Bringing up the topic of inheritance with parents can be daunting because even the most diplomatic approach could seem self-serving.

However, future planning is essential to maximize the wealth of younger generations and minimize the inheritance tax burden.

In the UK, adult children have no automatic right to their parents’ money. However, most parents want to preserve their capital for their children and grandchildren and still have enough to enjoy retirement.

This is particularly important where second marriages and second families may complicate matters, or where adult children may need to provide power of attorney on behalf of elderly parents.

Telegraph Money explores the best ways to manage multi-generational finances while providing retirement cruise travel and well-deserved luxury for parents.

How to talk to family members about money

Involving the entire family in planning can help reduce the risk of future disputes and manage expectations, says Sean McCann, chartered financial planner at insurer NFU Mutual.

“Plan as early as possible because the earlier you plan, the more options you have, especially when it comes to mitigating any inheritance tax charges,” he says.

“Engaging an attorney or financial advisor who has experience helping families plan can open up options that may not have been considered before. It can also help take some of the emotion out of discussions when someone from outside the family is involved.”

Being fair to all children does not necessarily mean promising equal shares of wealth, as Helena Morrissey, the city’s “superwoman,” described for her own family of nine children.

“There is no easy formula, just a few pointers to help you get the best out of it – and, above all, prevent arguments or resentment between family members,” she wrote for Telegraph Money.

“Misunderstandings are easier to avoid when everyone communicates openly – but giving and receiving money can feel awkward.”

McCann says parents may want to consider the financial help they have given to certain children over the course of their lives, or the fact that one child, for example, may have invested more time and energy into a family business.

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A durable power of attorney is a legal document that allows one or more people, called “attorneys,” to make decisions for or act on behalf of a person who cannot make decisions for themselves (the “donor”).

There are two types of LPA: one relating to health and welfare, the other relating to property and financial matters. At the time of hiring an attorney, the donor must be at least 18 years old and mentally competent.

A real estate and financial LPA allows the lawyer to make decisions about the management of money and property, including selling a house or managing a bank account. Louise Lewis, from law firm Freeths, says families should consider having a power of attorney at any time after the age of 18.

“We recommend that you do them as part of general estate planning, for example at the same time as executing your will,” she says.

How can family funds be protected if the parent refuses to attend a doctor’s appointment?

According to Lewis, this is a “difficult” situation. “Even though people have capacity, they can make unwise decisions. This is enshrined in the Mental Capacity Act 2005,” she says.

“If adult children have concerns about their parents, they should contact social services, which have responsibility for all persons with legitimate needs under the Care Act 2014.”

If necessary, social services can refer the person to the NHS for medical treatment and involve doctors. In certain circumstances they can force a person to be “listed” for treatment.

Because social services tend to be very busy, it’s best to make a referral sooner rather than later, Lewis says.

When can a power of attorney be misused and how do lawyers protect themselves against it?

For professionals making decisions in their “best interests”, particularly with potentially vulnerable clients, the Mental Capacity Act 2005 provides legal guidance.

Lawyers can use a vulnerable client policy to support individuals. As an example, Lewis says a client with a cognitive impairment may require recording of conversations, longer meetings and the use of notes to review any suggestions.

Can a lawyer be prevented by his donor from making a decision based on a power of attorney?

This happens “a lot,” Lewis says. “Capacity is specific to the decision in question, so someone may have the ability to do some things but not others,” she says.

“Often someone will be able to make their own welfare decisions but not able to manage their affairs.” In this situation, you may want to seek legal advice.

Managing money with second families and remarriage

Lawyers and financial planners cannot ensure that adult children inherit their parents’ money because, unlike in France, for example, adult children in the UK do not have an automatic right to an inheritance.

If a parent has remarried and has additional children to whom they leave their estate, it would be legally difficult for the adult child to challenge this.

However, it may happen that money has been informally promised to adult children. You can file this as a claim against a parent’s estate.

“It’s really common practice to have mediation after death to resolve these types of claims,” Lewis says. In the UK, individuals are free to dispose of their estate as they see fit.

However, under the Inheritance Act 1975, courts have limited powers to intervene if it is found that “adequate financial provision” has not been provided to a certain number of people associated with the deceased.

This includes the spouse or life partner or the child. Claims must be made within six months of the issuance of a probate or letter of administration and must fully disclose financial needs and resources.

A trust fund may be the solution

When parents place money into a trust, adult children can be assured that their inheritance is protected and parents can enjoy retirement without touching the money set aside for future generations.

McCann says it is a “common misconception” that trusts are only for the rich.

“In their simplest form, life insurance trusts can be used to ensure they do not become part of your estate for inheritance tax purposes and to speed up distributions to your beneficiaries by eliminating the need to wait for probate,” he says.

They may also offer inheritance tax benefits. If you leave assets into a trust and survive for seven years, the value typically falls outside of your estate.

Many life insurers offer free trust documents, and trusts can be established during a person’s lifetime or through a will to make gifts or bequests without giving the recipients immediate control.

In families with multiple children and grandchildren from different marriages, a life interest trust can help avoid disputes over the division of a person’s assets.

Money or property may be held in a life interest trust for a second spouse for life, with the provision that upon the death of the spouse, the assets pass to the children of the first marriage.

“Discretionary trusts” allow a person to name a wide range of potential beneficiaries, including children and grandchildren, as well as those who may be born in the future.

“By appointing yourself as a trustee, you can exercise control over who benefits during your lifetime,” says McCann. “You can also write a letter of wishes to the other trustees, which they can consider when administering the trust after your death.”


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