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.
sex health money death 
My parents have become very ‘spendy’ in their retirement but rightly so. They’ve earned their money and are enjoying it while they can. Their spending ways occasionally clashes a little with my own personal frugal ways, but then, I’m still in accumulation phase! In calculating my FI number, the amount that I’ve factored in re inheritance is zero.
As for me, I have no children, although it would be nice to leave something for my nieces and nephews. However, I’m planning to have an enjoyable retirement so I guess I would like to spend my money, just like my parents.
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Yup, planning to spend is an important side of the equation!
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I agree that gifting money to our kids whilst we are still alive and can watch them enjoy it makes far more sense than hanging on to it.
So long as you don’t both die for 7 years after making the gift there is no tax to pay, so at the moment we are taking the chance, carefully avoiding buses and handing over some of our savings to our sons as an “Opportunity Fund” for help them improve their lives. My eldest son is using his £17,500 to go back to Uni and do an MA after 10 years in a soulless job. It’s worth every penny to see the change in him.
We do have an added incentive to gift now rather than hang on to money in that they both have an inherited condition that could see them on dialysis by their 40’s (if their condition follows the sane course as their father’s ) so time is indeed very precious.
Great post. Thanks.
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Thanks Cerridwen, great to hear of someone actually practicing what I preach! While I’m championing the thought of releasing equity and giving up home owning, the actual reality of doing it….bit scary!
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If only we knew when we were going to snuff it, we could more accurately spend it all and not run out.
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There’s quite a few “life calculators” on the net that will give you an estimated Death Date. Of course, I’m too frightened to use them. What if the date becomes some sort of personal destiny lodged in your subconscious? We all know the power of goals. What if we start to move toward it? “Sod it, the internet says I’m dying at 82, might as well take up smoking”. As Woody Allen says, I’m not frightened of dying, I just don’t intend to be there when it happens.
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Oh, I hadn’t thought of that! No calculators for me. Hopefully I’ll spend down in such a way as to avoid the Death Tax. Truth be told, I don’t like anyone enough right now to leave them my money. I’ve got my eye on animal welfare charities.
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One argument I have heard is that supplementing your kids allows them to exist on a lower salary thus keeping salaries down for those not fortunate enough to have parents to bail then out.
What if your kid is feckless with money despite your teachings? Would you still give it to them if they used it all for lavish meals and weekends away?
It is a nice problem to have but a problem only relevant to a small percentage of the population
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Completely agree, it’s a bit of a First World Problem, or even a “Small Percentage of the First World Problem”. More people are falling into it though, and one of my issues with the Financial World is that so many of us have never had any education on the subject. We just don’t think about it. My parents bought their house in 1962 for £2,000. If you’d told them that fifty years later it would be worth £120,000, they’d have fallen about laughing. I can’t believe a £200,000 house today will be worth £12m in fifty years. But why not?
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Mortality calculators are utterly unhelpful at an individual level. And as unpredictable as death may be, even more unpredictable is the manner of your dying, and pertinently from the financial point of view, the resources you’ll need for care in the final years. That’s what holds back a lot of people from spending more freely when they are fit (that and simply not having the need or desire to).
In my family we have had people dying in their 50s and 70s (quickly), in their 90s having lived unsupported right to the end, and in their 90s having needed years of highly expensive residential care. No doubt the actuarial calculators would have predicted them all getting to somewhere in their 80s….
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Home is where the Arse is… Classic! 🙂
I agree with you on helping the kids out before you die, within reason of course! I.e. helping out with education and improving their situation good. Random handouts and becoming aa financial crutch, bad.
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Hi Jim
I found this struck a chord – “Increasingly I think that my home-owning days are numbered and that the time is becoming ripe to think about renting.”
Like you though it seems a scary move to make. The other Jim jlcollinsnh is pretty adamant in his writing and calculations that renting trumps owning in many cases but it never looks favourable to me when I try and run the numbers for myself. It would be interesting to see an in depth analysis from a UK perspective. I’ve just taken slightly early retirement and now own my own home but in a few years would ideally like to relocate from the midlands to near reading where my daughter is settled. So fighting against the against the property price gradient like an aging salmon, and we know how that ends. An option would be to sell up the house and invest it to provide rental income Dahn Sahf. There is some rent to price ratio where it makes more sense to rent, and I think around London it is way over the threshold where it doesn’t make sense to buy. Dunno.
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Cheers Ian, I like the idea of having flexibility going forward but can’t shake the “need” to own a home. Like I have since my twenties. Owning a home in the UK, for my generation, almost seems like an unquestionable, unchallengeable “must have”. I’m only beginning to question why and thinking about alternatives.
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“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.”
Hmm. I’ve lived in the same pad for almost a quarter of a century and raised my children here.
It’s pretty much the definition of “family home”. But I’ve exited work (in a manner similar to your later post), the children are drifting off, we don’t need the space any more, and converting equity into income by downsizing would make life pretty cushty.
But it’s a hell of a big step for us. And we’re late forties youngsters so God help the real stuck in their ways olders when they want to move!
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I know what you mean – I tell myself that the family home is just a “mindset” and that I too should release the equity early……but sometimes your heart is where your home is!
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