Let’s face it, we are going to die. And we are going to be taxed. Maybe both at the same time.
One of the great money hang-ups of the middle classes is fretting about inheritance tax. This is especially true in London and the South East where the average dog kennel is now worth in excess of a million quid. With the media unable to focus on life north of Watford, the TV and Press return to the subject again and again to highlight just how unfair and iniquitous this tax is.
Fair enough. I agree. It is unfair and it is iniquitous. It is also completely avoidable. How? Simple. By spending the cash while you’re still alive and not leaving any “inheritance” for your kids.
I can hear howls of protest already. How could I be so selfish as to even think such a thing? Surely everyone wants to be able to leave a legacy? Something our loved ones will remember and cherish us for? This is typical of our day and age materialist tosh. Where did we get the idea that all our children will have to thank us for after we kick the bucket is the big house that we’ve left them? Because for many of us it’s will be the house that is the inheritance “problem”.
One of the biggest hurdles we need to mentally cross about inheritance is our fixation with having our “own home”. This is where most of our cash is sitting and many of us intend to sit on this pile until literally the day we die. At that point, our (sixty year old) kids can have it, preferably tax free. This attitude is frankly mental. There is a shortage of good family homes, partly because they’re all occupied by one or two pensioners. The reality is that many of our kids would be better off in our house right now and we’d be better off in the small flat or home that they’re currently in, or are hoping to buy.
Many of us have some half-baked notion that we’d like to die in our own bed in our own home. It’s a nice dream, but it’s probably much more of a dream than a reality for a number of reasons. And what is “our own home” anyway? Which one? I don’t know about you, but I’ve moved house about seven times. It’s no big deal and I don’t sit and pine for the days I lived in some previous dwelling. Home is where the heart is, maybe. Or maybe, more accurately, it’s merely where your arse is at a particular point in time.
Increasingly I think that my home-owning days are numbered and that the time is becoming ripe to think about renting. That way, I will have much more access to liquid funds. What could I do with that?
Well, one of the primary things I could do is start giving it away. Wouldn’t it be a good idea to start handing our stash over to our children sooner rather than later? I know that the amount you can gift someone tax free is “only” three grand a year, but if there are two of you and you give this over twenty, thirty or even forty years, that would add up, wouldn’t it? I think my son would appreciate six grand a year from us right now, when he is trying to get on his feet, as opposed to the potential of a much bigger sum at some point far in the future. At least, I hope it’s far in the future!
So let’s talk about Death for a minute. Most of we middle classes have absolutely no intention of dying before we’ve clocked up at least four score years and ten (technically 87 years, by the way). Which means our own kids will be well into their fifties before they sniff any cash from us. Another middle class dream for many of us today is to retire financially independent in our fifties, or even sooner – why would we want any different for our children? We should be educating them to do exactly the same as ourselves and we should lead by example. If they succeed in this – and let’s hope they do – they won’t need to rely on any cash from us when we die. Especially if they’ve already received quite a lot of it over the years before we snuff it.
What about those who would receive the death benefits? Well, I would much rather see my parents really enjoying their retirement for themselves than going without just because they want to leave me “an inheritance”. They can’t take it with them, so they should spend it, mostly on themselves. Seeing them live in comfort, enjoyment and security is way ahead on my priority list for them. I’d hate to think they would do without, or worry about money, just so they could leave some cash for their kids to enjoy. My siblings feel the same way, regardless of their own financial position.
We spend a lot of time focusing on saving, investing and protecting ourselves financially for the future. When we think about spending, it’s material goods we focus on. Very few of us think about spending in terms of systematically giving our money away as we grow older. It seems counter to everything we’ve learned. We want to hoard. But, when it comes to inheritance, I’m beginning to think that the sooner I start spending, on myself and my loved ones, the better it will be all round.