How to manage your wealth if you're in the "sandwich generation"

April 2022
Different generations of family
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You may have heard of the term “sandwich generation”. It’s used to refer to the increasing number of people who are financially supporting – to some extent – their elderly parents as well as their own children.

Although the term has become more prevalent in recent years, it was actually first used by an American sociologist named Dorothy Miller more than 40 years ago. 

Three of the key factors that are driving the increase in the size of the sandwich generation include:

  • Medical advances that have increased longevity
  • Couples having children later in life
  • The prohibitive cost of getting on the housing ladder.

This means that you may find yourself with both children and elderly parents being financially dependent on you to some extent.

A recent study, published by Legal & General, revealed that the financial cost to “midlifers” – their description of the sandwich generation – could be as high as £10 billion. 

In this article you can read about some of the issues faced by the sandwich generation and steps you can take to manage your finances.

Planning for your parents 

If you have surviving parents, it’s very likely that they’ll want to live independently for as long as possible, without becoming a burden on you and your family.

However, at some stage you may find that you’ll need to grasp the nettle and initiate a conversation about their financial position and deal with the possibility of them requiring support from you in the future. 

While these conversations can be tricky to begin, you may find that they’ve been having the same thoughts.

Issues you might find useful to cover in your conversation include:

  • Are their financial affairs organised and up to date?
  • Are they claiming all the benefits they’re entitled to? 
  • Are their pension arrangements in order?
  • Do they have up-to-date wills in place?
  • What are their plans and hopes for where they will live in the coming years?

By clarifying these points, at least to a certain extent, you’ll be in a better position to understand how much help they are likely to need, and the potential timescales involved. 

Is Inheritance Tax an issue?

Inheritance Tax (IHT) will be another big consideration when it comes to your parents’ financial arrangements.
We’ve put this under a separate heading because of the potential complexity of estate planning. If you believe you may be faced with a substantial IHT liability, it’s a good idea to get expert family financial advice.

There may well be some simple steps your parents can take to reduce the liability. You’ll find some of these later in the article.

Financial issues faced by younger people 

Younger people are less independent than ever before, and the difference in wealth between generations can be stark. 

Today, many are struggling to save and accumulate money. Saving for a deposit on a property has become an increasing struggle. The average UK property price reached £270,000 in 2021, making it far harder for younger generations to get on the housing ladder.
While many young people may be saving for retirement through a workplace scheme, it’s unlikely that many are setting aside much beyond that.
If you add in potential student loan debt, that starts to become repayable when they start earning £27,295 (reducing to £25,000 in 2023), it’s easy to see why “Bank of Mum and Dad” could be an option – or something to plan ahead for. 

Planning for your children

The financial support you give you children will depend on a number of factors:

•    How much you can realistically afford
•    Your other financial priorities
•    Your attitude towards supporting your children financially.

If timescales and circumstances are favourable, you should be able to plan ahead and earmark a decent sum of money for your offspring as they go through childhood.
There are several tax-efficient savings options to help you invest for them. If you’re able to start saving early enough, the power of long-term investment growth and compounding means you should be well-positioned to accumulate a decent fund.
Passing on your wealth

As well as setting aside money as your children are growing up, it’s also worth considering how you’ll want to pass on your wealth once they reach adulthood. 
While much of this planning will be around inheritance and ensuring your wealth passes on to the people you want it to, you may also want to be in the position of seeing them benefit from your wealth while you’re still alive.
This is where intergenerational wealth planning can help. Planning now will help ensure that you take steps to transfer your wealth to your loved ones according to your wishes.

As we’ve already mentioned, this can be a complex subject, so it’s wise to get expert advice.

The earlier you start planning, the better

As with saving money, the earlier you start planning the transfer of wealth to your children the more you can do. 

Taking proactive steps to reduce the IHT liability on your estate will also help to reduce the chance of being caught out by any nasty surprises. 

You might even find that it's viable for you to pass your wealth on sooner, rather than waiting until you're no longer around. The great advantage of this is that it means you can see your children enjoy the money you gift them.

Consider gifting assets to your children

One way to pass on your wealth is through the gifting of assets. As a rule, the beneficiaries will not have to pay IHT on the value of gifts if you survive for seven years from the date the gift is made. 

There are also some annual gift exemptions you can make use of, including a £3,000 annual gift allowance and a small gift allowance of up to £250 a person.

Use trusts to protect assets

As well as giving your beneficiaries gifts while you’re still alive, another way to reduce any IHT liability on the value of your estate is by putting assets in trust for a nominated beneficiary or beneficiaries. 

Two situations where using trusts could make sound financial sense may be: 

  1. Your intended beneficiaries – children or grandchildren –  are currently too young. In this case you can nominate a trustee to manage the assets in accordance with your wishes.  
  2. You set up a life insurance policy for the amount of the IHT payable on your estate and put it in trust to pay the bill, so your family don’t have to use their inheritance to pay the tax bill.

Trusts can be complex and mistakes can be difficult to rectify. If you think using trusts could be useful for your estate planning, it’s wise to seek advice from an expert. 

Get in touch

If you’d like to find out more about how we can help you and your family pass your wealth on without incurring IHT, or negatively affecting your own financial circumstances, get in touch. Email or call us on 0800 055 6585.

The information contained in this article is based on the opinion of LEBC Group Ltd and does not constitute financial advice or a recommendation to any investment or retirement strategy. You should seek independent financial advice before embarking on any course of action.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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