Once again, our news channels are full of headlines about the state of the economy, including disappointing inflation figures, the end of cheaper fixed rate mortgage deals, rising interest rates and a whole heap more.
Children and young adults are not immune to this torrent of financial woe, especially if they see their parents worrying about finances too. The very last thing on their mind will probably be the importance of estate planning in their own lives, now and into the future.
Yet, as an article in The Independent suggests, that’s precisely why parents need to have the conversation. Yes, it will involve talking to teenagers about what would happen if their parents died, or became unable to look after them, which can be tough.
However, as estate planning profession Camelia Ruffin was quoted as saying:
“It’s very important for parents to talk to kids about money management budgets, what is set aside for them, and how to make sure money lasts them as long as possible and not to run through it.”
Estate planning and financial planning
This is particularly important as after the age of 18, children become adults and are responsible for all their financial affairs. Suddenly, from probably having little money of their own or any involvement in financial budgeting, they are often expected to manage money for themselves with little preparation.
For example, a young person enrolling on a university undergraduate, postgraduate, Higher Education (HE) Short Course Loan or Initial Teacher Training course for 2023/24 can be eligible for both a Tuition Fee Loan and a Maintenance Loan.
Whilst the Tuition Fee Loan is paid direct to the university, the Maintenance Loan is paid direct into the student’s bank account at the start of term. For a student studying in London, that can be up to £13,022 for the academic year.
That’s a huge sum of money in one lump, and it needs to cover everything - rent, utilities, phone, internet, books/course materials, food, clothing, socialising, sports, travel, the lot. It’s a big ask if all they have had to budget for previously was a better phone or Glastonbury tickets!
Payback time
What’s more, that Maintenance Loan has to be paid back. Whilst many students say, “Oh, it’ll be written off in 30 years’ time so I’m not going to worry”, the reality is that:
“HMRC collects student loan repayments from employers through the UK tax system. If you’re self-employed, you’ll repay through Self Assessment when you complete your tax return.”
This will in the long-term, have an impact on their ability to finance their own future estate planning, including private pensions, investments, long-term care and much more.
The non-financial talk
The financial planning talk is so important, but any estate planning talk should also include the logistics too. This might include telling adult children where important documents are kept and who needs to see them, including:
- LPAs
- Wills
- Official information such as National Insurance and NHS numbers
- Bank accounts and credit cards
- Important online login information
In reality, it is usually the executor of the wills or attorneys of the LPAs who will need the information, but it will save a potentially emotionally traumatic search if the children already know where to look.
Inheritance for the kids
Children from (seemingly) better-off families may assume that their inheritance will be there to look after them in the future. However, we are all living much longer, and our own senior parent/s increasingly need their money for their own care. As a result, there may not be much left to inherit.
Equally, the whole inheritance situation may alter if parents divorce, or perhaps (like some celebs have stipulated) your children are deliberately set to receive very little in your will.
Talking through what your will contains, and explaining why you have reached the decisions you have made will help older children be prepared. It may also encourage them to make their own provisions as and when they start earning, rather than putting it off indefinitely.
The reality of the here and now
Of course, in the current climate, this might all be a pipe dream. Your young adult children may need all the financial help they can get, whether they are studying, working, starting a family, or struggling to rent or (heaven forbid) buy their first home.
In which case, you need to prioritise that estate planning talk all the more, to explain how you can help, but in the context of the reality of your own estate planning and future financial provision.
Talking estate planning
Sometimes it’s easier to have a conversation if a third party is doing the explaining. As an experienced estate planner, Paul Hammond is more than happy to talk to young adult children and their parents, to explain that most estate planning is there “just in case” it is needed.
That includes children over the age of 18 making their own will, even if they own virtually nothing. Once it’s made, it’s a lot less frightening to update as their circumstances change, or to create a new one if they marry. The same applies to creating their first LPAs, both financial and health.
If you’d like to book an appointment for you and your young adult children to bust a few estate planning myths together, just get in contact.