GENERATION GAME

Tackling topics such as wills, inheritance and saving for the future with loved ones is never easy. But discussing these issues together is necessary and can help future-proof your finances

If the financial uncertainty of the last few years has highlighted anything, it’s the importance of not putting off conversations about money. Planning a healthy and resilient financial future is important to all of us, but what happens when you have to discuss the needs and financial positions of other family members? From addressing money concerns with ageing parents to confronting how you’ll support loved ones, talking money is rarely simple, but it is essential. ‘Families often struggle to communicate about money for all sorts of reasons,’ says Carla Morris, financial planner at wealth management firm RBC Brewin Dolphin. ‘But with the older generation living longer (and potentially having longerterm care costs), more estates subject to inheritance tax, and younger people finding it increasingly hard to save, it’s never been more important for families to work together on their financial planning.’

So, what are the topics that are the most important to discuss as a family and how should you start the conversation? We asked the experts to identify the areas of top priority and share their advice on how to approach them.

The cost of care

By 2045, the number of people aged over 85 in the UK is expected to double, ONS data shows. While this offers us a greater chance of enjoying more precious time with our loved ones, there’s also a greater possibility they’ll need to access some form of care in their latter years. The cost of care is rising steeply. In 2020, the average cost of residential care had already increased to £34,944 a year (up 3% on the previous year) and annual nursing home care was up 5% (with an average annual cost of £48,724*). So, planning for these financial costs is more important than ever.

‘This is a conversation to have before the necessity arises,’ says personal finance journalist Caroline Bloor, ‘and often it’s easy enough to initiate on the back of what might be happening to friends and neighbours. Do some quiet groundwork. Get recommendations, visit local care homes and see which align with your family values and where you can see your parent – then have a chat about making a possible plan. This is far better than making a big decision in the heat of an emergency situation.’ If an older relative would benefit from financial advice

about covering the cost of care they may need in the future, Moneyhelper or the Society of Later Life Advisers can help them find an independent financial adviser who specialises in this.

Finances in later life

While your minds are focused on the future, it could also be a good time to ask if your parents have a will and a Lasting Power of Attorney (LPA) in place. An LPA allows a named, trusted friend or family member to make decisions on someone’s behalf and manage their finances if they find themselves in a position where they are no longer able to do this. Having this conversation early can provide clarity on how your parents would like their finances to be handled – it’s much harder to put an LPA in place after someone is unable to manage their own affairs. An LPA must be registered (lastingpowerofattorney.service.gov.uk/home) and there’s an admin fee of £82.

‘When I realised that my father didn’t have an LPA in place and that his will was 30 years out of date, I started a conversation with him by telling him I was in the process of sorting out my own will and LPA and offering to help him with his,’ Bloor recalls. ‘It worked. Death in any shape or form was not a subject he wanted to talk about but this “shared business” technique took the focus off him and his mortality and made it much more about good practice in keeping paperwork in order.’

Inheritance planning

Another tricky topic for family discussion, but one that is well worth exploring, is inheritance. If you inherit from parents or grandparents, inheritance tax (IHT) is applied at a rate of 40% to estates of more than £325,000 (£500,000 if a home is included). The threshold at which IHT applies has been frozen until 2028; this means more people are likely to end up paying IHT as the value of property, in particular, continues to rise.

An alternative to passing on wealth after death is to gift money to loved ones while the giver is still alive, if they can afford to do so – something increasing numbers of people are considering. Money can be given as a lump sum (you won’t pay IHT if it’s given seven or more years before death), as an annual gift (everyone has an annual allowance of £3,000 to gift money, or can make an unlimited number of gifts of £250 per person in a year) or as a regular payment, provided it’s taken from surplus income. Inheritance planning is a complex area and one you want to get right, so it’s worth getting advice from an independent financial adviser – find one at unbiased.com.

‘If you’re discussing inheritance as a family, make sure other family members are present and start by discussing what your parents currently have in place, or what they have in mind,’ says Stacey Lowman, financial coach at Claro Wellbeing. ‘It may be helpful to discuss the motivations behind their decisions to avoid any confusion or conflict when they’re gone.’

Saving for children

Just over three-quarters (76%) of parents in the UK put money aside for their children’s future in one form or another, research by Natwest shows, with the vast majority holding savings for their children in cash. However, unless cash savings are earning interest at a rate that beats the rate of inflation, it’s actually losing value in real terms. Other options for long-term savings for children include an investment Junior ISA (pay in up to £9,000 a year; your child will be able to take control of the account when they turn 16 and withdraw money at 18) or a Junior Self-invested Personal Pension (SIPP). The money in a Junior SIPP can only be accessed by your child after the age of 55 (57 from April 2028) and you get tax relief on your contributions – the Government will top up every £2,880 you deposit by £720. As things currently stand, a monthly payment of £25 into a Junior SIPP could be worth £8,118 after 18 years. Meanwhile, Premium Bonds are still popular with 15% of parents, according to the Natwest research. However, while the prize fund rate rose from 3% to 3.15% in February, the odds of a win (24,000 to 1) haven’t changed.

Whether you’re just starting to save for a child, or you want to review the savings plan you have in place, it can be useful to visualise with your partner, or other family members, what support you hope to be able to give your child further down the line. ‘Try to fast forward and think about what you want to be able to give them when they’re 18,’ suggests Simonne Gnessen, founder and director of Wise Monkey Financial Coaching. ‘It might be that you want to help them buy a car or fund a deposit for a property – these are very specific goals that you can work back from and figure out how much you’d need to put aside a month.’ However you choose to save, it has to be affordable.