We all want the best for our families; health, happiness and financial security. But what steps should you be taking now to protect their future?
Protecting your family
Could your family manage financially, if one of you were to die or become ill?
The answer in most cases is “no”, so there is a need for life and protection assurances which act as a safety net for those who depend upon you.
These assurances come in many forms and unless you have a full understanding of the financial implications you should take advice. Advice will ensure that you are buying the right product for your circumstances at the most competitive premium. Many protection plans should be written in trust to ensure that policy proceeds pass immediately, free of tax, to your chosen beneficiaries.
Improving life expectancy and better health care mean that having the reassurance that your family will be able to cope financially has never been more cost effective.
The security of a Will
Two-thirds of people die intestate (without a valid Will). If you are married or in a civil partnership, do not automatically assume that everything passes to the survivor. Intestacy rules as they are may not reflect your wishes, they do not make any provision for cohabitees who are therefore vulnerable.
A Will can reflect your wishes by:
- Ensuring that your assets will pass to those who you would want to benefit.
- Allowing you to choose the appropriate person(s) to be the legal guardians of your infant children.
- Ensuring that your children’s inheritance is looked after by appointing people you trust to manage the trust fund.
- Providing for disabled or vulnerable beneficiaries without prejudicing their right to state support.
- Making suitable provision for children (and spouses) from previous relationships. The use of trusts can ensure that spouses and children from both marriages are financially supported.
Investing for the future
Investing money or setting up a regular savings scheme at an early age is always a wise decision when planning for your children’s future.
Tax-free investing
A Junior Individual Savings Account (JISA) provides a tax wrapper free from capital gains or income tax. The maximum that can be saved in any year is £3,720 that can be split between a Cash or a Stocks and Shares JISA’s. Anyone can pay into a JISA, so it’s a good way for grandparents to contribute to a grandchild’s savings.. At age 18 your child can access the accumulated JISA account tax-free.
Risk-free options
A popular low risk alternative to JISA’s are National Savings (NS&I) Children’s Bonds. You can invest between £25 and £3,000, and interest is tax-free. Similarly, NS&I premium bonds will give you security, but instead of paying interest they hold monthly prize draws with a range of prizes including a £1m jackpot.
Retirement planning
Setting up a pension for your child before they have even learnt to walk may seem a strange thing to do, but it will both help with their retirement planning and help you avoid Inheritance Tax (IHT). Up to £2,880 can be invested annually in a junior self-invested personal pension for children up to 18, and with 20% basic rate tax relief added to all contributions the total annual savings will be £3,600.
Other issues
Inheritance Tax (IHT)
More and more families are finding that the single biggest beneficiary to their estates is the HMRC (the tax man). With tax levied at 40% on estates over the IHT threshold you may be leaving your children their biggest ever tax bill. As part of your retirement planning you can do much to reduce your children’s liability to this punitive tax without affecting your standard of living.
Lasting Powers of Attorney
We are all living longer, thanks to medical science, but unfortunately the reality is that we all don’t manage to keep our mental faculties. Whether for you, your parents or even your grandparents these are valuable documents which enable your financial and property affairs to be managed by someone you trust.
Divorce and your children
Divorce is a sad fact of life, especially if children are involved. Children need reassurance from both parents that they are loved and will be cared for despite the marriage problems. The last thing that parents want is for the children to suffer but often that is not the case. Most parents do manage to agree about the arrangements for children, although difficulties can arise when matters of finance are involved. The law considers that voluntary arrangements are more likely to succeed in the long run than those imposed by the courts. The courts seek not to intervene unless it is in the best interests of the child.