Financial Planning for Modern Families

Defying traditional stereotypes

What does the word family mean to you?

The traditional view is a loving, heterosexual couple with biological children. A married pair who live together in a mortgaged property. It’s an outdated perspective that continues to be reflected in the UK’s tax and financial systems.

In this blog, I want to explore the unique money challenges faced by non-traditional families.

Having experienced divorce myself, I embrace a truly inclusive approach. It’s unfair to assume that families have a predictable household structure. Good financial planners understand the range of financial dilemmas faced by modern families. We use a holistic, caring approach.

The contemporary and more inclusive view of ‘family’ includes single parents and same-sex couples. Many divorced parents build a ‘blended’ life with a new partner, sharing caring responsibilities for their stepchildren. We all know individuals and couples who are intentionally child-free. Multigenerational living is increasingly common. In the UK, non-traditional families are shaping the fabric of our communities more than ever before.

Unique challenges

Tax structures and inheritance laws still champion the traditional family model.

Married and civil partnered couples have tax benefits and incentives. Some of their tax allowances can be transferred or shared. Adults who don’t wish to formalise their loving relationship don’t benefit from these advantages.

The additional inheritance tax relief for passing on the family home only applies to those with biological, adopted and stepchildren. Passing on your wealth to the next generation of nieces and nephews, godchildren, or your close friends’ children doesn’t qualify.

Since April 2020, spouses with children and a home worth £350,000 have a combined inheritance tax allowance of £1,000,000. A child-free man or woman with property has only a personal lifetime allowance of £325,000.

If we’re already working together, you’ll know I look at every situation and problem as an opportunity. Let’s look at the financial challenges facing single parents and those who are child-free.

Single parenthood

Financial resilience is likely to be a constant worry. As the sole breadwinner, you’ll be juggling household expenses and childcare. Lone parents can find they have limited opportunities to build a support network. Your caring responsibilities and one income restrict your choices. Life can be incomparably demanding.

You need a financial plan—a simple but effective strategy to help you build economic resilience and a stable future.

Unexpected expenses can derail your plans. I recommend you focus on two essential tasks:

  • Create and stick to a meticulous budget.
  • Build an emergency fund.

Set aside some of your monthly income to build an emergency fund to cover unforeseen outgoings. Knowing you have a financial buffer will give you peace of mind.

Ask your financial planner to help you review your plan and insurance policies. Proactive steps towards risk management create a solid foundation for your family’s well-being.

Child-free

Child-free adults, whether by choice or circumstance, have distinct financial and inheritance planning issues to keep in mind.

If the value of your assets exceeds £325,000, your estate will pay inheritance tax at 40% over this amount when you die. The exception is if you’re leaving your wealth to charity. A mother or father who owns a property has an extra tax allowance equal to the property’s value up to a maximum of £175,000. That’s a potential tax saving of up to £70,000.

Without direct descendants, you need to decide who will inherit your wealth. It’s unlikely that the outdated intestacy rules match your wishes. Work with an estate planner. Make your Will and Lasting Powers of Attorney (Powers of Attorney in Scotland). Your Will should clearly outline your wishes for passing on your wealth. Your powers of attorney will appoint your partner, sibling, family member or friend to support you if you have an accident or serious illness. We all need them. It’s never too early, but it’s so easy to leave it until it’s too late.

Have you made beneficiary nominations for assets that allow this? Check who will receive any benefits from your pension, life cover, insurance, and death in service benefits. Review your choices whenever there’s a change in your relationship or family arrangements.

Consider incorporating charitable giving into your financial plan. You may want to support causes or organisations that are meaningful to you. Discuss strategies to optimise your giving with your financial adviser, who can help you reduce tax liabilities.

Trusts are a straightforward way to take advantage of legitimate tax concessions. Anyone can use a trust to preserve wealth – they’re not solely for the super-rich.

As we age, planning for potential long-term care needs is essential. Who will support you in later life? Will you need a professional to take care of your finances? With or without children, we should all set aside funds for future care expenses. Start by researching costs in your area. Seek help from a financial planner with later-life expertise.

Positive moves

Love has always transcended conventional boundaries. Society may have taken countless decades to accept different forms of loving relationships, but there has been a positive shift in recent years:

  • Individuals who identify as heterosexual gained the right to form a civil partnership in 2019. This is a remarkable stride towards inclusivity. Although unusual, two friends can become civil partners. Doing so allows them to take advantage of tax concessions. It’s worth noting that spouses and civil partners are also legally responsible for each other’s debts!
  • Curiously, stepchildren are included in residence nil rate band calculations, but they do not inherit automatically where there is no Will. The intestacy rules exclude stepchildren as beneficiaries. It’s a simple fact that if you want your stepchildren to inherit, you should make a Will.

Tailored advice

Non-traditional families face unique challenges when it comes to financial planning. It’s easy to feel judged if our life choices are less conventional.

Are you tired of a one-size-fits-all approach to financial planning?

Whatever your family arrangements may be, if you’re looking for empathy, flexibility, and a commitment to inclusivity, I’d love to help. I’m passionate about helping modern families to thrive.

I’d love to hear your family story.  Click HERE to book an initial chat with me.

Follow me on Instagram HERE.

 

The information in this article is for your general information and use and is not intended to address your personal circumstances. The information we provide here does not constitute any advice or recommendation and is not intended to be relied upon in making investment decisions. Bear in mind that tax rules can change, and your individual circumstances will affect how changes might affect you. We recommend that you seek appropriate independent advice before making any financial decisions.

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