Getting the balance right between providing for your children’s financial future, and ensuring they have their own financial literacy and independence can be a difficult juggling act. Steve Wright, our Estates Director, explores the concept of skiing, or spending your kids’ inheritance – an alternative to the traditional expectation that all wealth passes entirely to the next generation.
During a long and busy career, building up wealth and striving for financial freedom in later years is likely to be very important and once you have capital behind you, you might quite like to enjoy some of it personally. If you have children, there may also be a sense that you have a role to play in ensuring the next generation are empowered to create their own financial independence, rather than just rely on your financial successes.
Estate planning can be quite a difficult challenge – whilst many parents are keen to provide financial stability for their children long after they’ve gone, there’s still a sense that part of that parental responsibility is to support and encourage younger family members in creating their own wealth.
With some wealthy individuals being more vocal about challenging long-held assumptions about inheritance, the concept of skiing, or spending your kids’ inheritance, has developed in the media in the last few years. Whilst it’s a little tongue in cheek, the notion is that leaving large sums to the next generation strikes a little distasteful, and can even be counter-productive. So how do you get the balance right?
Create financial independence
Warren Buffet, one of the most successful investors in the world, famously said “Leave children enough so that they can do anything, but not enough that they can do nothing.” If you’re keen to limit the amount which is passed to the next generation, how can you still provide help without making things too easy? It’s perfectly possible to share a healthy amount, and financial gifts can provide support and assistance for your children along the way, perhaps in the form of contributions towards a house deposit, or schooling for grandchildren whilst still fostering independence.
Pick the right time
It’s clear that maturity plays a big part in properly managing money. Finding the right time to share any wealth with younger people can be crucial, particularly if you’re concerned about money being frittered away or if family circumstances, including divorce, may jeopardise your children’s own financial situation. Much depends on the personal circumstances of everyone involved, and your understanding of what your children can sensibly manage – it might not be driven by particular birthdays or milestones, and needs a more fluid approach which puts you in the driving seat as to when you feel they’re ready.
Do some good
When considering how much wealth to spend and how much to share, the concept of philanthropy can be particularly useful. Encouraging children to understand the value of money by seeing its impact on others can be a powerful step. Money used well can do a lot of good, and you may like to consider how you could support particular charities or causes together, to share a portion of your wealth for something which you all feel strongly about.
When you’re considering how much you can (and are able) to pass on to your children, you’re likely to want to encourage them to develop their own strong work ethic – it can help you feel at peace that they’ll be able to provide for themselves and their own families in years to come. This can be supported by providing financial incentives based on their own income, successes and commitments. For example, you may want to reward a job promotion, or provide financial recognition if they have enjoyed a particular career success
With rising life expectancies, longer retirements and larger care home bills, working out how much inheritance will actually be left for your children may also be worth thinking about. Stay aware of Inheritance Tax thresholds, and what you may need to consider to avoid any unnecessary bills for those you leave behind. Whatever you do, think how you want your own later years to look, and share your thoughts and plans with your family – particularly so your children are aware that receiving a large inheritance might not be a foregone conclusion!
If you’re looking ahead at how you want your money to work for you and your family, we can help. Our Advisers help families across generations, and can ensure you are able to enjoy your wealth and provide for your family whilst encouraging them to develop their own financial independence and skill set. To discuss your situation please contact your nearest office.