The value of investments and any income from them can fall and you may get back less than you invested.

Financial planning - A family affair


Talking about money remains a taboo in many families. Half of married couples reportedly do not know what their spouse earns. And many wealthy parents are said to shy away from telling their children how well-off the family is for fear of the youngsters contracting “rich kid-itis” – a “loss of work ethic and the ability to spend money like water” as the Financial Times recently described the symptoms.

“Families often struggle to communicate about money, for all sorts of reasons,” says Liz Alley, divisional director at wealth manager Brewin Dolphin. 

“But with the older generation living longer and potentially having care costs, more estates facing inheritance tax, and a savings crisis among younger people, there’s a growing need for families to discuss their longer-term financial planning and have a more joined-up approach.”

She highlights a number of benefits of families receiving financial advice together and of different generations being present at meetings with a financial planner. 

First, this should give the younger generation a better understanding of the financial wishes of the older generation. As a result, there should be fewer unwelcome surprises after a death which can lead to family squabbles – and, at worst, contested wills and unnecessary legal costs. 

Having that improved awareness of an older person’s plans and wishes can also be helpful if a Power of Attorney needs to be used at a later date.

In addition, attending a parent or grandparent’s meetings with their financial planner should provide some reassurance they are being looked after: that they are not mis-sold to and their money is not being mismanaged.

At the same time this involvement can be a way to boost the financial knowledge and responsibility of a younger generation that might not yet have much direct experience of wealth and investment.

The younger generation should also gain a better understanding of their future legacy, ensuring a smoother transition when an estate is passed on and reducing the risk of an ill-considered change in investment approach.

Recent pension freedoms, under which retirees are no longer required to buy an annuity but can  continue to invest their pension pot and flexibly draw down an income, are another important reason to take a more joined-up approach to financial planning.

Pensions have become a very effective inheritance tax planning tool, Alley points out.

“For many people, they should be the first thing you save in to and the last you spend,” she says.

A pension pot can now be passed on tax-free if the retiree dies before 75, and at a much reduced rate of tax if they die aged 75 or older, which can be a very tax-efficient way to pass on wealth to the next generation.

In turn this can make cashing in ISAs, downsizing or releasing equity from the family home a better option for boosting retirement income.

Understandably, the implications of the dramatic changes in pension rules may not be fully clear to many people. There may also be concerns about using the family home to boost income. To ensure the most effective plan, it makes sense to involve the different generations in the discussions.

“When an older person dies, there are still too many cases where families end up with an unnecessary inheritance tax bill - or money goes to the wrong people because there was no will,” says Alley. “Family financial planning can prevent these problems arising, improving the overall financial position of the family and helping to close the savings gap in the younger generation.”

The value of investments can fall and you may get back less than you invested.

Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances, therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.

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