There’s Mother’s Day and Father’s Day, but did you know there’s Grandparents Day as well? The day was signed into law in the United States by President Jimmy Carter in 1978 and is the day each year that Grandparents are appreciated and recognised through various activities and celebrations. In our society and in the absence of a formal and effective social security system, the extended family system has evolved into a homegrown version of a more formal welfare system. Grandparents have always and continue to play a critical role within the extended family providing guidance, care and financial support.
It is only natural for grandparents to be concerned about the financial well-being of their children and grandchildren and to want to make provision for them in their legacy. Here are some money matters for grandparents to think about.
Don’t jeopardise your retirement. It is nice to be generous and to want to give, but do not jeopardise your own retirement whilst you are trying to prop up children and grandchildren. You must ensure that you can look after yourself. Do you have health insurance, accommodation or long term care needs taken care of? You cannot assume that your children will be willing or able to take care of you, so do make provision for yourself and be sure that you can meet your needs. A thorough retirement cost analysis is useful and should be done before you commit any significant sum.
Give gifts that keep giving. Presents that improve personal finances are ideal gifts. The gift of stock or a lump sum mutual fund investment is not likely to arouse as much excitement as giving the latest device, yet is a thoughtful financial gift to a grandchild and could be the start of a rewarding long-term savings plan. Mutual funds pool investors’ funds to invest across a wide range of stocks, bonds or money market instruments. Although a child cannot hold mutual funds in their own name until they reach the age of 18, an adult can open the “account” and add the child’s name to the account holder name. The adult can then sign on behalf of the child until they come of age. Talk to your grandchildren about saving and investing and encourage them to be financially responsible.
Should you give or lend? Lending money can be awkward at the best of times; when it is to family members it can be even more so. Are you making a loan or giving a gift? If the “loan” is really a gift then you can just state this clearly and move on. Lending to family often results in the loan not being paid, delays in repayment without explanation; relationships can end up being strained. If you are considering lending money, put some structure in place; the amount, date, and repayment terms. This might appear to be odd in our society but it is important to encourage family members to be accountable by repaying loans.
Are you enabling your heirs or disabling them? It is wonderful to be generous but do not give to the point where you make it impossible for your heirs to become mature and independent. Regularly showering children or grandchildren with expensive gifts or large cash gifts can make them come to expect it and to develop a sense of entitlement leading to resentment if you don’t meet their expectations. As Warren Buffet says “…a very rich person should leave his kids enough to do anything but not enough to do nothing”.
Is your estate plan shrouded in secrecy and mystery? Money is often an awkward subject in families. Even if you don’t have a lot of money, ideally one should discuss estate plans with adult children. Avoiding the discussion can lead to untold misunderstandings down the line. Communicate your wishes clearly, regarding what you want them to do with your money and who gets what, if appropriate. Of course your wishes should be documented in a will, a trust or other estate-planning tool.
Naturally, every family has unique dynamics and open discussions might not be feasible where there is some degree of complexity particularly with multiple marriages, or children from various relationships. There might also be sibling rivalry and jealousy and one might prefer to have your plans guided by a professional that takes into account the vagaries of your particular situation.
It is important to seek professional advice when it comes to money and family issues. Some might consider a trusted family friend with the requisite skills, who understands the family dynamics and will help to craft an estate plan that can take all the various issues into consideration in crafting the plan. A professional that is a complete outsider can also be a good choice as they will develop the plan from an objective standpoint as they interpret your wishes. Whatever you decide, the most important thing is to communicate your wishes clearly to ensure that you leave a cherished legacy and not a family feud.
Leave a Reply