We’ve all seen that film scene. The head of the family passes away and the nervous relatives gather together in a solicitor’s office to hear their fate. A lifetime of financial secrecy is about to be revealed and everyone wants to know where they stand. There could be pleasant surprises or it may descend into an immediate shouting match. Suspense is guaranteed, but so is the inevitability that someone in the room is going to feel cheated somehow.
But consider an alternative plot. The head of the family recognises early in life that being open about the family finances is a wise move. Expectations are carefully managed and the individual family members are taught to be financially literate. The responsibilities for managing the complexities of family wealth are shared and the head of the family has a more relaxed retirement. It wouldn’t sell many tickets, but is more likely to have a happy ending.
Financial education is a key ingredient for successful family wealth planning. For members of the family to have a realistic view of the big picture, an appreciation of areas such as cashflow modelling, tax law and investing are key. Taking the time to ensure that the people closest to you understand these and other areas will reduce the likelihood of unrealistic expectations and could elicit some valuable advice. A superficial knowledge of money can be damaging to family finances in the long run, so by involving your children in discussions about your money and where it comes from, you can empower them and protect your interests.
Education around finance in the United Kingdom is notoriously poor and this poses risks to the preservation of family wealth. Research from the London Institute of Banking & Finance showed that 81% of young people felt anxious about money and finance. A large majority, 72%, said they want to learn more about money and finance in school. The Financial Times newspaper has picked up on this unease and launched its Financial Literacy and Inclusion Campaign (FLIC) in an attempt to boost knowledge amongst those that need it most.
Trust in transparency
Sharing your financial situation with your children will foster an atmosphere of openness that will hopefully head off any potential conflict. Once they are equipped with the tools to understand the family finances and have a strong grasp of what they involve, the need to speculate and compete can be reduced. If there are grievances, they can be dealt with and if a case needs to be made for changes, it can be done with transparency. Whatever your plans for the family wealth, an open conversation gives you the chance to justify your decisions.
One of the biggest advantages of involving your family with wealth planning is that it allows you to share the load of responsibility. The more complex your wealth becomes, the more work is involved in managing it. So delegating some of these duties can be welcome relief when you get older. You may want to split off the responsibilities into obvious areas, with one child managing your property portfolio and another looking after financial investments, for example. This may simply involve communicating priorities to the family wealth manager or could call for a more hands-on approach.
Handing over control
It is also prudent to think about the designation of a lasting power of attorney (LPA). This is a legally binding arrangement that allows someone to make important decisions on your behalf and can be extremely useful. An LPA is a serious responsibility and there are benefits to having a loved one sign up as they will have your best interests at heart. Preparing the groundwork for the LPA by bringing your children into family financial planning as early as possible means once they are able to make these decisions, their understanding of the family wealth picture is as clear as possible.
Bringing your children into family financial planning will involve some tricky conversations and you’ll have to wait until they’re mature enough which is something that will vary with each child. However, having your children help advise on your wealth and take part in decisions can be invaluable for your entire family and could potentially be the best decision you make for your future.
At London & Capital, we believe that family wealth is a collective concern. We aim to help you make the right decisions to preserve and grow your wealth for the benefit of future generations.
