Transcript: Sharing money with the family
Shirley: Hello, I'm Shirley Ballas and welcome to Rewirement, the retirement podcast from Legal & General. This is the podcast where I meet retirees and would- be retirees embarking on the most fabulous years of their lives. There’s plenty of inspiration and honest talk too. My expert panel here with helpful ideas and information to help you reset and rewire for the retirement you want.
In our final episode of the series, we're talking about a subject that's close to many of our hearts. If you have children or grandchildren or loved ones who would benefit from some extra money, what options do you have if you want to help them out financially whilst you're still around?
John: I think my concern has more been provision for my wife.
Debbie: Until you asked me that, I hadn't even considered my children in retirement.
Shirley: I'll be chatting to Legal & General's Sara McLeish, and MoneyMagpie's Jasmine Birtles to get some answers.
But first, for the very last time, let's catch up with the groups of people who shared their perspectives on retirement with me. We're going to hear from Colin, Tracy and John again today. John's already retired and loving it, but Colin is still a few years off. They both have grown up children. Tracy, on the other hand, is younger and still very much focused on work and her teenage children. So how do their different life stages change how they feel about providing for their children in retirement?
Colin's just become a grandfather for the very first time. I asked him if you planned to leave any inheritance for his child.
Colin: We’re not really planning to leave anything. Obviously, whatever's left in the estate when the time comes will go to them. They're both sort of fairly financially independent and set up. They've been very fortunate in that they went to university, they got decent degrees, they've both got decent jobs, although my daughter's no longer working now that she's a mom and loving being a mom. And we love being grandparents as well.
So we’re not really planning to... It's not a definite strategy to leave them a set amount of money. I think we have talked about it very briefly. They've really said we want you to enjoy your lives and go out and do the things you want to do, rather than sort of sit at home thinking, " No, we mustn't do anything because it leaves more money for them at the end of the day."
Shirley: And I've got a son and all I ever thought about was planning and making sure he has something when I'm gone.
Colin: [crosstalk 00: 02: 44].
Shirley: Yeah, it’s funny, isn’t it?
Shirley: And also, helping along the way so I could enjoy it. I could see him enjoy it and I was here to enjoy it, and already planned for when he has a grandchild.
Shirley: Tracy, the same question?
Tracy: That’s that I haven’t really thought about. My children are 15 and 12, so they're both at secondary school. So the next bit really is thinking about sort of helping them through uni or higher education. That’s the next bit. So I haven't really thought about making provision for them later on. I’ve made a will. We’ve done that. So God forbid, if anything happens, they're all sorted. But yeah, I haven't thought about that really, and maybe that is something that I should think about.
Shirley: So after this conversation, you'll have a think about that? Maybe when they have grandchildren, do you want to help them go to school? Do you plan to take them on holidays? Are you making provisions even, not necessarily for your children, but for your grandchildren?
Tracy: I haven’t even thought about grandchildren, Shirley. That’s a scary thought. Oh my goodness. My head has not being in that place at all. I've got my kids and they're my children. They are our children.
Shirley: It is a little bit long-term thinking though, isn't it?
Shirley: It’s a long-term thing. Because what we tend to do is we think about it as it's happening, as they turn 18, " Okay, now they're getting married and I have to pay for the wedding, and now they've got children and how do I help the children? And they have to go to school," and so on and so forth. We tend to think about it as it happens.
When my son was 21, my mother- in- law left me quite a lot of nice jewellery, and I talked to my son about wills and money and this, and, " One day when you have a family," and he just closed the conversation down. He didn’t even want to talk about it at 21. I mean, I've been divorced from his dad a long, long time. We’ve both got different opinions. His dad says, " He'll get mine when I die," and I'd like him to have some of mine when I'm living so I can see the grandchildren enjoy it and so on.
Tracy: Yeah. Oh, that's definitely the way that we want to go, is to share what we've got.
Shirley: Colin, how do your children feel about finances, your finances?
Colin: Our finances rather than their finances? I think somebody else mentioned they didn't really start off with much and neither or my wife did. So we feel that we've built up what we've got and we've already been able to start our kids off with the money to help them through university, which has enabled them to upskill and have experience and get decent jobs themselves. So that they really set themselves, so I don't think they've got any expectation and they would rather that we went out and enjoyed ourselves.
Having said that, we helped our daughter out with her wedding three, four years ago, with a significant lump sum to put on a nice wedding. It wasn't an extravagant wedding, but it was a fantastic day, best day. It was even better than my wedding, to be honest, and everyone said that.
