Why you should include your children (and parents) in your financial planning conversations

14th September 2021

Discussing personal finances can be a tough conversation for many people. It can be a stressful topic to face, particularly with your loved ones. Perhaps it’s embarrassing, fills you with anxiety, or simply makes you feel uncomfortable?

In 2019, Lloyds Bank conducted a survey and found that half (50%) of UK adults consider personal money matters to be a taboo subject. For reference, this ranked higher than sex (42%), religion (26%), and politics (14%).

44% of people said they tried to avoid conversations about money, and more than a quarter of respondents had previously lied to their friends and family about their personal finances.

Despite this, it is important to be open about your financial situation with those you are closest to.  Including your family in the financial planning process benefits you in many ways, as it can set expectations, help you to avoid tax, and ensure the smooth transition of wealth through the generations.

And, with £5.5 trillion of wealth expected to be passed down over the next 30 years, it’s never been more important to talk about money with those closest to you. Read on to find out why you should include your family members in your financial plan.

Your children and grandchildren need to know what to expect

Affectionately known as “Britain’s most hated tax,” Inheritance Tax (IHT) is one of the most important considerations when discussing intergenerational wealth.

If you don’t plan correctly, you or your inheritors could lose a significant amount of wealth when you or your loved ones pass. A valid, legal will is vital in this situation.

Figures from Statista show that estates paid a total of £5.32 billion in IHT in the 2020/21 tax year.

IHT currently stands at 40% and is typically charged on the value of your estate above the £325,000 threshold (or above £500,000 if you plan to leave your home to your children or grandchildren), although there are a few ways to mitigate IHT.

For example, gifting money or assets to your children and grandchildren reduces the value of your estate. Anything you gift falls outside your estate seven years after making the gift, so it can pay to do it sooner rather than later.

Download our IHT and gifting guide to learn more.

Involving your children in the financial planning process – even inviting your adult children to meetings with your planner – can help them to understand your intentions and ensure the smooth transfer of your wealth.

Expectations are important, as it removes any financial uncertainty. By incorporating your children into discussions early, you can also take their opinions and emotions into account, especially when it comes to inheritance planning. It ensures there are no surprises further down the line.

Put yourself in the shoes of your children. Knowing how much they can expect to inherit could affect their financial decisions now and in the future. They may even encourage you to spend more of your hard-earned money, rather than saving it to pass to them!

Being clear about your finances and laying them out with a planner will show your children exactly what they can expect to receive and help them prepare.

Involving your parents in financial discussions can help your whole family

It’s not just your children that you should talk to about your finances.

Your parents may also have never had financial advice and may be blissfully unaware of the effects of various taxes or rules when it comes to their finances.

At some point in the future, you may become partially responsible for their finances too. Involving them in your current financial discussions could be key.

Your parents may benefit from the guidance of a financial planner. The Inheritance Tax issues that may concern you could also be worrying your parents. They may not know about the many tax exemptions they could be taking advantage of. And they may not be enjoying the life they could because they are worried that they will run out of money.

A financial planner can provide life-changing reassurance in this situation.

All these issues could have implications for the wellbeing of the whole family and affect the value of wealth they can pass to you and your children.

Having a valid, up-to-date will is perhaps the most important thing when it comes to inheritance, as it ensures your parents’ assets pass to the people of their choosing. It’s also important that they set up Lasting Powers of Attorney  (LPA) so they can be sure a trusted person will make financial decisions on their behalf should they become unable to for any reason.

This type of joined-up approach can help your parents to relax, knowing that their finances are taken care of, that their assets will pass to their chosen beneficiaries, and that they are not paying more tax than they should.

It also allows you to prepare for their future in terms of where they will be living and any care they may need.

Care Home report that the average weekly cost of a residential care home as of April 2021 was £704 and the average weekly cost of a nursing home was £888. Confronting these issues with your parents now can help them know that their future is secure – whatever might happen.

Your family could all benefit from financial conversations

While not everyone is comfortable talking about money, involving your family is vital. From securing your own inheritance to maximising the inheritance of your children, it’s crucial to ensure that everyone who needs to understand your financial situation does so.

Speaking to a financial planner can ensure the smooth transfer of wealth, and help your family avoid losing 40% of your hard-earned money to tax. A planner can also help you to manage an inheritance and assist you with ways to grow your own wealth.

Get in touch

If you’re interested in finding out more about how working with us can benefit your whole family, please get in touch. Email info@depledgeswm.com or call 0161 8080200.

The Financial Conduct Authority does not regulate estate planning or will writing.