Keeping It Within The Family - Government Debt
The Institute of Fiscal Studies estimates government debt will stand at 110% of National Income by 2024, requiring the government to raise an extra £40 billion per year.
Whilst the government looks for new ways to raise revenues it is increasingly likely that tax planning will become more challenging and families may look to share assets during their lifetime rather than risk the depletion of their estate by hefty inheritance tax charges. This, coupled with the fact that young people are finding it increasingly difficult to get a foot on the housing ladder means the Bank of Mum and Dad, already the 9th largest funder, is set to grow.
How can you ensure your legacy stays within your family? What happens if your gift to your family member becomes the subject of a financial claim in the event of a relationship breakdown? How is your legacy then treated?
- Before you make your gift, think carefully about who you are gifting to. Is it to your family member, or is it their partner? Remember once you make a gift, you cannot then reclaim it, should a relationship turn sour.
- Have a family meeting and communicate your desires regarding your potential legacy. Ensure your family members have an understanding as to how you would like the legacy to be utilised and encourage an open discussion regarding any concerns you may have.
- Where your proposed recipient is in a cohabiting relationship they should be encouraged to consider a Living Together Agreement. This is a contract in which they will record their rights and responsibilities to each other. This document can include a recital to make it clear what should happen to the legacy in the event of a relationship breakdown.
- Where your proposed recipient is contemplating marriage, they should be encouraged to seek advice regarding entering into a Prenuptial Agreement. Such an agreement, when entered into fully and freely, with both parties having the benefit of independent legal advice, and with full knowledge and understanding of their respective financial circumstances, can be a highly effective mechanism to avoid any financial dispute in the event of a marital breakdown. Indeed, within divorce proceedings the Court can be asked to make an order by consent mirroring the terms of the Prenuptial Agreement. Again, this can include an understanding regarding the intention behind your legacy.
- Where your proposed recipient is married, then they should consider entering into a Post Nuptial agreement. This can set out clearly what should happen in relation to their marital assets in the event of separation and marital breakdown.
Open and honest discussions with family members, recorded in such agreements, can help preserve your legacy for future generations, and allay your fears and ensure your legacy is kept within the family.