Shirley: John, do your children have any expectation of receiving any money from you or any financial help whatsoever in your retirement?
John: Well, I have been able to help them somewhat. We helped our son with regard to the purchase of his flat, not very much because he didn't need very much. Now, there's been one or two other things, though I don't think they particularly expect anything, though certainly they will get something.
I think my concern has more been, Shirley, for provision for my wife. My father died when he was 68 and my mother was 10 years younger and she was a widow for 25 years. She was very fortunate that she was left a reasonable amount of money by her father, and dad hadn't taken his pension, so that helped. I don't think I'm going to leave this earth too early, but you never know. So I thought that was quite important because my wife gave up work when our son, the first one, was born, and then very much worked on a part time basis thereafter. And so, she hasn't got a lot of money behind her.
So basically, I want to make sure that everyone's provided for, and if I can leave that lump sum, draw down the 25% at some stage, and the rest can be left for the rest of the family. So I don't think they have an expectation. I’d like to think they'd rather have me here.
Shirley: There seems to be so much variety in how everyone thinks about their money in the future. I put the same question to Sue and Debbie. Sue is retired and living life to the full with her many hobbies and groups, but Debbie is younger with two teenage children and a busy job in London. I asked her about her plans.
Debbie: That's a really interesting question because until you asked me that, I hadn't even considered my children in retirement. I would have imagined my children would, by that point, be self- sufficient and providing for themselves.
Shirley: Because we all want to think of our children as independent, I love it that my son is independent, but at the back of the mind as a mother, I always think, what if? I know that's a little bit my character, maybe a downfall, I'm not sure, but what if this happens and how would he cope? Do you think about those things?
Debbie: Yeah, we do think about those things. And both the kids, we put money away for them. It was mainly for educational purposes. So when they got to 18, they'd have a small nest egg to either help them with the university, help get a car, that kind of thing, a small nest egg. And both of them, I mean, the older one now has that, he has access to it and hasn't spent it yet. The younger one, we're building it and it will be the same when she gets to 18.
But we hadn't really thought that much further ahead. I mean, that is possibly something we will do as we near retirement, but we haven't considered that at the moment.
Shirley: So for example, if they turn 25 and they suddenly decide they're going to get married and they both got decent jobs, but not enough to put them on the property ladder, and your son, daughter says, " Mom, is there any chance that you can help us out here?" Could you do that? Do you think about that?
Debbie: We haven't really thought that far ahead, which is possibly a failing. I think we're too busy thinking about the near future, but also our retirements as well. So yeah, we haven’t. Perhaps that’s something we should think about.
Shirley: I like that. Sue, how did you go about helping your children become independent before you retired?
Sue: We helped the children before we retired by... We did give them help with a deposit when they wanted to buy... Well, it was flats initially. All three of them now have their own homes. We also helped them because my mother- in- law died and left half her property, my husband's got a sister, left half her property to my husband, and he shared that between the three children because we didn't feel we needed it and they did. So that was a bit of a help because you need a fair bit of a deposit nowadays and people can't save it.
Shirley: They just can’t find it at a young age.
Sue: Yes, they're now paying 200 pound a month less on the mortgage than they were renting.
Shirley: It’s no doubt a moving subject. Every parent wants to be there for their children, but circumstances don't always make it possible to help financially and everyone's different. I find it hard to get my own son to talk to me about money, but I think it's so important to have those brave conversations upfront.
One thing I want to understand is how best to share money with my family whilst I'm still around to enjoy them enjoying it. Fortunately, help is at hand.
Thanks for joining me. We have Sara McLeish, CEO of Legal & General Financial Advice, and money expert and writer, Jasmine Birtles. Welcome.
Jasmine: Hi there.
Sara: Thank you.
Shirley: Right. Jasmine, you're well known for your TB tips on finances. How often are you stopped in the street for advice on issues relating to family and money?
Jasmine: Yes, I do get stopped occasionally. It’s quite funny. But what happens more often is that I get emailed. And it's actually got to the point now where I get so many that we've actually set up message boards on moneymagpie. Com. So I say, " Put the question on message boards and I'll answer it." And sometimes it's me, sometimes it's one of my team members, but it does get answered ultimately.
Shirley: Sara, what are the main reasons you come across for people wanting to share money with their families whilst they're still around?
Sara: Well, Shirley, there is so many reasons why our customers want to share money with their loved ones and their families, but one of the most popular reasons we see is of course helping their children and their grandchildren to get onto that all- important housing ladder and to buy their first home. As we heard from Sue earlier, buying a property now requires a huge amount of money up front, not just for a deposit, but for all of the other costs involved. And we've seen a lot of parents and grandparents wanting to help their loved ones with those costs.
But we've also seen plenty of customers supporting family members by funding a life experience or an ambition, be that a wedding, a degree, a new business, or to pay for the family holiday of a lifetime.
Jasmine: That would be me.
Shirley: Jasmine, what sorts of things should people consider before they make plans to share their money?
Jasmine: I think the things that one should consider before making plans like that are really how long you're likely to live and how much you're going to need to spend. And we have a tendency to underestimate how much we're going to spend. So it's a good idea just to, for a start, look at your statements from the bank for the last year or so and see what you've been spending. Now you could say to yourself, " Oh, I won't spend on this," but why shouldn't you? Why shouldn’t you have a decent life? And then the big thing of course is care costs, and those are going to be much bigger than you would expect.
So I think it's a really, really good idea to share your wealth while you're alive. Apart from anything else, it gives other people the chance to say thank you. But I think you need to be careful, particularly if you're young, you're only just coming into retirement, 50s, 60s, even 70s. People are living until hundreds at the moment, particularly women. So I think it's a good idea to leave quite a bit of a contingency for later on.
Shirley: There’s something else going on my list. Okay. Sara, do you think we have different attitudes about sharing money today compared to previous generations?
Sara: Absolutely. I mean, so much has changed, Shirley. Firstly, and probably most importantly, the good news is that we're all living so much longer and now retirement is a 20 or 30 year event for most people. And because of that, there's a huge amount of opportunity now for retirees to watch their children and their grandchildren really enjoy their legacy first-hand. And we're seeing more and more of our customers wanting to give these, what we call living inheritances.
I think the second thing that's really changed is that we no longer have free further education and the cost of buying a house is higher than it's ever been before. So our children, our grandchildren, need more financial support than they've ever needed.
Shirley: What can people do if they want to help out their children or grandchildren, but need to make sure they have enough to cover their whole retirement. If some people are borrowing against their home, what is the knock on effect in a few years’ time?
Sara: Well, helping children or grandchildren is a really big financial decision, and it should be approached as just that. When weighing up a decision like this, there's so many factors to take into consideration, not least whether you've got enough money to last you for those 20 or 30 years of retirement and that you can gift that money without leaving yourself short. I'd always recommend that you speak to a financial advisor to get some really expert advice on what the implications will be for you and the best course of actions for your particular circumstances.
I think especially when it comes to things like gifting money to family, these financial decisions can carry a lot of emotion, and what financial advisors can bring is independence, objectivity to that process. So if you don't have a financial advisor, if your friends aren't able to recommend you one, then visit unbiased. co. uk to find a financial advisor in your area.
Shirley: Legal & General have done some research into how people are funding gifts to their family in retirement. What were the findings?
Sara: Yes. So every year, we run this really fascinating study that's called the Bank of Mum and Dad. And year after year, what we see is that there are thousands of people over 55 who are helping their loved ones and that the Bank of Mum and Dad is becoming more generous with every year that passes.
So last year, in 2019, the Bank of Mum and Dad was the 11th largest mortgage lender in the UK. It lent six and a half billion pounds to children and grandchildren. And in most cases, that was as a gift with no strings attached and no requirement to pay back that loan.
Over half of the time, the Bank of Mum and Dad is just using cash reserves to help children, whereas others were withdrawing from their savings and investments, and about 10, 15% were considering releasing equity from their home to make a gift to their children.
But some of this lending can come at a cost and it does sometimes come with sacrifices. So 15% of people that gifted money to their children last year had to accept a lower standard of living as a result, and 6% of them postponed their own retirement date to enable them to help their children and grandchildren. So some big sacrifices going on there.
Shirley: The question of inheritance tax is a big one. What options do people have for sharing their money efficiently? Will there always be an issue around gifting whilst you're alive?
Jasmine: Well, yeah, very good questions there. I mean, whether there will always be an issue, I don't know. I suspect there will because, for quite a while, people were trying to get around inheritance tax rules by, effectively, giving their property to their children, but actually living in it still. And they had to bring rules against that. But so long as you give money away more than seven years before you pass on, frankly, you can give what you like. They do say that you can give up to 3000 pounds a year, even within that seven year time. But if you're planning on living a good 10, 20, 30 years, you can give them your house now, so long as you're not living in it. You could give all sorts of things away.
