News & Views

Gifting to children is fine, but don’t run out of money

“The greatest use of life is to spend it for something

that will outlast it.”

– William James

The main principle of legacy planning is that you’re providing for the people who are important to you, and the challenge is to do so in an efficient way. It’s something we should all be thinking about, and ought to be a core part of your wealth plan.

Your legacy plan will reflect what wealth is to be transferred, when your wealth will be transferred, how your wealth will be transferred and whether you want to pass your wealth to your children, your grandchildren or other friends or family.

Have you passed on any financial gifts to your children?

All parents know that the cost of parenting can be high.

But passing on wealth to the next generation, over and above the ‘running costs’ of having children, can form part of a long-term Wealth Plan.

New research carried out by AKG and co-sponsored by insurer Canada Life found that 38% of parents have already passed on significant financial gifts to the next generation.

The main reason for gifting was to support children or grandchildren with general living expenses, with 21% stating this was their top reason.

18% of respondents said they gifted for a non-specific reason, just wanting to reduce the value of their estate.

And 17% said they made gifts to fund the purchase of a vehicle, with 15% funding other significant purchases.

Supporting family members with the cost of buying property was another popular reason for gifting, with 17% helping children or grandchildren with a house deposit and 13% gifting to buy a home outright.

For those who have gifted to their children, 37% said they could afford to spare the moment, so the gift had little or no impact on their financial situation.

However, 17% said that they had found themselves short of cash in an emergency since giving the money away. 15% had to cut back financially since giving the money.

Meanwhile, 13% took the gifting money from pension savings or lent the money instead of contributing to a pension, and so felt it may end up impacting their retirement income.

Andrew Tully, technical director at Canada Life, said:

“The desire to pass on wealth to the next generation isn’t new but traditionally that has been done following death. Increasingly, many parents or grandparents want to see their children benefit from the money at a younger age rather than wait for an inheritance. However, it is concerning for the financial future of the next generation that the most common use for these gifts is to support day-to-day living costs rather than fund significant one-off purchases.

“It is important that anyone wanting to bestow a financial gift to the next generation first seeks financial advice. An adviser will help identify how much you can safely give without jeopardising the health or enjoyment of your own retirement, and make sure it is done in an effective and tax-efficient manner. The research shows that more than one in 10 parents who make a gift feel it may negatively impact their own retirement planning. The right advice will help make sure people are fully aware of the consequences before taking any action.”

It’s always important to recognise that someone’s wealth represents the blood, sweat and tears of their life, and you have to make sure that it doesn’t just get wasted, either when it’s passed on or by the next generation.

At Well Gibson, it’s our role to help put yourself at the centre of this bigger picture. Whatever stage of life you’re at, we help you anticipate what you’ll need for life’s transitions and plan accordingly. All of that feeds into your legacy planning because it’s only when you’ve understood the rest of your financial future that you can start to determine what you can pass on and to whom that will go.

Contact us today to find out more about legacy planning.