Yesterday was National
Grandparents Day. The day was signed into law in the United States by President
Jimmy Carter in 1978 and is the day each year that grandparents are appreciated
and recognised through various activities and celebrations. In our society and
in the absence of a formal and effective social security system, the extended
family system has evolved into a home-grown version of a more formal welfare
system. Grandparents have always and continue to play a critical role within
the extended family providing guidance, care and financial support.
It is only natural for
grandparents to be concerned about the financial well-being of their children
and grandchildren and to want to make provision for them in their legacy. Here
are some money matters for grandparents to think about.
Don’t jeopardise your retirement.
It is nice to be generous and to want to give, but do not jeopardise your own
retirement whilst you are trying to prop up children and grandchildren. You
must ensure that you can look after yourself. Do you have health insurance,
accommodation or long term care needs taken care of? You cannot assume that
your children will be willing or able to take care of you, so do make provision
for yourself and be sure that you can meet your needs. A thorough retirement
cost analysis is useful and should be done before you commit any significant
sum.
Give gifts that keep giving.
Presents that improve personal finances are ideal gifts. The gift of stock or a
lump sum mutual fund investment is not likely to arouse as much excitement as
giving the latest device, yet is a thoughtful financial gift to a grandchild
and could be the start of a rewarding long-term savings plan. Mutual funds pool
investors’ funds to invest across a wide range of stocks, bonds or money market
instruments. Although a child cannot hold mutual funds in their own name until
they reach the age of 18, an adult can open the “account” and add the child’s
name to the account holder name. The adult can then sign on behalf of the child
until they come of age. Talk to your grandchildren about saving and investing
and encourage them to be financially responsible.
Should you give or lend? Lending
money can be awkward at the best of times; when it is to family members it can
be even more so. Are you making a loan or giving a gift? If the “loan” is
really a gift, then you can just state this clearly and move on. Lending to
family often results in the loan not being paid, delays in repayment without
explanation; relationships can end up being strained. If you are considering
lending money, put some structure in place; the amount, date, and repayment
terms. This might appear to be odd in our society but it is important to
encourage family members to be accountable by repaying loans.
Are you enabling your heirs or
disabling them? It is wonderful to be generous but do not give to the point
where you make it impossible for your heirs to become mature and independent.
Regularly showering children or grandchildren with expensive gifts or large
cash gifts can make them come to expect it and to develop a sense of
entitlement leading to resentment if you don’t meet their expectations. As
Warren Buffet says“…a very rich person should leave his kids enough to do
anything but not enough to do nothing”.
Is your estate plan shrouded in
secrecy and mystery? Money is often an awkward subject in families. Even if you
don’t have a lot of money, ideally one should discuss estate plans with adult
children. Avoiding the discussion can lead to untold misunderstandings down the
line. Communicate your wishes clearly, regarding what you want them to do with
your money and who gets what, if appropriate. Of course your wishes should be
documented in a will, a trust or other estate-planning tool.
Naturally, every family has
unique dynamics and open discussions might not be feasible where there is some
degree of complexity particularly with multiple marriages, or children from
various relationships. There might also be sibling rivalry and jealousy and one
might prefer to have your plans guided by a professional that takes into
account the vagaries of your particular situation.
It is important to seek
professional advice when it comes to money and family issues. Some might
consider a trusted family friend with the requisite skills, who understands the
family dynamics and will help to craft an estate plan that can take all the various
issues into consideration in crafting the plan. A professional that is a
complete outsider can also be a good choice as they will develop the plan from
an objective standpoint as they interpret your wishes. Whatever you decide, the
most important thing is to communicate your wishes clearly to ensure that you
leave a cherished legacy and not a family feud.
- NIMI AKINKUGBE
About TRENDY
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