The Return of the Rise in Probate Fees

Back in 2017 we covered the proposed rise in probate fees which was subsequently abandoned when the general election was called.  The current probate fee is a flat fee of £215 or £155 if the probate application is made via a solicitor.

In November 2018, the Government brought before Parliament proposed legislation which if approved, will introduce a new banded structure of fees, tiered according to the size of the deceased’s estate as set out below: –

·         Up to £50,000:                        no charge

·         £50,000- £300,000:                  £250

·         £300,000- £500,000:               £750

·         £500,000 to £1m:                    £2,500

·         £1m to £1.6m:                         £4,000

·         £1.6m- £2m:                             £5,000

·         Above £2m:                              £6,000.

Whilst there are significant increases for the larger estates, (although not up to as much as the £20,000 previously proposed), it is estimated that 80% of estates will not pay more than £750 and fewer estates will be liable because the probate fee threshold will rise from £5,000 to £50,000 which should exempt about 25,000 estates every year. The additional income raised, estimated to be £145m, is to be invested in the Courts and Tribunal Service and will be used to fund improvements to the Probate Service. This includes the ability to apply for a grant of probate online. Interestingly, a separate statutory instrument has been issued to introduce this online application process and will lead to an administrative cost per application of only £9.30.

However, as the probate process is broadly similar regardless of the size of the estate, it could be argued that the new fees represent a stealth tax on property as property is normally the main constituent of the estate. Indeed, a House of Lords committee has reiterated this and is concerned that the proposals will lead to a move away from ‘the principle that fees for a public service should recover the cost of providing it and no more’. Executors may find themselves having to find the required fees themselves where estates are relatively illiquid, while professional executors may raise their fees to cover this.

Charities will also be adversely affected as they are not exempt from probate fees. It is estimated that they could lose about £10m a year of legacy income and so there will be lobbying for a relevant exemption to be introduced.

The Government are hoping to have the legislation through Parliament by April next year and if it is agreed, it will clearly be important to ensure that funds are available to your executors to pay the fees.  This can be easier said than done and particularly as these have to be paid before any of the assets can be distributed.  This is something that we can discuss during our meetings and incorporate into your financial plan.

 

 

 

 

Financial Decision Making in Later Life

Financial Decision Making in Later Life

The World Health Organization reports that by 2050, 2 billion people (22% of the World’s population) will be age 60 and older, up from 605 million (11% of the population) in 2000. Older adults must make important, and often irreversible, decisions that impact the rest of their lives.

Examples include when to take pension benefits, whether to buy long-term care insurance, how to most efficiently draw down savings and whether to annuitize assets.

Unfortunately, while advances in wealth and medical science have led to rising life expectancies, longer lives create the risks of running out of financial assets sufficient to support a minimally acceptable life style. The longer we keep going then the risk of cognitive impairment increases, which, amongst other things makes us more susceptible to becoming the victim of financial abuse.

Thoughts of retirement can be dreams of being free of job responsibilities and enjoying travel, leisure activity and having fun. We look forward to having time to do the things we didn’t have time to do. Our thoughts usually do not include fear that someone is going to rip us off. Unfortunately, financial abuse does happen, even to the smartest people.

Most of us do not want to face the fact that, over time, we may lose our mental acuity. However, declining mental sharpness is inevitable for many. That makes us more vulnerable. Even if you do not suffer any decline in mental sharpness, there is no guarantee you will be untouched by those seeking to exploit you.

Determined, professional thieves know that many older people have nest eggs that can be stolen. Educated and powerful people can be taken advantage of and manipulated right along with those who lack these advantages. No one is immune.

Carolyn Rosenblatt, who is a well-known American expert and author with extensive experience working with both healthcare and legal issues offers the following checklist of warning signs of cognitive impairment (which can increase the risk of financial abuse):

  • It appears to others you trust that you are no longer able to process simple concepts.
  • You appear to be forgetful, with short-term memory loss.
  • You appear unable to recognise or appreciate the consequences of financial decisions.
  • You make decisions that are inconsistent with your long-held goals, investment philosophy or commitments.
  • You demonstrate erratic behaviour.
  • You refuse to follow appropriate investment advice, which you have generally accepted in the past.
  • You seem to others to be paranoid about someone taking your money or missing funds that are not missing.
  • You lose the ability to understand recently completed financial transactions.
  • You appear in any way to be disoriented, get lost in familiar places, such as finding your way home, or you forget where you are.
  • You forget to groom, bathe or take basic care of your physical needs.

