Talk Money Week: 5 questions to start family money conversations

As Talk Money Week begins, Rachael Griffin, chartered financial planner at Quilter, offers five key questions families should consider discussing.

1. Are you investing enough for your family’s future?

While it is better late than never when it comes to investing, the earlier in life you start saving the better as you will benefit from the boost provided by compound growth. Putting your money to work in the stock market for five years or more gives it the best chance to grow at a greater rate than inflation. What’s more, the sooner you invest and the longer you do it for, the more likely you are to have the potential for healthy returns regardless of any short-term bumps in the road.

When it comes to investing for your children or grandchildren, such as through Junior Isas, holding too much in cash is particularly unsuitable as the money will be locked away for up to 18 years, meaning the investments have time to recover through stock market volatility and the scope for compound growth is far greater.

Quilter analysis conducted last year found that since the introduction of Junior ISAs in 2011, child savers holding cash had lost over £1.2 billion in returns relative to those offered by investments. Each year, parents and grandparents contribute around £500 million* to their child or grandchild’s cash ISA. Assuming cash JISA returns of two per cent since 2011, the value of these accounts stood at £3.5 billion. If instead the contributions were invested in a global index**, the accounts would have been valued at £4.7 billion, meaning young savers missed out on £1.2 billion of value from excess cash savings.

If you can afford to do so, investing to achieve such growth could be greatly beneficial when it comes to supporting your children with future costs such as education, the purchase of a first home, or even retirement.

Even if you are not actively saving for your child, it is critical to talk to children about money as early as possible. Research from the Money Advice Service shows that attitudes toward money are formed as young as the age of seven. Money is such a big part of society and yet parents often start talking to their children about money when they are in their late teens and about to move out. The reality is what children learn when they are young will shape their behaviour as an adult.

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2. Are you making sure the taxman is not your biggest inheritance beneficiary?

Planning effectively to ensure you are passing on your wealth in the most tax efficient way can make a real difference to the amount of your money that is passed to your loved ones as opposed to going to the taxman unnecessarily. There are many options available when it comes to passing on your wealth, be that in life or in death, and it is wise to talk openly with your family and consider these options together sooner rather than later to ensure you make the most tax efficient decisions possible.

Inheritance tax was once viewed as a tax on wealthier individuals, but the reality is that more people are now getting caught in the IHT net – particularly as a result of soaring property prices. The latest HMRC data shows IHT is steadily becoming rather lucrative for the Treasury, with IHT receipts for April to September 2022 up to £3.5 billion. This is an increase of £0.4 billion compared to the same period a year earlier.

In the current climate, many people will be keen to support the younger generations of their family to help ease cost-of-living pressures. If this is the case, it is important to be aware of the allowances available to make sure you make tax efficient choices for your own finances while also supporting others.

There are several options available that can be particularly useful if you are keen to provide for your loved ones without giving them large amounts of cash. For example, any gifts you make – as long as they are made at least seven years before you pass away – are tax free, and you have a tax-free gift allowance of £3,000 per year. As a couple, you can combine these allowances to give you £6,000. You can give these gifts or money to one person or split the allowance between several people.

Additionally, the small gifts allowance means you can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person. You are also free to make additional payments that are not liable for inheritance tax if they are regular and use excess income.

Alternatively, if you would prefer your loved ones receive the financial support in the future, you may wish to consider making contributions to their pension pot or placing the money into a trust.

When planning how to pass your wealth to those closest to you, be that in life or once you have passed away, seeking professional financial advice and having an open conversation with your family will not only ensure that your wishes are fulfilled in the most tax efficient way possible, but your family can better understand their possible financial futures as well.

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3. Do you have a lasting power of attorney?

Alongside having important estate planning conversations with your family, discussing the possible need for a Lasting Power of Attorney could be highly beneficial. Putting an LPA in place is a vital part of financial planning, yet the number of LPAs registered for those approaching later life remains worrying low.

Some people avoid family conversations about power of attorney as they believe that setting up an LPA will leave them vulnerable, but this is not the case. LPAs allow people to make important decisions to help support their loved ones and can provide you and your family with the peace of mind that your wishes will still be carried out should you lose the capacity to do so yourself.

If you lose mental capacity without an LPA in place, people you do not know could end up making crucial decisions for you. In order to change this, your family or friends may have to go to court, which can be an incredibly time consuming and expensive process – far more so than making an LPA.

It is important to remember that an LPA can only be created while you have mental capacity – once you have lost capacity it is too late. Recently there have been severe delays in the LPA registration process, which makes it all the more important to act sooner rather than later. While the conversation with family members can be hard, it must be put to the top of the to-do list or you risk losing this vital avenue of protection.

4. Is your will accurate and up to date?

The starting point for sound financial planning is ensuring you have an accurate and up to date will in place. However, far too many people do not have one despite lacking the protection of intestacy rules.

Intestacy rules provide protection only to those married or in a civil partnership and guarantees that the remaining partner receives all the deceased’s personal items and their estate up to the value of £270,000 (plus half the excess over £270,000) if they had children or grandchildren, or the full estate if they did not.

When someone passes away without a will, they die intestate and their estate is usually administered by the next of kin. The administrator is unable to divide the estate up as they wish and must instead stick to the UK intestacy rules. Without a will, cohabitees in particular risk not automatically inheriting anything on the death of their partner unless they jointly own property.

This Talk Money Week, take the time to sit down with your loved ones to discuss your wishes and to ensure your will is up to date and that they know how to locate it.

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5. Is your family alert to the latest cost-of-living online financial scams?

As with all major crises, criminals seek to exploit them, and the current cost-of-living crisis is no exception.

With the current situation pulling tightly on our purse strings, it is likely that the anxiety this causes could make us more vulnerable to scams. Attackers often exploit ‘hope’ tactics by creating scams which feature fake refunds, deals or goods which turn out to be ploys to obtain personal details or gain access to our personal accounts.

This Talk Money Week, take some time to discuss these risks to protect your family members and how to avoid them, such as:

• Fake investments scams – Investment scams aim to get unsuspecting people to hand over their money, and often appear perfectly legitimate. The important rule of thumb here is that investments that appear too good to be true are often a scam waiting to happen.
• Energy Bills Support Scheme scam – Be wary of texts and emails around the cost-of-living crisis. We have seen SMS messages and emails being sent from spoofed ‘Gov.org’ or Ofgem addresses asking people to ‘apply’ for cost-of-living payments. The legitimate rebate will be paid directly to energy suppliers by central government.
• Refund scams – A new type of scam, which has primarily been targeting social media users, offers a refund on recent debit card transactions for an upfront fee. However, the scammers are simply trying to harvest your personal and financial information to gain access to your bank account.

 *Amounts subscribed to cash Junior Isas: