The benefits of family financial planning
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
HMRC is continuing its trend of taking more in inheritance tax (IHT) each year. In the period April-September 2023, it collected £3.9bn from households across the UK; £400m higher than the same period in the year before. This raises the question, are you set to keep maximum wealth within the family? How coordinated are the financial plans of you and your loved ones?
Below, our Grantham financial planners explain how the benefits of family financial planning extend beyond IHT. Indeed, it can also have positive results more immediately. We hope these insights are useful to you.
To discuss your own family financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
What is family financial planning?
In its narrowest sense, a family financial plan involves parents (or guardians) building a financial plan which not only progresses them towards their personal financial goals but also towards those of their children.
This looks different depending on factors such as family composition and the age of dependants. For instance, a household with two parents and a newborn child will likely have different financial planning needs and priorities compared to an older couple with teenage children. The former may require financial protection (e.g. life insurance) more urgently, whilst the latter may be more concerned with education funding.
More loosely, family financial planning may start to overlap with “intergenerational financial planning”. This involves bringing together the financial plans of grandparents, children and grandchildren to align their goals, helping to coordinate their efforts to optimise financial outcomes for each household. Here, discussions about inheritance tax (IHT) often become more pertinent.
What are the benefits of family financial planning?
The ultimate benefit of family financial planning is that each person in your family is put in the strongest position to achieve each of their financial goals.
Again, this looks different in each case. A parent may wish to give their child the best chance of getting onto the property ladder one day (a goal also shared by the child). Starting a savings and investment plan early in the child’s life – perhaps using tools such as a Junior ISA – allows more time for the funds to grow using the power of compound interest.
Later, when the time comes to put down a deposit, there will hopefully be less pressure for the child to save their own money or for the parent to contribute. By planning ahead, in short, both parties’ finances could benefit later.
A family financial plan can also enhance mutual understanding between different generations. Children may not automatically understand why parents cannot give them more money (e.g. for a wedding, university, travel or a property). Parents may not fully appreciate how the economic landscape has changed compared to when they were young. By sitting down together and discussing their respective goals and situations, different parties can gain a clearer sense of what is possible to achieve together.
How do we build a family financial plan?
A good starting point is always your budget. How much money is coming in each month and how much is going out? Where could you cut needless spending and focus on areas which align best with your goals and values?
After that, it helps to check your emergency fund to ensure that you have a strong safety net (e.g. 3-6 months’ worth of living costs) to help you weather unexpected events such as losing work or paying for a major home repair. Make sure that your protection plan is up to date, such as life insurance and income protection, in case your household falls upon hard times.
If you have young children, they may not be fully aware of their own financial goals. Yet you can imagine what they might need when they exit their teens and become young adults (or even beyond). Here, you could explore a Junior ISA or even open a pension on your child’s behalf. You can contribute up to £2,880 to a child’s pension each tax year on their behalf. They will gain control of the account when they turn 18, but the funds will be locked away until they reach their Normal Minimum Pension Age (which will be set at 57 in 2028).
Any individual thinking about a family financial plan should consider crafting a will. When you die, it is important that your wishes for your loved ones will be implemented. Leaving your estate to the UK’s intestacy rules will not guarantee this. Parents with older children may also wish to discuss other key financial planning matters with them, such as potential plans for long-term care and power of attorney. Will they be involved at all with these areas and are they aware of the responsibilities that may be involved?
Inheritance tax (IHT) is also a key subject to discuss as children get older. Here, the tax landscape can be complicated and it is often best to seek professional financial advice to ensure your estate plan makes maximum use of the various rules and allowances. Make sure that your plans align with those of your beneficiaries. For example, if you die before age 75 then your loved ones do not need to worry about income tax if they inherit your pension funds. However, if you die after age 75, any funds they take could affect their marginal rate – possibly pushing them into a higher tax bracket.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
