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How to Help Your Grandchildren’s Financial Future: 4 Tips From an Independent Financial Adviser (IFA)

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If you are a grandparent, it is possible you might be in a better position to provide financial help, guidance and teaching for your grandchildren than their parents can.

If you’re wondering how best to provide financial support and education to your grandchildren, there are some great things you can do to give them a better start in adult life.

Below, we’ve outlined just a few of the ways our financial advisers have helped clients in Lincoln, in this area. The following should not be taken as an exhaustive, universally-applicable list. Rather, take it as some inspiration to take to your next meeting with your independent financial adviser.


#1 General Gifts

When you die, there will be a 40% inheritance tax liability on the value of your estate above the nil rate band threshold (£325,000), subject to other available reliefs.

That’s obviously a lot of money going to the taxman. Yet if you had the option that more of this amount went to your grandchildren, wouldn’t you take it?

By working far in advance with an Independent Financial Adviser in Lincoln, you can implement practical, ethical strategy to provide a more meaningful legacy to your grandchildren.

One aspect of your plan, for instance, would be to take advantage of the fact that you can make up to £3,000 worth of gifts per financial year, outside of the inheritance tax net. If you made no gift in the previous tax year, then you can bring it forward into this tax year – potentially gifting £6,000.

If your grandchild is under the age of 18, you might consider putting some of this into a Junior ISA (JISA), which has an annual limit of £4,260. You cannot set a JISA up for them, but you can contribute to a fund which can grow, tax-free, and perhaps later be put towards driving lessons or their university living costs, for instance.

You can also gift up to £2,500 (free from inheritance tax) to your grandchild towards their wedding, or civil ceremony.

You can, of course, make much larger financial gifts to your grandchildren exceeding £3,000. Yet it is important that you work with an IFA in Lincoln or your local area, to determine the exact inheritance tax implications of this decision.

For instance, any gifts made over 7 years ago which exceeded £3,000 will likely be exempt from inheritance (IHT). If you are still a fairly young, healthy grandparent, then it might be tempting to make some big gifts to your grandchildren on the assumption that you will live longer than that.

As unpleasant as it is to think about, however, things don’t always work out how we’d like. If you die before the 7 years are up, then the recipient or your estate could face a large IHT bill which would negatively affect your loved ones’ inheritance.

Make sure you have a solid financial plan which does not leave you, or them, exposed to any nasty shocks like this down the line.


#2 Look at Setting up a Trust

Trusts are a great way to gift money to grandchildren, not just for tax reduction purposes. They also allow you to have the final say over how the money is spent, even after you die.

For instance, suppose you wanted to gift £20,000 to your 14-year-old grandchild, with the specific intent that this be used later towards a property purchase. Putting this money into a trust would allow you to specify how the money is invested in the meantime, as well as specifying how early the money can be accessed.

The trust structure also would protect the money from situations which might otherwise have caused it to have fallen into the wrong hands, such as the grandchild’s divorce or bankruptcy.

You do need to seek professional advice from an independent financial planner, however, if you are considering the trust route. These are notoriously complex to set up and navigate, so make sure you put together a solid plan and cover all the legal bases.


#3 Helping with Childcare

Childcare costs have become almost unbearably expensive these days for many parents. Indeed, in many cases the cost can exceed one of the parent’s income.

One way you can financially support your grandchildren, therefore, is simply to offer your time to look after them. Fortunately, there isn’t a huge amount of financial planning required in this area, as the UK government hasn’t yet started taxing grandparents’ time (thank goodness!).

By offering this to your children, if you are able, you are relieving them of huge childcare costs. Even if you just offer one day a week to look after your grandchild, it isn’t too long before that amounts to thousands of pounds’ worth of savings for their parents.


#4 Offer Some Financial Education

Chances are, after decades of experience on this earth you have learned some valuable lessons to share on finances.

Few things are worth as much as a good education. Young people often learn many important academic subjects at school, yet do not adequately learn about how to invest, save and make a sensible financial plan.

This is an area where you could help, and your help – like your time – is not subject to tax!

It might be something as simple as meeting your grandchild for a drink, and explaining to them what a pension is and why it’s important. Or, you might want to give them a good book about investing. Be creative!