One of the most common reasons for this is that parents feel their children have varying financial responsibilities and would need different levels of support
Image: Bloom Productions)
A new study has found that a lack of openness around inheritance is leaving grieving families at a loss when it comes to their finances.
The report by Netwealth and The Money Whisperer® found that that there was a lack of understanding between parents and young adults when it came to family finance – especially surrounding inheritance.
The study identified seven ‘financial tribes’ that describe the various approaches that individual family members commonly have to finance, and the added psychological complexities that these attitudes bring to how families deal with money matters.
A combination of poor communication between generations, plus these ‘tribal characteristics’, have a significant impact on family financial planning.
The report found that only about half (53 per cent) of parents plan to split their wealth equally among their children.
And while two thirds of parents (66 per cent) believe that their children have a clear understanding of their plans, only 39 per cent of young adults concur.
The research reveals that the confusion over the destiny of family wealth is driven by money taboos. With less than a quarter of young adults (23 per cent) having had open discussions with their parents about their respective plans for the future.
Almost a third of young adults (30 per cent) admitted that they have not taken any tangible steps to ensure their own family’s mutual financial security in the future.
In these scenarios, families are therefore more at risk of losing out on the long-term benefits of family financial planning.
A lack of communication between parents and their grown-up children could have an immediate impact, given two thirds (65 per cent) of parents plan on making meaningful wealth transfers in instalments over several years rather than in one lump sum when they die.
This approach could make a significant difference to a young adult’s short-term financial decisions, such as whether they should save for a deposit on a house or invest their money for the future.
Yet only a quarter (28 per cent) are aware of their parents’ plans and are therefore having to plan their futures without full information.
And then comes the often uncomfortable topic of distributing wealth unequally.
The main reasons given by the 47 per cent of parents who do not plan to distribute their wealth equally among their children include a wish to even up previous financial support provided (15 per cent), or because they felt certain children had different financial responsibilities and therefore a greater need for support (14 per cent).
Trust is another significant factor, with 13 per cent of parents saying the child they trust with money will get more.
The below graphs show the reasons why parents plan to distribute different amounts of money to their children:
The study also explored the impact different ‘financial tribes’ can have on these significant decisions within families.
According to the findings, parents who identified as ‘lifestyle lovers’ or ‘big spenders’ were less likely to split their wealth equally among their children (4% and 17%), instead preferring to provide greater support to those that were not as confident with money to ensure they were taken care of.
At the other end of the spectrum, those identifying as ‘self-sufficient savers’ were the most likely to split their wealth straight down the middle (71%).
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The graph below details the percentage of parents who plan to distribute their wealth equally amongst their children, by which financial tribe the parents identify with:
While internal factors within the family play heavily on wealth distribution. There are many other factors that can determine where someone’s inheritance goes.
Sandro Forte, the co-owner of Frisk and managing partner of Forte Financial LLP, said: “That graph is a perfect example of the disconnect between the dreams and reality – more than half want to distribute their wealth equally amongst their children and yet, for the vast majority, IHT or intestacy will thwart the plan.”
Essentially, if the plans for your money and estate aren’t in writing and actually planned for, there’s no guarantee that they will happen.
FRisk is a free intuitive report that can produce an individualised FRisk Score (similar to a credit score), confirming the level of risk that your family and loved ones will be likely to face if you were to die now.
So, if you’re planning to give your children an equal split of money periodically throughout their lifetime, it will show you how that can be done, and will also take things into consideration like inheritance tax.
Generating a FRisk score will help you to discover what you need to do in order to protect your family, or if you’ve already begun planning to ensure that you’re on the right track. You can take the free report here.