down the generations is the risk of it falling into the wrong hands or being frittered away. The benefits of using a trust can remove these concerns which will be the topic of my next blog.