Bank of Mum & Dad

Hal17

Having recently read Bill Perkins book "Die with Zero", got me thinking about our current net worth and how best to utilise the money going forward.

Coming up to my 70th birthday next month has made me think a little more seriously about what I should do.

We have always helped our two grown up children and two grandchildren with financial support and we intend to continue this as the years past. Better to see the benefits it provides now rather than when you are dead.

We currently live comfortably on 2 x SP, some small DB pensions and the interest from our Cash ISA's. I also have a large DC pension which is not being drawn.

Our Net Worth percentage is broken down as follows:

Cash                     10%
Fixed Cash ISA's  22%
Equities                 50%
Bonds                   18%

At the moment I appreciate that the DC pot is outside of IHT. 

Where I would appreciate any thoughts is if I should perhaps draw from the DC pension to provide funds to put into Cash ISA's each year to give some additional cash flexibility going forward? I have filled both our ISA's this current tax year.

Or if there is anything else I should consider in trying to maximise the benefits that the Bank of Mum and Dad can provide going forward as well as enjoying our own retirement?

Marcon

Hal17 said:

Having recently read Bill Perkins book "Die with Zero", got me thinking about our current net worth and how best to utilise the money going forward.

Coming up to my 70th birthday next month has made me think a little more seriously about what I should do.

We have always helped our two grown up children and two grandchildren with financial support and we intend to continue this as the years past. Better to see the benefits it provides now rather than when you are dead.

We currently live comfortably on 2 x SP, some small DB pensions and the interest from our Cash ISA's. I also have a large DC pension which is not being drawn.

Our Net Worth percentage is broken down as follows:

Cash                     10%
Fixed Cash ISA's  22%
Equities                 50%
Bonds                   18%

At the moment I appreciate that the DC pot is outside of IHT. 

Where I would appreciate any thoughts is if I should perhaps draw from the DC pension to provide funds to put into Cash ISA's each year to give some additional cash flexibility going forward? I have filled both our ISA's this current tax year.

Or if there is anything else I should consider in trying to maximise the benefits that the Bank of Mum and Dad can provide going forward as well as enjoying our own retirement?

What provision do you have if one or both of you need to go into residential care? Giving away your assets is fine if you've got that sorted out, but if you need to rely on the state, your local council isn't going to help if you have deliberately deprived yourself of assets (which is what you're doing). What looks like a 'large DC pot' isn't going to go that far - 75% of it will be taxable when withdrawn, and with care home fees running at £50K-£100K (and counting) it may not go as far as you hope.

michaels

I assume as well as consideration of the IHT status of the DC pot you are also thinking about the 7 year PET rules and how giving out of income is exempt.

Keep_pedalling

Hal17 said:

Having recently read Bill Perkins book "Die with Zero", got me thinking about our current net worth and how best to utilise the money going forward.

Coming up to my 70th birthday next month has made me think a little more seriously about what I should do.

We have always helped our two grown up children and two grandchildren with financial support and we intend to continue this as the years past. Better to see the benefits it provides now rather than when you are dead.

We currently live comfortably on 2 x SP, some small DB pensions and the interest from our Cash ISA's. I also have a large DC pension which is not being drawn.

Our Net Worth percentage is broken down as follows:

Cash                     10%
Fixed Cash ISA's  22%
Equities                 50%
Bonds                   18%

No property?

Brie

While some of the principles of a book like Die with Zero may well be applied to the UK it should be noted that the author is an American so I suspect there's a lot that applies to the USA only.  

p00hsticks

Marcon said:

Hal17 said:

Having recently read Bill Perkins book "Die with Zero", got me thinking about our current net worth and how best to utilise the money going forward.

Coming up to my 70th birthday next month has made me think a little more seriously about what I should do.

We have always helped our two grown up children and two grandchildren with financial support and we intend to continue this as the years past. Better to see the benefits it provides now rather than when you are dead.

We currently live comfortably on 2 x SP, some small DB pensions and the interest from our Cash ISA's. I also have a large DC pension which is not being drawn.

