Families need to be open about their finances

Increasing longevity and evolving demographics have left many of the middle-aged having to juggle careers with caring for both ageing parents and
children. The problem is particularly acute for ambitious professionals who chose to concentrate on establishing their careers before starting a family in their thirties or forties.

On top of financial constraints, caring for elderly parents and young children places pressure on the most precious resource of all for working parents – time. The emotional and physical toll of feeling constantly at the coalface may generate significant stress. Choosing your priorities carefully can mean disapproval from those who feel your attention should be elsewhere (probably meaning on them!).

During the general election campaign, Sir Keir Starmer was roundly criticised by many when he stated that if elected, he will down tools every Friday at 6pm to spend an evening with his family.

Has the squeeze got tighter?

Rising inflation and interest rates has seen winners and losers. Those with mortgages have been among the losers. As fixed rate deals have come to an end,
moving onto a variable rate or a new fixed rate has meant accepting higher payments or an extended term to keep the monthly outlay the same.

Coupled with inflation this has reduced real disposable incomes. The winners have been the debt free and those with savings and investments. Typically, these people are retired, and the increased income may be surplus to requirements.

Therein lies the rub. School fees and care costs have historically risen faster than inflation. The starting rate for a day school is currently £5,500 to £6,000 per term. This may include lunch but excludes trips and extras as well as the possibility of Value Added Tax. Boarding Schools start at £15,500 per term.

Assuming your precious ones make it to A-levels without being expelled, secondary education costs will be north of £117,000 per child for a day school and over £325,500 for a boarding place, with annual increases on top. Imagine those costs for a family of four.No wonder house prices are so high in the
catchment areas of state schools with a good Ofstead rating.

School may lead to university, with its accompanying student debts. Children may be dependent on parents for longer and not leaving the nest as quickly as one might hope. Rising rents means the aspiration to get on the property ladder may not be achieved before the age of 30 and will require some financial help.

Mounting cost of care fees

For the other end of the demographic, self-funded care fees in a quality residential care home start at £2,000 per week. The family of those in a care home are unlikely to foot the entire bill but may pay a top up to ensure a better quality of life such as an ensuite room, a visit from the hairdresser, entertainment, and day trips. Our research showed that for those with elderly parents on a low income, the average top up is about £900 per month.

As parents may live some distance away from other family members, time and practicalities may create the need to move closer with its inevitable upheaval and the loss of a friendship network.

Our elderly relatives are, however, a big part of the solution. We may grumble about the alleged apparent ease of accumulating wealth in the post-war
boom compared to today, but the sandwich generation will be the primary beneficiaries of the great transfer of wealth as they come to inherit over the
next 10-15 years.

Inheritance Tax receipts in the 2023/4 financial year were £7.5 billion which, with a tax rate of 40% means almost £19 billion of assets over and above the various nil rate bands and reliefs were subject to tax. Where two or more family members inherit, your biggest single beneficiary could be the taxman.

With higher interest rates, the compounding of increased reinvested income piles wealth on top of wealth; financial planning is just as much about stopping the estate getting bigger as reducing it. Using surplus pension and investment income, for example, to help towards the grandchildren’s school fees both invests in their future as well as reduces the rate of growth of the estate.

You need a plan

The notion of Inheritance Tax planning may conjure up images of esoteric and inaccessible investment schemes, but straightforward gifting can be just as
effective. As well as making use of the various allowances and reliefs available, lump-sum gifts to an individual, known as Potentially Exempt Transfers, will not be subject to Inheritance Tax if you live for seven years after making the gift – if you die before then, these gifts are initially set against the available Nil Rate Bands, so may still be tax free.

Lump-sum gifts could be a useful way to help a grandchild working to be a first-time buyer get a decent deposit together. The average gift for a house deposit is £25,000. However, for many – possibly the majority – the fear of running out of income and capital mentally eclipses the huge benefits of helping the younger generations now, and providing the enjoyment of seeing the positive impact you make on other people’s lives.

Creating a financial plan will provide the knowledge and reassurance of knowing you are financially secure, whatever the future may hold. This in turn will enable you to consider gifting from income and capital.

An in-built reticence to talk about money matters with family members can mean poorer long-term financial decisions being made, and more money lost to
the taxman. A lack of dialogue will also mean less influence over the choices to be made for you if you lose capacity – simply because your children might not know what you want to happen.

A financial openness across the generations is the starting point. Good things may come of it.