So it is worth considering that, and that's another good reason for transferring money to the younger generations earlier, rather than later. But it's also good to know about the threshold, and that has changed a bit. If the value of your estate is less than 325, 000 pounds, well, nobody will have to pay any tax. But also, if you give away your home to your children, and that includes adopted, foster or stepchildren, or your grandchildren, then your threshold actually can increase to 500,000. That's a recent thing that they've brought in because people have been so fed up about paying inheritance tax on homes that are really often quite ordinary.
Shirley: Some people like to give to charity or support causes that mean a lot to them. Are the rules different there?
Jasmine: I think giving to charity is a fantastic idea, particularly if you haven't got any friends and you hate your family. I mean, give it all to charity. This is one thing I often say because people don't make a will. I mean, I would like it to be mandatory that everybody has to make a will. People often think, " Oh, I'm not going to make a will because I don't really care who has it," but there are charities out there. And actually, not only can you leave money to charity inheritance tax free, but if you leave more than 10% of your estate to charities, then the people who actually inherit the rest, they have a reduced inheritance tax rate. Because usually, inheritance tax is 40%. But if you've given a good chunk to charities, then they pay 36%, which, okay, it's not like a massive drop, but it all helps frankly.
Shirley: 40% to 36% if you leave 10% to the charity.
Jasmine: Yeah. So if it's 10% or more, so if you leave at least 10% of your estate to charity... That can also include, by the way, your local football club. If it's a sort of community sports club, that counts as well. And you can do it to various charities. There might be things that you really care about, animals, children, politics, whatever, and it's a really good way to give and cut down on your tax bill, well, other people's tax bill.
Shirley: I like that I'll take that because I support men's mental health, so that's an interesting one for me.
Jasmine: That would be great. Yes, they would be so grateful. This is the way that a lot of charities keep going frankly.
Shirley: What key questions do you think people need to ask themselves before they make decisions about sharing from their retirement fund?
Sara: I would say, again, it's just so important to seek financial and legal advice here, not least around the tax implications and inheritance tax in particular. There's lots of great free resources out there online, but obviously everyone's financial situation is unique and a financial advisor could help you tailor a plan for your own specific situation.
Questions that I'd be asking myself, what are the tax implications of doing this from an income tax, but also an inheritance tax perspective? Will this leave me short? As we said earlier, somebody in their early 60s can expect to live 20 or 30 years in retirement. Do you have enough funds to see you through that very extended period? How prepared are you for the unexpected? What does your rainy day fund look like? Do you have enough money if the boiler breaks down, if you need to repair your roof, et cetera?
And the final thing I'd suggest is having a really open conversation with your family about this. We're not a nation that likes to talk openly about money, but there really is no substitute for getting around that kitchen table and talking about what everybody's financial circumstances and needs are.
Shirley: Thanks so much to Sara and Jasmine for chatting with me. I've loved meeting our incredible rewirees and have been so moved and inspired by the conversations we've had. I really wish them every happiness in their futures, whether they're filled with narrow boats, music, camper vans, or loved ones.
We've also been joined by some of the cleverest minds in money across this series, and it's definitely given me some things to think about. I hope it has you.
The world of money and retirement is changing all the time and who knows what possibilities the future holds? You can find out more about retirement planning at legalandgeneral. com/retirement. Thanks for listening. I'm Shirley Ballas wishing you the most fun- filled and colourful retirement.
Do you plan to leave something for your children, or spend it all before you go?
Perhaps you're thinking about helping them out whilst you're here to see them benefit from it. Or maybe sharing money with your loved ones seems like pie in the sky. Our rewirees share their thoughts with Shirley on the topic of sharing money and inheritance.
Legal & General's Sara McLeish and Money Magpie's Jasmine Birtles are on hand to help out with ideas, options and understanding the issues over this sensitive subject.
CEO, Legal & General Financial Advice
Sara was appointed CEO of Legal & General Financial Advice last year. She is passionate about the role good financial advice can play, to help people make more informed decisions about how to utilise their assets as they enter and progress though retirement.
Sara joined Legal & General in 2018, having spent 13 years as a management consultant and Director with EY.
Jasmine is well known as a money expert and TV and radio personality. She is the founder and editor of money-making website Moneymagpie.com which is a go-to site for information and help on making and saving money day to day.
She’s written a number of books about money and her lively, common sense style is easy for people to understand.