In our conversations with you one topic seems to crop up more than any other, which is that of BOMAD, or the Bank of Mum & Dad.
In particular, you are concerned about how to give money to your offspring or other loved ones, whilst retaining sufficient funds to protect yourself in the future, when you may need to pay for care, or simply ensure a decent standard of living.
This article will address some of the options available and try to assist in your deliberations. However, we would always advise you take professional advice before embarking on any major transactions.
Consider your lifestyle
The first step is to think about your own lifestyle. Is it sufficient as it presently stands, or are there actually other experiences you would still like to try? It is important to ensure that, when planning to distribute money, or other significant assets, you do not leave yourself ‘short’ for the future.
Generally speaking, older people have always enjoyed greater wealth than younger people, simply because they’ve had time to improve their earnings, discharge liabilities (such as mortgages) and accumulate savings. Although it may seem that today’s young people are having a more difficult time, financially speaking, that has always been the way that things happen within our society
Whilst many of us would like to give something to our loved ones, it is also worth remembering that the best gift we can give them is that of our own financial independence. After all, nobody wants to find themselves running out of money and subsequently becoming dependent upon children. Some parents may even feel guilty if they cannot afford to give any money away, but that guilt is far less than the guilt one would have to endure if needing offspring to ‘bail us out’ of financial hardship in our twilight years.
Apparently, almost half of parents with children who have purchased their own homes have already given away lump sums to help fund said house purchase. In fact, with the average gift in these circumstances rapidly heading towards the £25,000 mark, parents now rank as the ninth largest ‘mortgage lender’ in the country!
Make the right decision
Another sobering thought is that once given, in all but the most exceptional of circumstances, the gift of money cannot be taken back, no matter how dreadful a future in-law might turn out to be!
It can also be extremely difficult to maintain any sort of control over gifted money, even if it was a supposed loan towards a house deposit. Housing is not a particularly liquid asset and extracting money from one in any sort of dispute becomes an horrendous task. Thus, it is better to provide only those funds that you can genuinely afford to give and then forget about.
Another fact to bear in mind is, if you are helping one child (or grandchild) and not others, you may want to update your Will to reflect this and prepare an accompanying letter of wishes to explain your actions, thereby minimising family resentments after your death.
Of course, we are all very aware that we cannot take anything with us when we die and we hope you will still be living in your own home when that time comes, so it is vital to ensure you have a current Will, reflecting your wishes regarding the beneficiaries of your estate. You can find another article here about this topic.
In conclusion, undertaking a full and frank account of your own financial requirements (now and in the future) is an excellent way of informing yourself about just what ‘services’ the Bank of Mum & Dad is actually capable of providing, or not.
We hope this article has given you food for thought. However, everyone’s circumstances are particular to them and you should always consider taking professional advice when appropriate. Meanwhile, please feel free to contact us for further ‘general’ advice on this important topic.