Financial planning often involves three generations: children, parents and grandparents. However, financial advice is typically sold to only one of these three generations and the other two are out of bounds. This can cause sub-optimal results for families. We believe great planning involves all three. Read this blog to see how inter-generational planning can benefit you.
At the Conservative Party Conference in October 1991, John Major said :
“We must extend savings and ownership in every form. People in their middle years are inheriting houses and businesses on a scale never before seen. The pioneers of the property-owning democracy are the parents of the capital-owning democracy. I believe that personal property should follow the same course. I want to see wealth cascading down the generations.”
The debate on the wealth cascade is open to opinion, and the outcome is unclear.
How does your family start inter-generational planning without everyone getting upset?
A survey from Totally Money shows that the British attitude to money is a huge taboo. Talking about money, savings and debt within the family makes people anxious, more so than talking about sex, religion or politics.
This blog gives you some useful tips to start the inter-generational conversation in your family.
The family group
No two families are identical, so let’s begin with some basics.
Imagine a couple in their fifties. Each partner has both parents, who are in their eighties.
The couple have two children, both in their twenties. In total, there are eight family members ignoring siblings, uncles and the like. Some readers may have five generations.
That’s a lot of linked people. Each generation has its own financial worries. Few family members are talking openly, and many don’t know how to start.
The Taylor and Jones families
Consider a made-up family group, the Taylor and the Jones families.
Jack and Ruby Taylor are the parents of Chris. They want to help their grandchildren, Jenny and Tom, but Chris is independent and bristles at every mention.
Alison and Trevor Jones have three children, and Kate is their youngest daughter. They have three other grandchildren. They are 80 and 81 and in poor health but own a huge house. Inheritance tax is a big worry for them.
Chris is 48 and Kate is 46 and they are comfortable. Kate’s mum Alison is unwell and needs financial assistance.
Jenny and Tom Taylor are 21 and 25 years old. Jenny worries about the size of her student loan and credit card debt. Career prospects aren’t great, and Tom wants to move out of the family home and get on the property ladder with his girlfriend. But doesn’t have a large enough deposit.
Chris and Kate are successful entrepreneurs and own a London-based business employing 18 people. Life is good, and they aim to sell the company within five to eight years and follow their dreams. This is why they asked for help.
In a recent meeting, Kate mentioned that they will be independent by their mid-fifties. Their children will be in their twenties and thirties and will be settling down. Kate would like to help them now.
Chris mentioned that in eight years’ time, their parents would be in their eighties and perhaps in need of help. Time was shifting. The cascade of wealth has been a dribble. Chris had over-committed himself on a few deals and has had a cash flow crisis. He needs some capital to see them through.
Neither Chris nor Kate know for sure if their parents have a valid will, let alone a lasting power of attorney. It’s tricky asking them at their age.
Chris and Kate aren’t confident that their own legal affairs are up-to-date.
Their business is getting into the ‘groom for sale’ status. This has involved banks, solicitors, accountants and corporate financiers. Legal papers cover the floor and desk in the study.
Personal and emotional aspects
Kate can’t raise money issues with her parents or siblings. Asking about a will would be unthinkable.
Jenny is at university in Manchester. Tom lives in his bedroom or is out with his girlfriend and friends. Kate would like to pay off Jenny’s entire student debt, but it hasn’t been discussed. They know that Tom is itching to break free of the family home. The problem is that they want to be fair but can’t work out how to do it.
Jack and Ruby are desperate to help their grandchildren and have enough to help with university fees and house deposits. They fear a big row with Chris and Kate if they offer to help.
Chris and Kate listed everything they would like to achieve for the family. They shared it with the lead financial planner of a London-based chartered financial planning firm.
The planning team met Jack and Ruby, and Alison and Trevor. Each meeting went well, and each couple exchanged information without hesitation.
The team met with Tom and Jenny in the summer holidays to understand their personal goals and financial concerns.
The whole process took several months, and everyone wanted to get involved and help. Alison was an outlier due to her health, but she came around in the end.
All members of the family itemised what they wanted to achieve. The responses were collated.
The family meeting
All eight members visited the London office for their Taylor and Jones meeting. Two Chartered Financial Planners and an associate hosted the meeting
All attendees agreed to be open and candid. Ground rules were established, and the session was recorded.
The room was full of noisy debate, and conversation flowed. Objectives filled the whiteboard (with no names assigned to each one).
It became obvious which statement applied to whom, with few surprises.
Two breakout groups formed:
Team A consisted of Jack, Alison, Kate and Tom. Team B comprised Ruby, Trevor, Chris and Jenny. Both teams had the aim of finding family solutions, and they got straight to it.
There is a term called the law of unintended consequences (Robert K Merton), where an action’s result isn’t intended.
The first unexpected action was the loan from Jack and Ruby of a large lump sum to Chris. This was for a year, to cover the cash flow crisis. Ruby had a twinkle in her eye, because at her age she was able to help her successful son with some money. It made her feel good.
Alison and Trevor downsized into a manageable bungalow, which was close to local amenities and the hospital. There were no stairs to trouble Alison. This sale released a lot of cash, which they divided between their four children. Doing this reduced their inheritance tax worries. It gave them great joy to see the wonderful benefit of their gift.
Of most significance was the reality dawning on Chris and Kate. Nothing would be gained by delaying the sale of their business. Their advisers showed that, by selling at mid-range, financial freedom was a step away. There was no need to delay.
Jenny got enough to repay all her student loan debt, while Tom and Jenny received further gifts to part fund their first step on the housing ladder.
Every family member got new wills, plus lasting powers of attorney.
Everyone gained something from the meeting, and nobody lost out. The family is now closer than ever.
In these situations, somebody needs to take that brave first step to break the taboo. Rather than go solo, it makes good sense to get an expert onside first.
A third party with no vested interests can take the sting out of sensitive issues. Choose an independent Chartered Financial Planner who has expertise in this type of inter-generational planning.
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.