Our Net Worth percentage is broken down as follows:

Cash                     10%
Fixed Cash ISA's  22%
Equities                 50%
Bonds                   18%

At the moment I appreciate that the DC pot is outside of IHT. 

Where I would appreciate any thoughts is if I should perhaps draw from the DC pension to provide funds to put into Cash ISA's each year to give some additional cash flexibility going forward? I have filled both our ISA's this current tax year.

Or if there is anything else I should consider in trying to maximise the benefits that the Bank of Mum and Dad can provide going forward as well as enjoying our own retirement?

What provision do you have if one or both of you need to go into residential care? Giving away your assets is fine if you've got that sorted out, but if you need to rely on the state, your local council isn't going to help if you have deliberately deprived yourself of assets (which is what you're doing). What looks like a 'large DC pot' isn't going to go that far - 75% of it will be taxable when withdrawn, and with care home fees running at £50K-£100K (and counting) it may not go as far as you hope.

To add to that, even without the possibility of going into a care home, how comfortably will one be able to manage when the other passes ? As you fall under the New State Pension rules, there is likely to be little to no inherited SP for the survivor. It's worth checking the spousal benefits of the DB pension, and doing some projections of each individuals financial position without the other, bearing in mind that you may well incur additional expenditure on things like gardeners, cleaners, carers etc... 

Hal17

Thank you for both for your prompt replies, much appreciated. Yes I am aware of all the points you made. 

I am trying to find a balance. No intention of going overboard. My Dad's currently in care and he's paying £77K a year so fully understand those costs. 

I know that taking funds from the DC pot will incur 20% tax, so will want to ensure its for the right reason. 

dunstonh

Where I would appreciate any thoughts is if I should perhaps draw from the DC pension to provide funds to put into Cash ISA's each year to give some additional cash flexibility going forward? I have filled both our ISA's this current tax year.

There is little logic in taking money out of the pension and paying tax to put it in a cash ISA. Taking it out when you know you are going to spend it is sensible, but unless there is another justification for doing it, you wouldn't.

Marcon

Hal17 said:

Thank you for both for your prompt replies, much appreciated. Yes I am aware of all the points you made. 

I am trying to find a balance. No intention of going overboard. My Dad's currently in care and he's paying £77K a year so fully understand those costs. 

I know that taking funds from the DC pot will incur 20% tax, so will want to ensure its for the right reason. 

It'll be added to any other potentially taxable income, so could be higher rate tax depending on how much you need to withdraw during a tax year. 

LHW99

Best option may be the "regular gifts from income" allowance. These don't have to be monthly, could be 6 monthly or annual, as long as there is a recorded intention for the gifts to continue, and you can show that they are surplus to your normal living requirements (as I understand it).

That need not involve any withdrawal from the DC pension, as you say you can "live comfortably" (I assume that means there is at least a small surplus every month) but could add up to a significant amount over time.

Marcon

LHW99 said:

Best option may be the "regular gifts from income" allowance. These don't have to be monthly, could be 6 monthly or annual, as long as there is a recorded intention for the gifts to continue, and you can show that they are surplus to your normal living requirements (as I understand it).

That need not involve any withdrawal from the DC pension, as you say you can "live comfortably" (I assume that means there is at least a small surplus every month) but could add up to a significant amount over time.

Unlikely that 6 monthly or annual payments would qualify:

If you make regular payments

You can make regular payments to another person, for example to help with their living costs. There’s no limit to how much you can give tax free, as long as:

• you can afford the payments after meeting your usual living costs
• you pay from your regular monthly income

These are known as ‘normal expenditure out of income’. They can include:

• paying rent for your child
• paying into a savings account for a child under 18
• giving financial support to an elderly relative

If you’re giving gifts to the same person, you can combine ‘normal expenditure out of income’ with any other allowance, except for the small gift allowance.

For example, you can give your child a regular payment of £60 a month (a total of £720 a year) as well as using your annual exemption of £3,000 in the same tax year.

Source: https://www.gov.uk/inheritance-tax/gifts