How To Talk To Your Family About Money

By Jason Mountford, regulated financial planner at Irwin Mitchell

Talking about money with other members of our family is still often seen as taboo or uncouth. In reality, it is vitally important for different generations to be on the same page financially. This ensures that everyone’s needs are met and that wealth is passed on to future generations as efficiently as possible.

There are many reasons why some families choose not to have discussions around money, and there are often complex dynamics in place that make it difficult. With that said, it’s important to remember that in most cases, not talking about these issues simply means the same outcome with a much less efficient execution.

They Will Get it Either Way

When it comes to passing money on to your adult children, there are effectively 2 different ways this can happen.

• In a single lump sum, at an unknown, undetermined time in the future, at which point they may not need the money anyway.
• In a managed, gradual, tax effective way that allows for planning and control, and to maximise the quality of life benefits to your next generation.

Either way, your children are generally going to end up with a portion of your assets. If no planning is conducted, this will be done in a way that takes no consideration of the tax implications or family needs in the way the funds are handed over. If proper planning is done, you can ensure that your money is received by the right people, in the right way, at the right time. 

Money to Meet Needs

The key starting point for a discussion with your children about money is gaining a very clear and open understanding of everyone’s needs. Paramount in these discussions are your own needs, and allowances for your potential future needs.

This means working out how much money you need to live the life you want to live. This includes day to day expenditure, travel, leisure, entertainment and hobbies and long term estimates such as provision for potential future care costs. Passing money on to future generations is not about depriving yourself of the lifestyle you have worked hard for, it is about identifying the surplus that you are not likely to need, and then allocating that to meeting your children’s needs.

Once you have an understanding of how much of your assets you are likely to need for your own life, it then moves on to an open and frank discussion about what your adult children need. For most, it is unlikely to be an extra chunk of money when they are over 65 and already retired themselves. It is much more likely that the funds would be more useful when they are, for example, in their 30’s or 40’s, raising children and trying to reduce their mortgage.

Not only does this mean that quality of life is maximised, it also means that detractors from wealth such as inheritance tax can be much more easily mitigated. It also means that, if you want to, you can have some oversight over how the money is spent.

 Honesty is the Best Policy

The key to constructive and valuable conversations with your children about money is really the same as any other conversation. It requires honesty and understanding on both sides of the equation. Most important are clear objectives on what everyone is trying to achieve, and then looking for ways to allocate money to reach as many of these objectives as possible.

Once the objectives are clear, this is where professional advice can provide options for the best structures to pass on wealth in way which matches these objectives. If you’d like to arrange a no-obligation initial discussion, please get in touch. 

Wealth Management | Irwin Mitchell 

The information given and opinions expressed are subject to change and should not be interpreted as investment advice. All data is sourced by IM Asset Management Limited. All financial and wealth management services are provided by IM Asset Management Limited which is regulated by the FCA, under Firm Reference Number 402770.