The birth of a child – Planning that involves both Solicitors and Financial Advisers
Celtic Financial Planning is a family run business. So, when our co-founders, Rob, and Ella, recently welcomed their first born, we got thinking. What are some of the ways in which we as Financial Advisers can ensure that a new born is included in the financial planning process from the outset and where can solicitors also help?
As a first port of call, we would recommend ensuring that you have a valid Will in place. Approximately 60% of adults in the United Kingdom die intestate. That is, they do not have a Will in place. Now consider how your premature passing would affect your child. Where will they live? Who will get custody? How will your estate be distributed? What if your partner finds another partner? How will all the aforementioned affect your child? You should ensure that not only are your final wishes written down in a legally binding document but that you also have those difficult conversations with family members to ensure that your child is cared for should the worst ultimately happen. Having a valid Will in place not only provides you with the peace of mind that your child will be taken of in line with your wishes, but it also acts as a legally binding document that must be followed.
You should also consider whether a Power of Attorney is needed and ensure that any Nomination of Beneficiaries forms are updated.
Whilst we’re on this particularly morbid train of thought, our next stop on this journey is to review whether or not you have an adequate level of protection in place to cover your growing family from the financial detriment caused by a death to either or both parents. What would the financial impact be on your family if you, your partner or both of you were to die? Each family will have a different figure in mind as to how much money would be needed to support their family or their child in event of this horrible scenario. It is important to consider if and whether any employee benefits will cover the void in the finances, the level of cover already in place as well as your existing assets. More often than not, there is a shortfall, and this can be covered through Life Insurance.
Every resident in the United Kingdom with a child under the age of four years old is entitled to twelve months free life insurance. This cover is offered by several household name insurance providers and typically provides around £15,000 of cover to each parent for each child under the age of four. Everyone loves a freebie, and this is one which we strongly recommend that you look into!
If you already have existing life insurance policies, it is worth checking if you have a Guaranteed Insurability Option built in as an added benefit. This will allow you to increase the amount of cover to suit your change in circumstances without having to provide any further medical underwriting which would likely increase your monthly premiums further. It also removes the need and hassle of having to take out an additional life insurance policy to cover the shortfall. If you are family planning, you should consider having this benefit built into your life insurance policy ready for when or if you do have children.
A final consideration with life insurance is trusts. Should a claim be made what’s the impact on your estate, the right trust planning can mitigate any inheritance tax whilst providing control over how the money is spent. A solicitor could include this as part of the Will planning process.
Savings & Investments
Now, we fully understand that raising a child is expensive and that budgeting can be stretched. Push chairs cost how much?! We also understand that many families want to give their children or grandchildren a head start with their future finances. With this in mind, it may be worth reviewing your objectives as there are lots of options available. A Junior ISA for example, allows you to save or invest up to £9,000 per child each tax year up to the age of 18 in a tax efficient wrapper that converts into a standard ISA when the child reaches eighteen years old. Alternatively, a Personal Pension can be used as a much longer-term investment for the child and this allows the child to benefit from tax relief on contributions up to £2,880 (this is then grossed up to £3,600).
The key word here is ‘options’.
There are several and depending on your affordability, your objectives and your time-frame for investment, the solution is going to be unique to your circumstances. That’s why it is important to seek the opinions of a professional!
Lastly, you should know what you are entitled to in terms of support from the state. Thankfully, in the UK, there are a whole host of benefits available to parents such as Statutory Maternity Pay, Maternity Allowance, Paternity Pay, Child Benefit, Child Tax Credit, Working Tax Credit, Childcare Vouchers and even Free NHS dental care. Each benefit has a different criteria. It is important to take the time to understand which, if any, of the aforementioned are available to you and then ensure that you receive said benefits!
As Financial Advisers there are some little-known facets of these benefits which are integral parts of the wider financial planning process. For example, ensuring that your employer continues to make contributions into your pension when you are on Statutory Maternity Pay and ensuring that you continue to receive National Insurance when claiming Child Benefit. These examples may seem trivial but they prove detrimental over the long-term to your own financial planning.
Having a baby is exciting. It’s also stressful. It’s a period of change and with change comes the need to adapt. This change isn’t necessarily isolated to your personal life, it goes hand in hand with your finances too. That’s why we believe that any period of change should be discussed with a professional to ensure that you are on the right track to achieve your goals. Celtic Financial Planning offer a free, no obligation initial meeting to all clients.
This article is for information purposes only – should not be perceived as financial advice. We recommend you should always speak to a financial adviser before making any investment decisions.