If you (or a loved one) are experiencing these signs, it’s time to seek help. You do not want to wait until after the damage is done.

Rosenblatt also offers the following 10-point smart retirees’ checklist that generally covers many of the bases of how to help your family and you be best prepared for things you need to manage in this phase of life and avoid abuse. The bottom line here is transparency and open communication.

1. Decide with whom you want to communicate about your future. Set a date and get together.
2. Have a signed and registered lasting power of attorney in place to cover finances.
3. Have a signed and registered lasting power of attorney to cover health and care decisions.
4. Make a list of all bank accounts, investment records and financial planning you have done, and provide contact information.
5. Provide written permission to your loved ones to talk with your solicitor, accountant and financial planner.
6. Make a list of all insurance policies, including life, disability, health, property and anything else you own that will protect your heirs.
7. Make a copy of your mortgage statement, any other loans, financial statements and bank statements. Keep them in one place. Update when changes are made.
8. List your doctors, care providers and medications. Give written permission for your loved ones to speak with your doctors.
9. Put in writing your wishes for burial or disposition of your remains.
10. Update your will and/or trust with a local solicitor. Laws change and documents need to be up-to-date.

Have a family meeting to share and explain items 2 to 10 to your loved ones.  Carpenter Rees can provide a list as to what should be included here to enable you to prepare a folder of relevant documents and contact details.

If you or your family don’t have such a plan already in place, maybe treat this as a timely reminder to act.

 

Brexit and your Portfolio

This week I thought I’d hand over the floor to a guest writer. So, if like me you are becoming a bit of a BOB (Bored of Brexit), here are some words of wisdom from our Investment Analyst – Tim Hale of Albion Consulting.

Whichever way one voted, it is hard not to be dismayed by the shambles that is Brexit, concocted by all sides. In the event that the current deal agreed gets voted down in Parliament, or there is no deal, there is a material chance that the government could fall. One or both of these events would come with great uncertainty.

We set out three key investment risks relating to Brexit and how sensible portfolio structures can mitigate them.

Risk 1: Greater volatility in the UK and possibly other equity markets
In the event of a poorly received deal or no deal, it is certainly possible that the UK equity market could suffer a market fall as it tries to come to terms with what this means for the UK economy and the impact on the wider global economy. A collapse of the Conservative government and a Labour victory would add further uncertainty.

Risk 2: A fall in Sterling against other currencies
In 2016, after the referendum, Sterling fell against the major currencies including the US dollar and the Euro. There is certainly a risk that Sterling could fall further in the event of a poor/no deal.

Risk 3: A rise in UK bond yields (and thus a fall in bond prices)
The economic impact of a poor/no deal and/or a high-spending socialist government could put pressure on the cost of borrowing, with investors in bonds issued by the UK Government (and UK corporations) demanding higher yields on these bonds in compensation for the greater perceived risks. Bond yield rises mean bond price falls, which will take time to recoup through the higher yields.

Mitigant 1: Global diversification of equity exposure
Although it is the World’s sixth largest economy (depending on how you measure it), the UK produces only 3% to 4% of global GDP, and its equity market is around 6% of global market capitalisation. Well-structured portfolios hold diversified exposure to many markets and companies. Changing your mix between bonds and equities would be ill-advised. Timing when to get in and out of markets is notoriously difficult. Provided you do not need the money today, you should hold your nerve and stick with your strategy.

Mitigant 2: Owning non-Sterling currencies in the growth assets
In the event that Sterling is hit hard, it is worth remembering that the overseas equities that you own come with the currency exposure linked to those assets. Remember too that a fall in Sterling has a positive effect on non-UK assets that are unhedged. The bond element of your portfolio should generally be hedged to avoid mixing the higher volatility of currency movements with the lower volatility of shorter-dated bonds.

Mitigant 3: Owning short-dated, high quality and globally diversified bonds
Any bonds you own should be predominantly high quality to act as a strong defensive position against falls in equity markets. Avoiding over-exposure to lower quality (e.g. high yield, sub-investment grade) bonds makes sense as they tend to act more like equities at times of economic and equity market crisis.

Some thoughts to leave you with ..

