An article by Rob Stock
Inheritance looked at in different ways
Thinking about leaving inheritances has been changing.
I blame longer lives and the hollowing out of the middle classes.
I believe families should have intergenerational money strategies but in that I am not fashionable these days.
I think the aim should be for families to try to leave each generation happier, healthier, better educated and wealthier than the last.
But with people living longer, people are increasingly expected to consume all their resources during their lives.
Leaving money to the kids or grandkids is now a luxury the taxpayer is increasingly unwilling to fund. I come across many legacy strategies these days.
It’s a far cry from the traditional strategy of leaving the house to the kids so they can sell it and pay down their mortgage.
The strategy I am running into more and more is what I think of as the ‘‘straight teeth and an education’’ strategy.
It goes like this: Educate them, love them, make sure they go to dentist regularly and after that the only thing they should expect is advice. It’s the equivalent of sparrows raising their chicks.
When the little ones have spread their wings, they are gone and mum and dad get on with the business of surviving.
The attractive thing about this strategy is that any money generated and saved by mum and dad belongs unequivocally to them.
They can use it with no sense of guilt. With longer lives and the continued rise of a ‘‘user-pays’’ society, that means they can consume capital and live decently, eking out their money, dying (if they plan it well enough) with just enough in the bank to pay for the funeral.
Another strategy I frequently meet is the ‘‘skip a generation strategy’’.
This is where relatively wealthy people, who were lucky enough to own a home before the massive rise in house prices, decide they have enough to tide them over and that anything their mum and dad leave them can be passed straight through to the kids.
The great thing about this strategy
His that it means the kids can get on to the property ladder.
This strategy means the next generation gets a great start in life. That feels like inter-generational success.
A third strategy I see is the ‘‘give them their inheritance now’’ strategy. This involves a one-off leg-up in life, usually a lump sum for a house deposit, perhaps from equity released from downsizing or moving to a rural town.
Once that money is paid over, mum and dad can feel guilt-free about every other cent they have.
This does, however, increase the risk that those giving away wealth run out of money before they die.
Some will not approve of me talking of guilt. They will say mum and dad have nothing to feel guilty about. It’s their money and their kids should expect none of it.
I can understand that view but I also have a strong belief that if one generation had the good fortune to inherit wealth, the aim of that generation should be to pass on at least an equal value of wealth to the next generation.
I also have a conviction that the massive rises in equity in many people’s houses have delivered massive wealth which has had a big impact on the next generation.
Those youngsters will have to dedicate more of their incomes to owning a house, while working in a labour market lacking any semblance of job security. Think about the strategy that’s right for you and your descendants.