Many of the middle aged and retired clients that I see have an understandable desire to leave a legacy for their children – usually in the form of an inheritance of financial assets and/or property. Often this is a reflection of their upbringing – in many instances they benefited from an inheritance themselves when they were younger – and also an ingrained belief that they should pass on their wealth to their children.
A traditional legacy involves leaving behind your remaining wealth to your children when you die.
However, life expectancies have increased and are likely to increase further, and this raises the question of whether providing an inheritance after you die is leaving it too late.
A person reaching the current retirement age of 65 has a very realistic chance of living to 90 or beyond. The implications are that children may be aged in their 60s or 70s by the time that person dies. In fact the children may have retired themselves! 60 or 70 is a relatively advanced age to receive an inheritance. Financial patterns are set, assets are often well established, and simply put, children of near-retirement age may not have as much need or be able to benefit from an inheritance as much as a younger person.
A better option may be to distribute some of the wealth intended as a legacy well before you die.
Consider some of the advantages:
- Children are more likely to be at a stage in life where receiving some financial support could be of real benefit – for example, buying a first house.
- Parents can be actively involved in how the financial support is provided and how it is utilised – ie they can set the rules and are there to provide guidance.
- Parents will also be able to see their children benefiting from the financial support, which can itself be tremendously satisfying.
To provide a “while-living legacy” you will need to have a good handle on your net worth, how much you are likely to spend as you get older, how those costs can be met, what you will need as a safety net, and the returns you can expect from your investments. You can then make a (conservative) estimate of what you could provide as a legacy. If that sounds daunting, a good financial adviser will be able to help.
You may also need to get good legal advice. Gifting is no longer taxable but there still could be unintended consequences (as there can be with wills and inheritances). For example, gifts made to a child in a relationship that subsequently ends may find that half of that gift goes to the other partner.