Even if you cannot avoid watching, hearing or reading the news, it is important to keep things in perspective. The UK is a strong economy with a strong democracy. It will survive Brexit, whatever the short-term consequences that we will have to bear, and so will your portfolio. Keeping faith with both global capitalism and the structure of your portfolio and holding your nerve, accompanied by periodic rebalancing is key. Lean on your adviser if you need support.

‘This too shall pass’ as the investment legend Jack Bogle likes to say.

If you would like to chat to us further about Tim’s words of wisdom or indeed our model portfolio’s, please do contact us.

Warnings – This article is distributed for educational purposes only and should not be considered to be investment advice.  The article contains the opinions of the author but not necessarily the firm and does not represent a recommendation of any security, strategy or investment product.  Past performance is not indicative of future results.  The value of investment can fall or rise.  

If You’re Retired; Do You Have to Travel?

A lot of people I meet say that they want to travel when they retire, so I was quite interested to read a blog I came across recently covering this point. The article touched on the fact that it almost seems as if travel is a prerequisite for a fulfilling retirement, like it’s part of the package of the successful middle-class retirement lifestyle. Individuals say, I’ve been to China and India, or walked the El Camino de Santiago, and chartered a river boat down the Rhine.

But for some people, travel is not a priority and they don’t really want to travel all that much. And when they do travel, they stay close to home. Does that make them a failure at retirement? Do people feel sorry for them, because they don’t have the imagination or the curiosity to want to visit strange, foreign lands or can’t afford to travel?

Some people do not like to fly; there’s getting to the airport, then the crowds and the process of being herded through security and corralled into a narrow aluminium tube flown by a stranger.

Many may have travelled around Europe in their younger days or maybe even the Far East, but that was when they didn’t mind sharing a bathroom with random strangers. It didn’t faze them to arrive in a city and not know where they would be sleeping that night and didn’t mind struggling to communicate with people in a different language.

To retirees who like to travel, their sense of adventure must be admired. But those that don’t shouldn’t feel that they are missing something by not liking to travel, or that they are somehow cheating themselves in their retirement years. Travel is one thing to do in retirement; but it’s not the only thing, and it’s not something we should feel required to “check off” in order to fulfil our retirement dreams.

Besides, there’s plenty to see, even if you never travel more than a couple of hundred miles from home and to some people, sharing great experiences with family and friends or pastimes within their community are just as rewarding.

So, No, you don’t have to travel in retirement. For some, retirement can indeed be fun without it.

Did You Inherit Your Beliefs About Money From Your Parents?

Parents know that children hear, see, and pick up on everything that is going on with the adults in their lives. And when you were a child, you were no different.

Many of the attitudes we have about money were formed at a very early age as we absorbed how our own parents dealt with their finances. Some of these beliefs, such as a commitment to disciplined saving, are positive. Others, like skepticism about the stock market, can be more harmful than helpful as we try to build wealth in our own lives.

Answering these four key questions can help you look at your financial upbringing with a fresh perspective. When you’re done, think about which money beliefs you want to pass on to your own kids, and which might be preventing you from living the best life possible with the money you have.

1. What was money like growing up?

Your childhood experiences of money are a composite of details both big and small.

You probably compared the comforts of your home to what you saw next door and drew some conclusions about how comfortable your family was.

Did your parents get a new car every couple of years or drive around in the same car until it died? Did you take frequent holidays? What were holidays and birthdays like?

Watching mum and dad carefully balance their bank account or set next week’s grocery budget also might have made a strong impression. And at the more serious end of the spectrum, an unexpected job loss, debilitating medical condition, or death could have had a profound impact on your family’s finances.

2. What was money like for your parents growing up?

Many baby boomers were raised by parents who had to tighten their belts during the Great Depression and World War II. They probably impressed upon your parents the value of the hard work, the importance of saving, and perhaps some real apprehension when it comes to money. Your parents may have passed on these same values to you or swung in the opposite direction and tried to make money as stress-free as possible.

How much do you know about your parents’ childhoods? If they’re still living, ask some questions that will fill in your family’s history a little more clearly. You might learn something surprising. And you might gain some insight into how their experiences of money are still affecting you.

3. What specific lessons were you taught that you have continued?

Some people grew up in households where money was tight and may have viewed people with large amounts of wealth with suspicion or resentment. In other cases, hard-working adults have admiration for such people but underestimate how much hard work, risk and discipline it takes to build greater levels of wealth. Their children can learn to do the same.

