A family affair.

Discussing money is often an uncomfortable subject with families for all sorts of reasons, but doing so, could prove to be a sly move.

Do you know what your partner earns?

Half of married couples reportedly do not know what their spouse earns and many wealthy parents are said to shy away from disclosing how well-off the family actually are for fear of their children either losing, or not understanding, the value of money. However, with people generally now living longer and potentially having care costs, more estates facing an inheritance tax burden and a savings crisis among younger people, there’s a growing need for families to discuss their longer-term financial planning objectives and to have a more joined-up and open approach. 

The need for a joined-up and open approach to finances

Firstly, this should give the younger generation a better understanding of the financial wishes of the older generation and as a result, there should be fewer unwelcome surprises. For example, a death can lead to family disputes, and at worst, contested wills and unnecessary legal costs.

Having an awareness of an older relative’s plans and wishes can also be helpful if a Power of Attorney needs to be used at a later date. In addition, attending a parent or grandparent’s meetings with their adviser(s) should provide some reassurance they are being looked after. At the same time this involvement can be a valuable way of increasing the financial knowledge and responsibility of the younger generation that might not yet have much direct experience of wealth and investment. This may also help them gain a better understanding of their future legacy, ensuring a smoother transition when an estate is passed on and reducing the risk of any ill-considered changes in investment approach.

Use financial tools available

Recent pension freedoms, under which retirees are no longer required to buy an annuity and can continue with their investment pension pot and flexibly drawdown an income, are another important reason to take a more open approach to financial planning. Pensions have also become a very effective inheritance tax planning tool as they sit outside of the holder’s estate. For many people, pensions should be the first thing you save into and one of the last you spend.

A pension pot can also be passed on tax-free if the retiree dies before age 75 (if death occurs after age 75 then the beneficiaries marginal rate of income tax is applied). In turn this can make cashing-in savings, ISAs, downsizing or releasing equity from the family home a more viable option for boosting retirement income.

Understandably, the implications of the changes in pension rules may not be fully clear to many people. There may also be concerns about using the family home to boost income or indeed, debt being once again incurred in later life when so much time has already been spent trying to become debt-free in the first place. To ensure the most effective plan, it makes complete sense to involve the different generations in any discussions.

The importance of family financial planning

When a loved-one passes away, there are still too many cases where families end up with an unnecessary inheritance tax liability, money going to the wrong people or the assets being a puzzle because there was no will or planning in place. This is, of course, in addition to any emotional trauma.

Family financial planning can mitigate or potentially prevent some of these problems arising and although it can be a difficult subject to raise, communication is key to a solid 'family stone' as after all, it's a family affair.

For more information or to discuss your financial situation, please contact your Dentons Wealth financial adviser.

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.