Nimi Akinkugbe
Nimi Akinkugbe has extensive experience in private
wealth management. She seeks to empower people regarding their finances
and offers frank, practical insights to create a greater awareness and
understanding of personal finance.
Last week was National Grandparents Day. 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 wellbeing 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.
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