On a more positive note, your parents may also made decisions that taught you what was more important to them than money. Perhaps they sacrificed their own leisure and comforts so that you could attend a good private school.

4. What was the best thing you were taught about money?

As a child you probably rolled your eyes whenever your parents passed on their beliefs about money or started reminiscing about what money was like when they were growing up.

Now that you’re the one doing the earning, some of those lessons probably ring true. “Live on less than what you make” is hard to hear when it’s used to explain why you can’t have a new bike or take a big holiday. No child wants to sacrifice their weekends or summers working part time because their parents insist on it. But the lessons that were hard to swallow when we were young often create attitudes and habits that benefit us as adults.

The sum of all these memories, the positive and the negative, is a blueprint to your financial thinking. It’s also the schematic that we use to build your life-centred financial plan. Come in and share your blueprint with us so that together, we can lay a strong foundation for your family’s future.

Corrections and the Nature of the Markets

Currently, markets around the globe are ‘selling off’ due to worries ranging from trade policies and tariffs to rising U.S. interest rates to geopolitical concerns. Rather than be alarmed, however, we should consider whether this is merely a return to more “normal” conditions and not necessarily a sign of worse to come.

Why do we say a return to more “normal” conditions?

First, let’s think about the nature of investing and the relationship between risk and return. Also, remember that risk and uncertainty are related: the latter brings about the former, and with more uncertainty, the potential for future payoff may also be greater.

We have all been vulnerable to forgetting the nature of risk and uncertainty in the markets; the Central Banks interventions into the markets has pushed the stock market seemingly straight up since March 2009, with just a couple of corrections in between.  With higher expected returns, we should expect volatility, as that is the mechanism through which investments ultimately find their true value. When discussing corrections, we should consider three basic issues:

Why they exist,
Why they are natural, and
Why they are necessary.

Corrections (when they occur) exist because facts become more widely known and understood, or alternatively, they change altogether. News flows are constant and are almost always unpredictable. Random events confound even the most carefully-made forecasts, which then must be discarded. Conventional wisdom is re-examined, and new data provides investors with deeper ways of thinking about an investment, or even the markets as a whole. Armed with fresh knowledge, investors may change their minds. And that may mean responding with “sell” instead of “buy.”

Market movements are natural because the data does change and people, in turn, change their minds in response. In a static world, there would be no corrections – nor would there be many opportunities, either. In that world, all investments would always be priced at their “fair value” and would never deviate in a way to provide an entry point to buy a new opportunity. Investors constantly research, analyse, and evaluate investment opportunities. Information on those opportunities is constantly being released and thus is constantly changing.
Being early to capitalize on that changing information means some investors are quick to act – and when they all act at once, then the market may either surge higher or plunge lower. It is a natural course of action for market participants, upon realising the same new information, to act quickly to buy or sell.

Corrections are necessary because it is through this mechanism that risk is fairly priced. What do we mean by this? Quite simply, stocks, bonds and other investments are determined by what investors are willing to pay for them; this depends in turn on what people expect will happen in the world. The more uncertainty there is, the lower the price one is willing to pay for an investment, because there are more ways that the investment can be pushed off course. In this situation, most investors want a greater degree of protection when buying a stock – and that means a lower price. A correction, thus, is a way in which a sign that says “Special! Sale Now On!” is hung over the market, perhaps signalling buying opportunities. Indeed, it’s often the time when many investors go shopping for things they might not otherwise have bought when they were more expensive. It’s simply how the market works, much as in a department store.

In fact, it’s completely abnormal not to have corrections. We’re quite overdue, in fact. We’ve become complacent, forgotten how they feel or even what they look like. Having one, or even more of them would be a return to normal. In this case, “normal” means an environment with more volatility; that is, the very thing which investors undertake in order to receive the returns they expect. It’s a natural, expected, and customary trade-off.

Autumn Budget 2018

Philip Hammond, the Chancellor of the Exchequer, delivered his third Budget to Parliament on 29 October 2018 and what should be the last one before Brexit in March next year. What should you take away from this year’s Chancellor’s Autumn Budget 2018?

Mr Hammond opened the Budget by declaring it was aimed at hard-working families, ‘the strivers, the grafters and the carers’, and would pave the way for a ‘brighter future’. He set out the Government’s plan to build a stronger, more prosperous economy, building on the Spring Statement and last year’s Budget.

A number of measures and consultations were announced which perhaps demonstrate a loosening of the fiscal purse strings. However, the Chancellor concluded that although austerity is coming to an end, discipline will remain.  As well as the tax cuts and increased departmental spending, the Chancellor announced one-off bonuses for defence, schools and local authorities.

There were no widespread announcements around pensions tax relief. There had been rumours that the Chancellor may look to introduce a flat-rate of tax relief, but in the end there were only more minor changes to the pensions landscape.

From a tax perspective, there is a short-term tax giveaway for the next couple of years to encourage consumer and business spending whilst the process of a Brexit deal is worked through.

Individual taxpayers will benefit from the increase in the personal allowance to £12,500 and the higher-rate threshold to £50,000 from April 2019. However, the self-employed will continue to pay Class 2 NICs.

Businesses will also benefit from a two-year increase in the annual investment allowance to £1m, which allows an upfront tax deduction for capital expenditure on plant and machinery.

The Chancellor left us with a warning that if the financial forecast was adversely impacted by the Brexit negotiations, then next year’s Spring Statement could be upgraded to a full Budget.

Click here to read our full Autumn Budget 2018 Guide.

As pensions, savings and estate planning were largely untouched, now is an opportune time to make the most of valuable tax allowances, reliefs and exemptions that already exist – especially as this could be a short-term window of opportunity, with only months to go to Brexit.

To review what action you may need to take to keep your personal and business plans on track, or if you have any further questions, please contact us.

3 Ways to Know When You Are Ready to Retire

There’s a pretty good chance that your parents or grandparents retired simply because they reached age 60 or 65. However, today’s retirement is a bit more complicated than that and I’m not just talking about the changes that have been made to state pension age.

Whilst age is still an important factor, your ability to connect your financial resources to your lifestyle goals is what will truly determine if you’re ready to retire. Here are three important markers to cross before you crack open your nest egg:

1. You’re financially ready.

The most common question we field from our clients is, “How much do I need to retire?” While there’s no magic number to hit, a few key checkpoints are:

– You have a budget. Many clients who are preparing to retire tell us they’ve never kept a budget before. Time to start! If you have any big plans for early in your retirement, like remodelling your home or a dream holiday, let us know so we can discuss and model this expenditure to ensure it can be achieved.

– Your debts are paid. No, you don’t necessarily need to pay off a fixed-rate mortgage before you retire. But try to reduce or eliminate credit card balances and any other loans that are charging you interest.

– Your age, pension funds, and state pension benefits are in sync. If you’re planning on retiring early, be sure that your pension provider won’t charge you any early withdrawal penalties for which you’re not prepared. Ensure you have maximised National Insurance to provide a full state pension entitlement.

2. You’re emotionally ready.

We spend so much of our lives working that our jobs become a large part of our identities. Rediscovering who we are once we stop working can be a major retirement challenge. To prepare for this emotional transition:

– Talk to your spouse ahead of time. Don’t wait until your last day of work to discuss how both of you feel about retirement. What do each of you imagine life will be like? What are the things you’re excited to do? What are you afraid of? What can each of you do to make this new phase of life as fulfilling as possible?

– Make a list. What are the things you’re passionate about? Something you’ve always wished you knew more about? A skill you’d like to develop? A cause that’s important to you? A great business idea that was too ambitious for your former employer?

– Check that your estate planning is up to date. It’s understandable that many people avoid this part of their retirement planning. But putting together a legacy that could impact your family and community for generations can have tremendous emotional benefits. The peace of mind that comes from knowing the people you care about are taken care of can empower you to worry a little less and enjoy your retirement more.

3. You’re ready to do new things.

Ideally, the financial piece of this conversation should make you feel free enough to create a new retirement schedule based on the emotional piece. Plan your days around the people and passions that get you out of bed in the morning. Some ideas:

– Work at something you love. Take a part-time job at a company that interests you. Turn that crazy idea you couldn’t sell to your old boss into your own business. Consult. Teach. Volunteer.

– Keep learning. Brush up your school French by enrolling in an online course. Learn some basic web design so you can showcase your photography portfolio or sign up for cooking classes and get some new meals in your weekly rotation.

– Get better at having fun. What’s the best way to lower your handicap or perfect your backhand? Take lessons from a pro. The second best? Organize weekly games with friends and family.

