As the cost of living continues to rise, helping family members with school fees, house deposits or everyday living costs can feel like the right thing to do. However, while generosity is admirable, giving away wealth too early or without proper advice can have serious and unintended consequences.
The hidden cost of generosity
One of the biggest risks of gifting assets during your lifetime is underestimating your own future needs. People are living longer, and the cost of later-life care continues to rise. Residential care can cost in excess of £100,000 per year, and once savings are exhausted, individuals may be forced to sell their home to fund care.
If you give away too much too soon, you may find yourself financially vulnerable later in life, with limited options and less control over your care and living arrangements.
Gifting and care fees: what many people don’t realise
Many people assume that giving money or property to family members will protect it from being taken into account for care fees. This is not always the case. Local authorities can investigate whether gifts were made deliberately to avoid care costs – known as “deprivation of assets” – and may still treat those assets as if you owned them.
This can leave families shocked to discover that the wealth they thought was safely passed on is still relevant when care needs arise.
Family tensions and disputes
Financial gifts can also create emotional and practical difficulties within families. Helping one child more than another, even for good reasons, can lead to resentment, misunderstandings, or long-term rifts. In some cases, disputes over gifts, loans, or expectations end up being resolved in court.
Clear communication, proper documentation and legal advice can significantly reduce the risk of conflict later on.
Inheritance tax and record-keeping risks
While lifetime gifting can be part of legitimate inheritance tax planning, the rules are complex. Gifts may still be subject to inheritance tax if you die within seven years, and poor record-keeping can create difficulties for executors and beneficiaries.
Without careful planning, what was intended as a tax-efficient gift can become a costly and stressful problem for loved ones.
Think carefully before giving away assets
Passing wealth down during your lifetime can be positive, but it should always be done with a full understanding of the risks. Before making significant gifts, it is important to consider:
- Your long-term financial security
- Future care and living costs
- The potential impact on family relationships
- Tax implications and legal protections
Taking professional advice can help ensure your generosity supports your family without compromising your own future plans.
For any further advice, information or guidance, contact Downs to see how we can help.
Contact Liz Dalgetty
