We all want to help our children and grandchildren financially, to give them that all important leg-up… and there are a number of obvious and legal ways you could do that, but you may be wondering how you can you do it without running the risk of your generosity compromising your own retirement security.
There’s been a lot of debate in the media about how the baby-boomer generation is living high, while generations X and Y turn into Generation Rent, particularly in Auckland. Regardless of where you stand in the debate, there’s no doubt that parents are increasing looking at ways to help their adult children into property – including supporting their children while they save for a house deposit.
A wise and prudent approach to leaving your family a financial legacy, however, begins with smart succession planning. Every fireman and emergency worker knows that they must make themselves as safe as possible before they can save anybody else, and the same analogy applies to your finances.
1. Know your own needs
Before you put your hand in your back pocket to help your children or grandchildren, it is important to understand if you can afford it. Have you worked out how much you will need to live out your retirement years?
According to Statistics New Zealand, we’re living longer (79.1 years for men and 82.8 years for women), which means you're going to need to sustain your own needs for longer. Consideration of New Zealand’s current low yield investment environment might also warrant a planned approach to calculating your future needs.
2. Invest in your children
The old saying that “if you give a man a fish you feed him for a day, but if you teach him how to fish you feed him for life”, is very relevant when thinking about ideas for the kind of legacy you want to leave.
Rather than giving your children money, perhaps your money will be better spent investing in your children? For example, helping them into a property, paying for their education, paying-off their study loans or investing money in property or shares is one way you may invest in their future – depending on their personal circumstances.
3. Do things properly, take advice
Leaving an inheritance for your children is nothing new, and there may be several ways to accomplish this. For example, investments, property and life insurance – but there’s a catch.
Let's say you have limited means and many kids. You may come up with the idea to purchase a holiday property and leave it to the family – an asset everybody can enjoy.
To all intents and purposes, it's a good idea. But there are a number of fishhooks and legal implications when it comes to how your estate is shared among your heirs. Before you go ahead, make sure you take relevant financial and legal advice because the most important legacy you can leave your kids is to make sure you do things properly.
Details like who shares the property and when, for example, can quickly develop into a family impasse, and that’s the last thing you want to leave your children.
In the book, AARP Roadmap for the Rest of Your Life: Smart Choices About Money, Health, Work, Lifestyle ... and Pursuing Your Dreams – by Bart Astor, the author proposes writing a legacy letter to your children.
In the letter, Astor proposes, outline your values and principles, based on stories of the experiences that led you to those learning’s and values so that your kids understand, and are emotionally touched, by what you are trying to achieve with your legacy.
Let them know, help them to understand, why you did what you did – you may find that is your most valuable legacy of all.