– Travel. Planning out a big holiday can be a fun project for couples to do to together. And while you’re looking forward to that dream trip, take a few weekend jaunts out of town. Stay at the new hotel you keep hearing about. Visit your grandkids. Go on the road with a favourite sports team and enjoy the local flavour in a different city.

If you’re nearing retirement and struggling with these issues, working with us might provide some clarity.  Why not give us a call to discuss how we can help get you ready for the best retirement possible with the money you have?

Warning – The information noted above is for general information only and is not intended as personal advice.  Carpenter Rees does not accept any liability for your reliance upon, or any errors or omissions.

 

Protecting those that matter

Many of us spend time planning our future with the intention that our plans will come good. But making sure that you and your family can cope if you fall ill or die prematurely is something we can too easily put to one side. In particular, a recent study identified that financial protection is something that millions of fathers in the UK, and their families, could benefit from.

More than half (58%) of men in the UK with dependent children have no life insurance, meaning that just over 4.5 million dads[1] are leaving their families in a precarious situation if the unforeseen were to happen. Worryingly, this has increased by five percentage points compared with 2017, a year-on-year increase of around 542,000 individuals[2].

Financial hardship

Despite a fifth (20%) of dads admitting their household wouldn’t survive financially if they lost their income due to long-term illness, only 18% have a critical illness policy, leaving many more millions at risk of financial hardship if they were to become seriously ill.

Critical illness insurance – this doesn’t usually pay out if you pass away, so it’s not always suitable if you want to make sure your family are provided for after you’ve gone. This is where life insurance comes in.  However, this type of insurance covers serious illnesses listed within a policy. If you get one of these illnesses, a critical illness policy will pay out a tax-free, one-off payment. This can help pay for your mortgage, rent, debts, or alterations to your home, such as wheelchair access, should you need it.

Life insurance – this insurance usually only pays out if you pass away. It’s designed to help your family maintain their lifestyle after you’ve gone, for example, to pay off a mortgage or other loans and provide for children’s university fees.

Many insurers will offer both types of cover combined.

No savings

If they were unable to work due to serious illness, 16% of fathers say they could only pay their household bills for a minimum of three months. More than two fifths (45%) say they’d have to dip into their savings to manage financially, but 17% admit that their savings would last for a maximum of just three months, and 12% say they have no savings at all.

On top of this, many fathers are leaving themselves and their families unprepared for other aspects of illness or bereavement. 16% of them aren’t sure who would take care of them if they fell ill, and more than two fifths (42%) don’t have the protection of a Will, power of attorney, guardianship or trust arrangement in place for their families.

Risky position

This is an especially risky position for the two thirds (66%) of UK fathers who are the main breadwinner in the family, and it’s clear that many are in lack of a ‘Plan B’.

Many fathers don’t consider having insurance as a necessity, with 16% of those without saying they don’t see critical illness cover as a financial priority, and 20% saying they don’t think they need it. The value of protection, however, is to provide long-term peace of mind about having financial security in place for your dependents.

Seek advice

Life is full of uncertainties – and while we insure cars, houses and even holiday arrangements, when it comes to ourselves and our family, often insurance is overlooked and undervalued. The simple truth is we can get too ill to carry on working or tragically die too soon, either through serious illness or accident. These events are random, and they can potentially affect us all.  

Recent changes to bereavement benefits, and their continued unavailability to those in cohabiting relationships, mean that it’s more important than ever for fathers to review their financial protection needs and seek advice to make sure their household is covered.

Unforeseen circumstance

 The impact of losing the family breadwinner can be devastating – missed mortgage repayments, savings depleted, your home being sold, your family’s standard of living eroded, with stress and worry all too evident.

 Whether it is your family or other loved ones, it’s essential to make sure that the people and things that matter to you are taken care of – whatever life throws at you.

Creating a durable plan for the future

We understand that expert advice on financial matters is invaluable in creating a durable plan for the future. To discuss what’s best for you and your family if the unforeseen were to happen, contact us so we can find the solution that’s right for you.

Source data:

All figures, unless otherwise stated, are from Opinium Research. The survey was conducted online between 5 and 12 April 2018, with a sample of 5,022 nationally representative UK adults.

