Take advice over early inheritances
We are seeing more and more examples of family assets transferring to children well before the death of the last remaining parent.
It is well documented that, as property values have increased, it is becoming more challenging for young people to own their own home.
Some parents, if they have the means, are advancing or gifting funds to children to assist them with their first home purchase.
Traditionally beneficiaries had to wait until the last of their parents passed away before accessing any inheritance. It is now quite common to see parents digging into their pockets to help their children when they need it most.
There are a number of issues to consider.
First and foremost, parents should be mindful of the impact on their own lifestyles and what their current and future needs might be.
Will an early act of kindness towards children have a significant negative impact on mum and dad at some stage in the future? How do you mitigate against this?
It’s also important to think about how the early inheritance is treated. Is it an unfettered gift with no strings attached or is it an on-demand loan that can be called up if need be? What if your child was in a shaky relationship? How do you protect against your child’s inheritance being potentially diluted by 50 per cent if the relationship were to fail?
It is imperative that professional advice be sought before anything is actioned, in particular legal and tax advice. Cashing in investments or transferring property can bring with them significant tax consequences.
It’s important that these are well understood before any transactions happening.
In some circumstances, independent advice might be required.
It’s a good idea to include all family members in the planning stage.
Everyone will have their own point of view and the best time to discuss a plan is when everyone is of sound mind.
Money can strain relationships so having an open and honest discussion with all present is hugely beneficial. The family must stay a family!
A carefully thought through plan will ensure that everyone is treated fairly and that all viewpoints are considered. Remember, document it in writing and make it available to all impacted family members so there’s no confusion. Consider having the family “sign off” on it.
Wills may need to be updated for individuals.
For trusts, the Memorandum of Wishes may need reviewing.
As we move through life, our circumstances change, as do those of our children, so regularly reviewing these ensures that they remain current.
The best plans are those that are clearly documented and well understood by all involved.
■ This information is general in nature and readers should seek specialist advice before making financial decisions.