Around 40% of parents aged over 45 have gifted more than £5,000 to their children to help them cover major expenses, according to research.
The children are usually over 18 year-olds and use the money to cover the costs of weddings, house deposits or to pay for their education.
But a report by Just Group found that this may not be the best strategy for parents’ long-term financial planning.
Advice firms reported that on average around 20% of their clients had already gifted money to their children or were considering doing so.
In 26% of cases, financial advisers “felt obliged” to challenge their clients’ wishes or encourage them to donate a lower sum, the Just Group revealed.
The main reasons for stopping clients gifting lump sums were because they had not considered how much income they may need in later life (67%); they hadn’t thought about how they would pay for care in their later years (48%); or because they simply didn’t have enough money to give away (40%).
Avoid financial hardship
“This is the ninth in our series of reports which digs into the understanding and attitudes of over-45s towards adult social care, and for this edition we shone a spotlight on parents’ desire to give ‘living inheritances’ and how advisers manage this,” said Stephen Lowe, group communications director at retirement specialist Just Group.
“The ‘Bank of Mum and Dad’ is very much open for business with almost all advisers (95%) having at least some clients who wish to make living inheritances to their children. But with about one in four clients, advisers face the tricky challenge of how to make their clients reconsider the wisdom of giving money away early.
“Advisers tend to deal with wealthier people but even so their insight and expertise means they will sometimes have to challenge a client’s plans to make financial gifts. These can be difficult conversations, but advisers understand it is important they raise these concerns because their experience suggests the client may otherwise face financial hardship later.”