[1] Percentage of adult population that are fathers with dependents = 762/5022 = 15.17%; 15.17% of adult population of 51,767,000 = 7,854,730 million; 58% of these don’t have cover so 4,545,848 million

[2] Percentage of adult population that are fathers with dependents = 735/5077 = 14.48%; 14.48% of adult population of 51,767,000 = 7,495,861 million; 53% of these don’t have cover so 4,003,721. Difference of 542,127 compared with 2017

Warnings:

Protection plans usually have no cash in value at any time and will cease at the end of the term.  If premiums are not maintained, the cover will lapse. 

Critical illness plans may not cover all the definitions of a critical illness.  The definitions vary between providers and will be described in the key features and policy documents if you go ahead with a plan.  

 

 

4 Things to Consider Before Financially Bailing Out Your Adult Children

I read an article recently and whilst it was based upon research undertaken in the US, I suspect there are likely to be similarities in the UK which is why I found the article thought-provoking.

The article suggested that according to a recent American study by TD Ameritrade, 25% of baby boomers are supporting their family members financially¹, with support to adult children averaging out to $10,000 per year. That’s $10,000 per year that parents aren’t saving.

Can your retirement afford that kind of generosity?

If you fall short of your retirement goals, is the adult you’re bailing out going to bail you out during your golden years?

So, before you write your ‘struggling young adult’ another big cheque, ask yourself these four key questions:

1. What, specifically, is this money for?

The key word here is SPECIFICALLY.

Many parents tend to err on the side of protecting their child’s feelings when weighing financial support. We know asking for money can be embarrassing, and we don’t want to deepen that embarrassment. Or we’re worried that if we ask too many questions the child will become frustrated and hide serious problems from us going forward.

These are understandable concerns. But it’s also important that you understand whether your child needs support because of something beyond his or her control (a car accident, serious health issues, unexpected job loss) or because they’re struggling with basic adult responsibilities. If your child is making poor budgeting decisions or settling for underemployment, you may be throwing good money after bad.

Be tactful but get to the root problem before you decide if your money is the best solution.

2. What is the real cost to me?

Many parents are already helping their adult children more than they realise.

For example, you might not think much of funding your adult children’s mobile phone or piggyback on the Netflix subscription. After all, it’s only £30 a month, right?

But how long have you been giving your child that monthly free pass? Years? You can also set time limits. For example, tell your child they have their mobile phone bill funded until age 25 or until they get married, whichever comes first.

Are you helping with larger monthly expenses, like car payments? When will it finally be time to pull the plug?

Get it all down on paper. Make a spreadsheet that accounts for the financial support you’re already giving your child, large and small. Seeing how even small expenses accumulate over time will be eye-opening for both of you and help inform a good decision.

3. What are the terms of the bailout?

This is another area that parents tend to tiptoe around because they’re afraid of insulting their children. But do you know of any bank that’s going to loan your kids money indefinitely, charge no interest, and ask for no repayment? Then why should your money be subject to such lousy terms?

Your children have to understand that your generosity is not open-ended, especially as you near retirement age. You’ve probably made many sacrifices for them already. You should not sacrifice your financial security or the nest egg that is meant to support you in retirement.
If your children want you to “be the bank,” then you have every right to act like one. Set clear terms in writing, including a repayment schedule. In more serious cases, you might want to bring us a copy of this agreement so that we can include it in your estate plan.

4. How else can I help?

It’s very likely that your child spent 11 or more years in school without learning a single thing about managing money. Financial literacy just isn’t taught in schools. This knowledge gap could be a big reason your young adult is struggling.

A BMO Wealth Institute survey found that two-third of parents give money to adult children when a sudden need arises². Does your child need money suddenly because he or she doesn’t know how to budget? Help find that balance between covering current expenses and contributing to savings and investment accounts.

Housing and transport costs can be a shock to recent college leavers. You could help your child negotiate a car lease. You might help a child who’s already chasing after the Joneses by counselling against a rash home purchase that will stretch his or her finances thin.
Introducing your underemployed child to some of your professional connections might lead to a significant career upgrade.
One key connection you should be sure to tap: your financial adviser! We’re always happy to help our clients’ adult children get on their feet. We consider this a service to our clients because we know that the less you’re worried about supporting your children, the more secure your own retirement goals will be.

Sources

¹ https://s1.q4cdn.com/959385532/files/doc_downloads/research/TDA-Financial-Support-Study-2015.pdf

² https://wealth.bmoharris.com/media/resource_pdf/bmowi-bank-of-mom-and-dad.pdf