What professional would you turn to when having a baby?
Your GP, a midwife? How about your financial adviser? They may not be best placed to help you through contractions and labour pains, but they should be consulted by clients to ensure they and their family make the best start in life.
Ensuring the house has been baby proofed and understanding one end of a nappy from another are probably foremost in the mind of prospective parents, but ensuring the financial security of your family should be on any new parents list of things to do.
Advisers may be reluctant to seek out young clients with limited assets, but there is plenty of simple advice which can be given to families starting out, which will hopefully mean they remain long term clients, with the potential to bring in a wider family group.
As they say, every little helps, and there are benefits available to parents regardless of their income:
- Payable from birth through to age 20 if the child remains in education or training, this provides £20.70/week for the first child, that's potentially £21,528!
- There may be tax to pay if one parent earns over £50,000.
- Provides National Insurance Credits if the claimant is not working - these count towards that parent's future State Pension.
- If clients are married couple/ in a civil partnership and one of them is not working or earns little, they can transfer up to £1,150 of their unused Personal Allowance to the higher earner, saving up to £230/year in Income Tax.
Childcare Vouchers/Tax-Free Childcare
- Depending on how much clients earn, they can get up to £2,600/year in Childcare Vouchers or £2,000/year in the newer Tax-Free Childcare scheme.
- The cost is deducted from gross salary before tax and National Insurance.
Hopefully families would already have in place mortgage protection cover, but what about covering the additional costs of raising a family?
- If a parent has little or no sick pay through their employer then being unable to work due to ill health or disability could have a serious impact on a family's lifestyle.
- Plans can be written on a comprehensive or low-cost basis and cover is also available for parents who do not work under 'house persons' cover.
Family Income Benefit
- This cover is designed to pay a monthly amount to a family, and is available at lower cost than standard term assurance.
- It can be written on a life or life/critical illness basis and the benefit could be used to help cover the regular costs of raising a family, taking financial pressure off the surviving parent.
- Many policies include an element of children's cover for free.
- The policy can be written under Trust to ensure the financial future of children and protect against divorce or relationship concerns.
The bank of mum and dad (and nan and grandad) is growing increasingly important for the next generation, as the rising costs of education and housing leaves children financially dependent for longer. The added benefit for grandparents and other family members is the ability to maximise their annual Gift Allowances and make a dent in any inheritance tax liability. So, the sooner they start saving and investing the better; all those Christmas and birthday cash gifts could add up to a small fortune by the time they reach 18:
- Up to £4,128 can be saved in 2017/18, in either a cash or stocks & shares ISA.
- The ISA can only be opened by a parent but anyone can pay money in i.e. grandparents.
- The account reverts to the child at 16, but cannot be accessed until age 18.
- A child can also open a Cash ISA, in addition to their Junior ISA allowance, from age 16.
General Investment Accounts
- Once the Junior ISA limit has been maximised there are still ways of investing for a child whilst retaining control of the monies until they reach 18.
- Using a GIA with a Bare Trust allows those other than parents to save for a child, with any tax then due on the child; assuming they have no/limited income of their own, there should be no tax to pay.
- Withdrawals can be made before age 18 so long as the proceeds are used for the child's benefit e.g. to help with education costs.
NS&I / High Street Savings
- Whilst it may take some leg work, it is always worth seeking out a cash account for any short-term savings and children's accounts often have preferential interest rates.
- Parents should note that any income in excess of £100/year, generated by savings they contribute, will be taxed at the parent's income tax rate.
- Holding an account in a child's name also gives a parent the opportunity to show them, when they are old enough, how to use a bank and manage money.
- A pension can be opened by a family member for a child, as soon as they are born.
- Contributions of up to £2,880 net/year can be made on the child's behalf, with HMRC grossing this up with 20% tax relief.
- Whilst children born today will not be able to access the funds until at least age 58, the long term returns for money invested now will be hugely beneficial and give them a good head start until they can start to save into a pension themselves.
- Don't forget, parents should also check with their own pension schemes and lodge a 'nomination of beneficiary' form so that benefits are paid to their child/partner on death.
All parents should make a Will, even if they feel they don't yet have any assets to leave:
- These important documents are essential to outline how a person's affairs should be taken care of in the event of death.
- They are particularly important when a couple are not married, as the rules of intestacy can mean the surviving partner could be left with nothing.
- A Will can appoint a Legal Guardian for a child, otherwise the Courts will have to do this on a child's behalf if there is no surviving parent.
- Wills can be simple and do not have to cost much to put in place.
- Advisers should refer clients to a suitably qualified Will writer as not all solicitors are experienced or qualified in this area.
Powers of Attorney
Lots of people, advisers included, may think Lasting Powers of Attorney are the preserve of the older client, but any one of us can fall sick or be injured, leaving our affairs in a mess if we have no one to manage them:
- There are two types of LPA, 'health & welfare' and 'property & financial affairs'. You can have one, or both, with separate attorneys for each.
- LPAs give legal powers for your attorneys to act on your behalf and also provide guidance as to how you would prefer things to be managed.
- A comprehensive guide and all the necessary forms can be obtained on the gov.uk website. It is not necessary to register an LPA through a solicitor as this can now be done online or directly with the Office of the Public Guardian.
- An LPA can be revoked at any time, assuming you still have mental capacity, if your situation changes.