Dealing with the unexpected

As of June 2020, approximately 9.3 million jobs, with 1.1 million different employers were furloughed in the United Kingdom. Yet two in five (44%) organisations utilising the Coronavirus Job Retention Scheme say they will have to make some or all their furloughed staff redundant when the scheme comes to an end in October.

Businesses may have been given the go-ahead to open again but with social distancing guidelines it’s at reduced capacity which still leaves businesses, particularly smaller ones, questioning their future viability.

The implications on wider family and future generations

The full economic impact of the COVID-19 pandemic is yet to be realised and it is likely that the ramifications will ripple through many families in different ways, for some time to come.

Millennials and Generation Z are the future. They accounted for a combined 46% of the global population in 2019, according to survey data cited in a recent podcast by Euromonitor International titled “Millennials and Generation Z in the Age of Coronavirus.”

The pandemic will impact these young people at a crucial time when they are reaching key milestones in their lives. Millennials, aged 26-40 years old, include both young and established career professionals who may also be new parents, homeowners or business owners/entrepreneurs. Gen Z, aged 11 to 25 years old, are now beginning to come of age, complete their education, and move into the workforce.

Euromonitor’s forecast predicts that the average global gross income of those aged 25 to 29 will decline by an alarming 49% in 2020, and a similar trend is also expected for other young age groups.

Many younger people have already tightened their budgets and focused their spending on essentials like food, housing, health, and education, and they have decreased spending on transportation, leisure, and recreation.

But the pandemic could lead to more significant changes in young people’s lives. Employment turbulence could lead more people to delay important life steps, such as moving out of their parent’s home, getting married, having children, or becoming homeowners.

What lies ahead for families facing the unknown?

The older generation and those with accumulated wealth will inevitably start to be called upon to help out. Those that can weather the storm will support those who can’t; this is a very real prospect for many families. The bank of mum and dad, or grandparents may be stretched as loved ones may see the longer-term impact of redundancy, periods of unemployment, or businesses facing a hard time.

Indeed, families have been tested in many ways not just financially but mentally and emotionally too. Lockdown has challenged some relationships and the knock-on effect of family circumstances changing very rapidly can create an entirely different set of pressures.

Sadly, an example is the shocking statistics that have been reported through the pandemic, that domestic violence has surged since the start of lockdown. The UK’s largest domestic abuse charity, Refuge, reported a 700% increase in calls to its helpline in a single day. It seems perpetrators looking for help to change their behaviour also increased as calls to a separate helpline also increased by 25%.  Often the barriers to getting out of such serious circumstances are not just emotional and mental, but sadly financial too. The call on family and friends can become an urgent priority.

So, dealing with the unexpected can come in many forms when looking at individual and family circumstances. Helping sort out difficult moments becomes part and parcel of the role and value a financial adviser can bring, to help see things from a different perspective and help families navigate unchartered waters.

Sheetal Radia, Chartered Wealth Manager at Ascot Lloyd shares some examples of helping families

Sheetal RadiaSheetal says “When our clients are faced with exceptional circumstances, we do our best to find a solution. Our clients trust us so they are confident in freely sharing with us about what is happening in their life, so that we can help them address the bigger picture. It’s looking at the combination of financial and non-financial factors, and how these affect their goals and aspirations, often discussing the ‘what if’ scenarios to address what is important for them and those most important to them. We can then collaborate and plan for what lies ahead. We consider all of the client’s financial circumstances, goals and aspirations and model the ‘what ifs’ and the implications to understand future needs as well as options for current circumstances. There are lots of different factors to consider to ensure one retains enough financial security for oneself in later life, whilst balancing this with the most appropriate way to help those that they care about today.”

Gifting and tax planning

“Tax planning forms part of the wider financial plan. These areas can be complex particularly against a changing landscape where national debt is rising and the government is announcing intention for tax reforms, with scrutiny on such things as Capital Gains Tax. It can add another worry to ensuring you do the right thing to help preserve what you have and make it do all the things you want it to do.”

“Gifting to children is more complex than it seems when you consider the tax implications and it could mean it costs more than you expected. For example, if you have a second home you want to gift to your child, even though you’re not selling the property, the HMRC view it as a sale and would expect to receive the related taxes due e.g. capital gains tax. You will be charged tax on that asset, even though you did not receive any money from your gift in the same way as if you’d sold the property. Also, if you die within seven years of gifting the property away your estate could potentially be liable for inheritance tax as the gift would fall back into your estate hence the double whammy of being taxed twice. Planning helps identify the most tax efficient way to help you do what you want to.”

Helping the next generation

Sheetal goes on to provide some real-life examples of how he’s advised several clients deal with the unexpected and often sensitive situations within families.

Getting onto the property ladder

He says “I had a client who came to me for advice about their daughter who was wanting to buy her first home with a group of friends. While Ascot Lloyd offer mortgage advice and suitable products, it was equally important to ensure that the daughter’s interests were protected and address the ‘what ifs?’ I encouraged them to consider the potential financial implications of the unexpected further down the line. We discussed their daughter making sure the property was owned appropriately and putting in place a carefully considered and structured legal agreement with her friends. What if one of them found love and wanted to move out? What if one of them became ill and couldn’t work or were made redundant and couldn’t afford to pay their share of the mortgage? Will the daughter have the correct insurance policies in place in case she is unable to work? It would also be important for the daughter to put a Will in place so that her share of the property passes to those she would want to receive it. I also collaborated with the parents to look at their finances to see what options they would have if they needed to help out should the unexpected happen without compromising their own later life financial security.”

Keeping a daughter’s business afloat

Sheetal goes on to say “Early on in the pandemic I had another client whose daughter’s business was quickly affected by the lockdown and was on the verge of collapsing. She needed £100k to adjust the business model and adapt to enable the business to keep going. Her 85-year-old widowed father looked to me for advice on the best way to help his daughter without compromising his invested assets which were used to provide for part of his retirement income. Our client owned his property outright, and this was going to be divided between his children on his demise. The client also did not have a potential inheritance tax liability. I proposed that by releasing some equity from his home he could gift to his daughter the emergency funds required. The client’s Will could then be altered to reflect the fact that his daughter received some of her inheritance early and taken into account when his estate was distributed. The borrowing had no tax implications as no assets were sold and while the gift to his daughter could fall back into his estate if the client passed away within seven years of making the gift; the client did not have a potential liability in the first instance so there would be no inheritance tax implications.”

Providing an escape route

“Sadly, my other example is of a client whose daughter was caught up in an abusive relationship and of course she needed to find a way out. In addition, the daughter also had two young children. Being a father of a daughter myself, I felt my client’s pain, what parent wouldn’t want to help in such a difficult situation? Just talking about such a subject can be very upsetting and distressing, and when caught in the middle of it all, it can be easy to make rash decisions. Hopefully I was able to help my client step back and look at things objectively and take steps that helped their daughter and grandchildren through a difficult set of circumstances today, whilst still ensuring they have the resources for their planning for their own secure future ahead.”

Take a look at the video to see how Sheetal helped through this very sensitive situation.

 
Seeing the bigger picture

If you or your family are dealing with the unexpected, then you might be surprised at how your financial adviser may be able to help. By taking a rounded view on a situation and helping you look ahead, you may be able to find routes to helping loved ones facing challenges, at the same time as ensuring your life plan stays on track.

 
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