Bank of mum and dad ignoring future care costs when gifting lump sums to children

Parents mean well when giving financial hand-outs to adult children but in some cases financial advisers are having to challenge the generosity of the bank of mum and dad when it could leave them short of cash in later life to provide income or help with care costs.

The important role financial planners play in providing ‘the voice of reason’ to clients who want to give away money comes under the spotlight today with the publication today of the Just Group Care Report 2021, the ninth in a research series dating back to 2012.

It reveals that four in 10 parents aged 45+ had gifted more than ￡5,000 to children aged 18+ to help pay for major expenses such as education, weddings or housing deposits. Seven in 10 (69%) had not factored into their decision care costs they might need to pay in later life.

Advice firms reported that about a fifth of their clients had already gifted money to children or were planning to and in about a quarter (26%) of cases, advisers felt obliged to question the wisdom of handing over the money or to encourage them to give less cash.

The main reasons were because they felt the client had not considered how long they might live and need income (67%), that they hadn’t considered how they might pay for care in later life (48%), or because they felt the client simply didn’t have enough money to give the sum away (40%).

While most people will expect to live to retirement age and will understand the importance of having private income to supplement State Pension, care is far trickier to plan for. While many people may never pay a penny for formal care, others needing long-term professional care in a residential setting could spend a fortune.

Left to themselves, most people simply bury their heads in the sand. More than three in four (77%) over-45s told us they had not thought about care, planned for it or spoken to family about it.

That’s all the more pertinent given successive government’s failed promises on the funding of adult social care, putting pressure on the health service and local authorities as well as individuals and families having to take on more responsibilities for themselves.

Confidence in Boris Johnson to deliver improvements in this Parliament has halved among over-45s compared to last year’s Care Report. Politicians appear to be dithering and delaying, so it is not surprising people are doing the same with their own care plans.

There are several important points that need to be clarified – the division between State and individual responsibility, the role of property wealth in paying for care, the need to encourage earlier and better planning.

Financial planners are always going to need to provide their wisdom and experience to clients on dealing with the ‘what ifs’ of later life and to overcome confusion and apathy. But it would be good to see the government doing the job it promised and was elected to do.

You can access the full report here

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