The bank-of-Mum-and-Dad and its relative the bank-of-Granny-and-Grandpa remain important players in plenty of people’s lives.
They may often end up being the lender of choice for those hoping to make their first step on the property ladder. They may also find themselves called upon by those needing financial support to weather the storm of the last six months and maybe even the next six.
But giving money away needs some careful thought. It is not just a matter of when and how much, but also how.
This particular group of financiers may well recognise and appreciate current financial need but have concerns about what could happen to gifted funds in the future. If too much, too soon, will it be spent unwisely? What would happen in the event of a family divorce, or a failing business?
What if circumstances change and the ‘bank’ itself needs some financial support? Given these concerns, making direct gifts is not necessarily always the best method. Advisers may wish to explore other methods that could allow these gifts to be made while providing some additional protection for family wealth in the future.
When is the best time to inherit?
The point in time at which a person is most likely to receive an inheritance is not necessarily the point in time at which they need it most. A recent report from the Institute of Fiscal Studies showed that those born in the 1960s are expected to be an average age of 58 when their last-surviving parent dies, rising to 64 for those born in the 1980s.
Furthermore, around a third of people born in the 1980s will be in their 70s by the time their last-surviving parent dies. At this stage in life, the inheritors are likely to be retired, children are likely to have left home and there is a reasonable chance that mortgages will have already been paid off.
Parents and grandparents expecting to pass on wealth may well feel that the subsequent generations would benefit far more from an inheritance at a younger age – when they are more likely to be facing pressure from property or education or childcare or other costs, rather than approaching, or actually in, retirement.
In addition, it is clear that the Coronavirus pandemic has created challenging economic conditions for many. Some of the older generation with healthy assets may well feel that they have an opportunity, even a need, to support the younger generation now rather than wait until their passing.
On the other hand, inheriting too much too young can also be problematic. Fears of family wealth being squandered do sometimes come to pass. There is a balance to be struck in providing financial support without making life so comfortable that it reduces motivation elsewhere.