Helping family is a financial goal for many of us, but money can be a tough subject for families to navigate. This blog explains how families can use intergenerational planning to plan their finances as a whole rather than as individual units. Closing the gap between generations, increasing openness, and avoiding secrecy about wealth and money.
A unified, intergenerational, approach can also mean better and faster help for those who need it because the picture of the family finances is more comprehensive and already at your fingertips.
Avoiding the issue could lead to hardship and disappointment, and potentially an increase in the amount of inheritance tax paid to HMRC.
According to recent research produced by The Centre of Economics and Business Research (CEBR), over the next 30 years, some £5.5 trillion will pass between family generations.
Many UK families span three or four generations, with an age span approaching a century. Most family wealth is held by the older generations, mainly distributed between property and investments.
Generations, and sometimes individuals, tend to keep their affairs to themselves. Privacy is the order of the day. Talking openly about money, earnings or debt goes against that deeply entrenched British cultural norm.
Surveys show some key areas of concern with how people communicate with their families about money:
- 11% of adults lie to their partner about how much debt they have
- 23% have lied to their partner about money in general
- 37% have arguments about money
- 52% are embarrassed to talk to their family about money matters
- 14% have lied about what they spent on a single purchase
- 34% admit to feeling stress and anxiety over money related subjects
- Only 17% of over-indebted people seek advice (there are 8 million in the UK)
It’s clear that money-related issues are common for British families. Inter-generational planning can provide a structure for addressing the problem.
What is intergenerational planning?
Intergenerational planning involves getting the generations to meet and agree to talk about their finances—from older children up to great-grandparents in their 90s. Information needs to be shared about investments, pensions, savings, property and collectibles. How much debt there is. And the financial pinch-points. The goal is to create a thorough family balance sheet accessible to everyone involved.
There need to be pre-agreed rules before an intense family meeting like this takes place. It works best if there is also a trusted and impartial chairperson there to apply an even hand and keep emotions under control.
If you are talking to someone in their 90s, remember that they were born in the pre-war 1920s/1930s. Times were very different when they were growing up. There was a lot of financial hardship and little or no credit. Their views and priorities will naturally be different from those of a 19-year-old staring down the barrel of student loans.
Some common issues
It is usual for grandparents/great-grandparents to be living within their modest means. They often want to help their grandchildren, but they don’t want to put themselves at risk.
Adult children or those approaching adulthood are dealing with their own worries about the cost of education and the resources it takes to build a good career and get on the housing ladder.
Meanwhile, the couple in the middle, the so-called sandwich generation, are struggling to help their parents and their children (often at the same time) while preparing for their own retirement.
A lot of this burden is carried in silence.
There are a range of other issues on the table in conversations like this, including:
- Concern about care costs for the elderly
- Whether there are current wills and powers of attorney in place
- The potential need to downsize to release cash
- Having a valuable property, but just a modest regular income
- Members of the family being over-committed with borrowing and debts
- Rising schooling and education costs
- The prospect of a long-life post-retirement and the savings needed to support that
- The need to put money regularly into a pension plan
If you are struggling with the pressures of being in the sandwich generation then take a look at
The family plan
An inter-generational family meeting isn’t as simple as throwing all the problems and potential solutions into a hat. Each family member has their own perspective. Stronger personalities can drown a weaker voice. Without clear objectives, the event could get side-tracked quickly into arguments and family politics.
A plan is a great start. But a specialist needs to run the numbers and examine the inputs and outputs without bias.
There needs to be a willingness and openness to talk about difficult and emotional topics. Surveys show that tough issues are often resolved once they are brought out into the open and discussed. This shows how a meeting like this can remove the weight of a heavy burden: a problem shared is a problem halved.
When a meeting is agreed, it helps if it is held in a neutral non-family location. This means nobody is the boss and owns the space. There needs to be light and space, and provision for comfort breaks and refreshments. It might be helpful to keep a record for posterity and for future notes and actions.
Other tips to keep the meeting peaceful and on track:
- Have notepads, whiteboards and flip charts to hand so you can help everyone to visualize what’s being discussed; a picture can tell a thousand words.
- Include a ‘talking stick’ to ensure that the quiet voices can have their moment.
- Impose no time limits and allow for no external interruptions.
- Perhaps conclude with a family meal; breaking bread with a smile makes for a good fresh start.
- If you engage a professional to help you, they may have the software to illustrate the family action plan on-screen and interactively. Possibilities like selling up and downsizing can be modelled in real-time at different stages to see the effect. This can be a powerful and decisive tool.
What about tax?
Moving money between generations comes with taxation considerations.
Inheritance Tax (IHT) is the most obvious (and the most fraught with anxieties and frustrations). However, capital gains tax (CGT) is also impactful, as is income tax. Good records need to be kept for all lifetime gifts. Careful use of tax allowances and exemptions is key.
This is another reason why the impartial chairperson could be your financial planner with expertise in this field.
In families, money isn’t always placed where it’s needed most. Waiting for an inheritance can seem like a life sentence, and the mixing of family concerns with financial needs is very emotionally complex. It’s natural to want some structure and support when the time comes to have these conversations.
If you would like to talk to one of Capital’s Chartered Financial Planners to discuss your own affairs, contact us today and we will be happy to help.