The most important financial conversations with your parents should focus on what they want their wealth to achieve, how their estate is structured, whether their existing plans still reflect their wishes and who they would trust to make decisions on their behalf should they lose the capacity to do so themselves.
Having these discussions can help ensure their wishes are understood, their wealth is protected and the arrangements they have put in place can be carried out as intended.
For many parents, such conversations may not come easily. They may want their children to establish themselves independently, regard financial matters as private or simply have never found the right moment to discuss them. However, approaching these subjects together can help families better understand the intentions behind important financial decisions.
The following questions offer a starting point for these conversations.
What do you want your wealth to achieve?
For some parents, the priority will be financial security for the rest of their lives. For others, it may be helping children or grandchildren, supporting education, buying property, philanthropy or ensuring that wealth remains within the family for future generations. Often, it will be a combination of these objectives.
Once these objectives are understood, sensible financial and estate planning can begin around them.
Is the estate structured appropriately?
Over a lifetime, financial affairs can become complicated. There may be property, businesses, pensions, investment portfolios, life assurance policies, trusts and assets held in different jurisdictions.
The first step is often simply to understand what is owned, how it is owned and what would happen to those assets on death.
This can reveal opportunities and, occasionally, problems that have accumulated unnoticed over many years.
When was the estate plan last reviewed?
A will written many years ago may no longer reflect the family’s circumstances. Children marry or divorce, grandchildren arrive, businesses are sold, property values change, families become increasingly international and, at the same time, tax legislation changes.
Estate planning should therefore be regarded as an ongoing process rather than something completed once and forgotten.
A review might include wills, trusts, pension nominations, life assurance, previous gifts and the potential inheritance tax position.
The objective should not simply be to minimise tax. It should be to pass wealth efficiently while ensuring that parents retain sufficient assets, income and flexibility for their own lifetime.
Have Powers of Attorney been arranged?
Lasting Powers of Attorney are an important part of financial planning, but are sometimes overlooked. They allow an individual to decide in advance who they would trust to make decisions if they were subsequently unable to do so themselves.
Having appropriate arrangements in place for both financial affairs and health and welfare can save families considerable difficulty at what may already be a stressful time.
Should wealth be passed during lifetime?
Increasingly, families are considering whether some wealth should pass to the next generation earlier, possibly helping children with property, funding grandchildren’s education or establishing longer-term structures for future generations.
However, gifting should never be considered purely from a tax perspective. Parents need to consider their own future expenditure, longevity, potential care costs and the income and capital they may require.
Where substantial wealth is involved, the question is often not simply whether to give, but when, how and with what degree of control or protection.
Does everyone understand the plan?
One of the most common causes of difficulty following a death is not necessarily poor financial planning. It is poor communication.
Children may discover arrangements they did not understand or decisions they were not expecting.
That does not mean parents have to disclose every detail of their wealth. However, explaining the principles behind an estate plan, what parents are trying to achieve and why particular decisions have been made can prevent misunderstandings later.
Even the best financial plan can create difficulties if nobody knows where the paperwork is. Families should consider creating a clear record of important documents and professional contacts, including wills, Powers of Attorney, trusts, insurance policies, pensions, investments and details of solicitors, accountants and financial advisers. Increasingly, that also means considering a person’s digital estate.
The objective is not necessarily to give family members access today. It is to make sure the appropriate people know where the information is and how it can be accessed when the time comes. This is where Loveday Legacy comes in.
Legacy is about more than money and should extend beyond the transfer of financial assets. Families pass down values, experiences, stories and knowledge, as well as wealth.
A successful legacy therefore brings together two things: the wealth a family wants to preserve and the memories and values it wants to pass on.
To find out how Loveday Legacy can help families preserve important information, memories and values, speak to a member of the Loveday Relationship Team.
