Gifting parents may feel pinch as time goes by | Personal Finance | Finance


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Be careful how much assistance you give to children and grandchildren

Growing numbers are giving a living inheritance to their loved ones to help with education fees, a deposit on their first home or to clear debts.

Careful use of gifting can also reduce an estate’s future liability to inheritance tax (IHT), but those giving must leave enough money to pay for unexpected costs in later life, including residential or nursing home fees.

Nobody knows what is ahead and experts are warning older people to avoid giving away too much too soon.

Many are already living in poverty without more plunging themselves into difficulties by putting children and grandchildren first.

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One in five admit they are worse off because their children needed more help than they’d planned for

TOO MUCH

Generous baby boomers are more likely to give loved ones an early windfall or inheritance than spend the money on themselves, according to research from SunLife.

Three in 10 are even using equity release to unlock value from their home to hand over a living inheritance.

However, director of marketing Ian Atkinson warned this generosity can come at a price: “One in five admits they are worse off than expected because their children need more financial help than they had planned for.”

Tim Snaith, partner at law firm Winckworth Sherwood, said being chief executive of the Bank of Mum and Dad is a greater responsibility than many realise: “The cost of growing old is becoming very expensive, some care homes in London now exceed £80,000 per year.”

Once you give an asset away you can no longer control it. He added: “If you need it back, it is completely up to your children as to whether they return it.”

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If a child gets divorced it could spell financial trouble


You must retain money for your own later-life needs and possibly longterm care

Dean Mirfin

DIVORCE DANGER

Another danger is that your children could get divorced or become bankrupt, so your money falls out of the family altogether.

Rather than gifting cash, you could offer an interest-free loan or buy a share of your child’s property.

Snaith said: “That way, you can call the funds back in if necessary.

Proper financial planning is vital.” David Hollingworth, associate director at brokers L & C Mortgages, said parents and grandparents must take care when acting as “guarantors” for a first-time buyer mortgage.

He said: “A number of lenders will accept parental assets such as cash or spare equity as security, but it must be offered as a gift, not a loan.

“This makes it hard to claw back your money if something goes wrong.”

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‘Your own home could be at risk’

Acting as a guarantor while using your home as security could be even more dangerous.

“Your own home could be at risk if your child cannot keep up repayments forcing the lender to repossess, as you may have to make up any shortfall,” he added.

Lenders such as Barclays and Metro Bank allow you to include your name on the mortgage, but with the property registered in the child’s name.

He said: “You would still be jointly and severally liable, which means the lender can chase you for the entire payment.”

Acting as a guarantor could also hit your ability to borrow.

“Take advice to understand the extent of the guarantee and how long the lender has a charge over their assets,” he added.

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Leaving an inheritance at death can be too late to offer real help

EQUITY TRAP

Chief product officer at over-55s specialists Key Retirement Dean Mirfin said as people live longer, leaving an inheritance at death can be too late to offer real help.

“Bringing your inheritance forward is tempting, but you must retain money for your own later-life needs and possibly longterm care,” he said.

He also recommended making “purposeful” gifts for specific reasons, such as a deposit on a house, to reduce the risk that it could be frittered away.

Patrick Connolly, certified financial planner at Chase de Vere, said children will not want you to spend your later years in poverty on their account.



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