Why you need a financial plan for your whole family

Planning your financial future is an important and responsible step to take in order to meet your wider goals in life.

But thinking around how to make this plan shouldn’t just centre on yourself and your partner (if you have one). It should also consider how to plan intergenerationally, with your whole family in mind.

This works in both directions too and isn’t just about helping kids – it might be the case that you have elderly parents who need help with decision-making about their futures and how this figures in your overall plan.

This is complicated even further by the phenomenon of ‘blended’ families. This is increasingly common where people come into new relationships with children already, possibly on both sides of the relationship.

All that to be said, what is clear is that families are not simple and straightforward. Planning intergenerationally, taking into account the needs and goals of each family member is critical to ensure a clear plan.

This in turn will help to mitigate major potential issues such as tax liabilities, growth potential and the structure of a family financial plan.

Set clear goals

Goal setting is frequently discussed in financial planning as this ultimately sets out how you go about implementing a subsequent plan.

But taking into account your own goals, your goals for children, and their potential goals, is important because it will dictate some fundamentally long-term decisions.

In terms of the financial needs of children, aside from day-to-day costs, families will have in mind whether they want to help pay for higher education, or perhaps to gift a deposit for a house, or other smaller milestones such as a first car.

Starting to set aside money for this is key as the more time you have to prepare the better. How you structure that pot is important too as there are potential tax implications to think about.

A junior ISA (JISA) for a child can be a tax-efficient way to pass on savings at an early stage to mitigate inheritance tax liability, but this might not necessarily be the best way to proceed.

JISAs are a useful additional tax-free allowance but parents must accept that the child will have full control of that money from their 18^th birthday. This might not be a problem but it is certainly something to consider.

An even more long-term approach could be setting up a pension for a child. This would mean the child would not access the money for decades into the future – but would guarantee potential financial security for your child as they approach retirement. Such a long-term approach would also be hugely beneficial for the potential growth of a portfolio.

Not just kids

Intergenerational financial planning isn’t just about kids though. Many people are in a situation – particularly those approaching retirement – where they have young adult children, and older parents to consider as part of their plans.

Older generations, grandparents, will often have their own plans in place but this is by no means certain. While talking to a parent about their long-term plans for their own estates is a difficult subject to bring up, but it is important to be clear on what their plans are, and the resources they have to achieve those aims.

This must be raised in as sensitive way as possible, and it is advisable to include relevant family members as a part of the process, particularly for someone with siblings.

Understanding their plans can help you to inform your own, particularly if there is a significant potential for changing the structure of your portfolio if and when you come to inherit.

IHT liabilities are paid for by inheritors so this should be on your mind too.

Mitigating liabilities

With these variable goals in mind a financial adviser can work with you to look at how best to structure yours and your family’s portfolio and wider financial plan.

This is really important because the way in which you structure your financial plans will dictate important aspects such as tax liabilities.

For those who are younger, perhaps with young children, this is about putting income and other earnings into the right products, be they ISA, pension, or something else, in order to maximise growth and minimise liabilities from the outset.

For older families who may have grown up children, with elderly grandparents in the mix too, preparing for the issues of IHT is key.

IHT is complicated, with a series of different allowances, both lifetime and annual, to consider.

This includes annual gifting exemptions, the seven-year rule, the nil rate tax band and the residence nil rate band.

In short, done wrong these rules can cause enormous damage to a financial plan. Working with an adviser to ensure that plan is robust as possible, has clear ways to meet goals and is resilient in the face of change or uncertainty is critical to the long-term success of an intergenerational wealth plan.