Supporting Aging Parents: The Rise of the ‘Bank of Son and Daughter’
Thelma, 65, and Trevor James, 74, from Liverpool, have faced increasing financial challenges after retiring in 2020. Their combined pension income is insufficient to cover essential expenses, which include a minor mortgage.
Fortunately, their son Laurence and his wife Wendy are stepping in to provide assistance.
Laurence, 38, a secondary school teacher residing in Milton Keynes, shared, “My parents lack significant savings, so we felt it was our duty to ensure their comfort.” He added, “We are fortunate to be in a position to offer help.”
Laurence and Wendy, 33, a nurse, contribute approximately £5,000 to £7,000 annually to support his parents’ mortgage and other household expenses. They also assist with medical costs, having spent around £12,000 last year on private healthcare for his parents.
In addition to these financial responsibilities, Laurence and Wendy are raising two young children, aged ten and five.
Aju Chacko, 48, a manager from Ealing, west London, faces a similar situation. He spends £600 each month on a carer who visits his mother, Annamma, 74, three times a week to provide essential assistance.
Annamma, who has been widowed for over ten years and lives nearby in Southall, values the support while knowing that her son and his wife, a university scientist, also have a three-year-old daughter to care for.
Chacko remarked, “My mother can manage on her own mostly, but she requires occasional assistance. We are fortunate to balance helping her with caring for our daughter without being overwhelmed.”
He added, “My mum doesn’t demand much since she understands we have our own lives. It’s the least we can do. She covered some of my university expenses and helped me purchase a home. Ultimately, it’s all family money and support.”
As adult children increasingly support aging parents financially, the concept of the “Bank of Son and Daughter” is gaining traction. Research conducted by the wealth management firm Saltus indicates that out of 2,000 high-net-worth individuals—defined as having liquid assets of £250,000 or more—about 68% are providing financial support to their parents or grandparents. This contrasts with the 73% actively aiding their adult children. Around 12% offer assistance to both groups.
Financial Foundations for Support
In terms of funding this support, 42% of individuals assisting their parents are using surplus income. Additionally, 31% have sold stocks, while 18% have reduced their lifestyle expenditures to afford the help, as found by Saltus. Alarmingly, 12% have dipped into their pension savings or cut their contributions, which raises concerns about their retirement security.
Mike Stimpson from Saltus stated, “The traditional ‘Bank of Mum and Dad’ model is evolving, with a noticeable trend of adult children stepping in to support their parents. This financial strain is reshaping priorities and leading many to make significant sacrifices.”
He continued, “Many people who have worked hard to establish themselves find themselves in tough financial dilemmas where they must choose between supporting family and investing in their futures. Such choices could have broader ramifications for economic growth due to reduced investment and savings for retirement.”
Assistance Breakdown: What Help is Given?
For adult children, the primary reasons for seeking financial aid from their parents revolve around significant life events, such as house deposits (23%) and car purchases (19%). Additionally, 15% require help with everyday bills.
On the other hand, the support given to aging parents focuses on essential needs, with 45% contributing to grocery expenses and 43% assisting with utility bills. Moreover, 26% are helping cover rent or mortgage payments for their parents.
Approximately 19% have financed a parent’s one-off medical procedure, and 24% are providing funding for private mental health treatments, according to Saltus.
Preparing for Future Support
Research conducted by the pension firm Aegon reveals that over half of UK adults with living parents anticipate needing to provide financial assistance to them during retirement.
This trend indicates that the ‘Bank of Son and Daughter’ is not just a phenomenon among the affluent; younger generations, regardless of income level, anticipate a future in which they will be a primary support system for their parents.
Aegon’s study found that two-thirds of adults benefited from the ‘Bank of Mum and Dad’ when they were younger, yet 55% report already providing or intending to provide support for their aging parents.
This aid often includes covering routine expenses, with 38% frequently treating parents to dinners and 25% assisting with household bills.
Steven Cameron from Aegon highlighted, “Our findings show that younger generations recognize that the roles within the family could reverse over time.”
He concluded, “As life expectancy increases, we need to acknowledge that our later years may differ significantly from our parent’s experiences.”
Tax Considerations for Financial Assistance
Transferring assets and cash can have implications concerning inheritance tax (IHT). This typically applies to generational transfers of money, but with adult children providing support to their parents, roles have switched.
Upon death, assets given to a spouse or civil partner are exempt from IHT, along with up to £325,000 in other assets (or £500,000 if the estate value is below £2 million and includes a primary residence left to heirs). Any amount beyond these limits is subject to tax rates of up to 40%.
There are annual allowances that enable the gifting of cash to shrink the estate, and a seven-year rule states that any gift—regardless of its size—is exempt from IHT if the giver survives for seven years post-gift.
A yearly £3,000 gift allowance exists, and gifts up to £250 can be given to unlimited recipients without incurring IHT implications.
Furthermore, reasonable payments for the care of a dependent relative are exempt from IHT considerations.
Cameron explained, “It’s crucial to understand that the government permits regular IHT-exempt gifts as long as they come from post-tax income and do not affect one’s standard of living. Maintaining a record of consistent gifting patterns can mitigate any personal risk in supporting loved ones.”
Alternatives for Parents Seeking Independence
Older adults who have paid off their senior mortgages might consider tapping into their home equity to cover expenses through equity release programs. These are structured like mortgages but do not require repayment until the borrower passes away or shifts into care. Instead, interest accumulates and is settled upon property sale.
This process allows seniors to avoid direct reliance on their children but may reduce the inheritance they leave behind.
Jim Boyd from the Equity Release Council emphasized, “Equity release can enhance older adults’ financial circumstances or aid in funding home care, albeit at the expense of potential inheritances.”
He added, “Most children are open to their parents enjoying an improved quality of life in retirement. All Equity Release Council members actively promote family involvement in the advisory process to answer questions and consider all options.”
Typically, an equity release loan’s interest rate is around 6%, compared to approximately 4.8% for a standard two-year mortgage. Modern equity release offerings may include inheritance protection choices, permitting a portion of the property’s value to be reserved for family, irrespective of the loan duration.
Importance of Open Communication
Financial experts underscore the value of transparent discussions within families and recommend setting clear financial boundaries to protect everyone involved.
Honest dialogue about financial expectations and resources across generations can lead to cooperative solutions and avert misunderstandings.
Investigating available government benefits, such as attendance allowance or pension credit, can alleviate financial pressures on elderly parents.
Moreover, parents requiring care should consider professional evaluations to identify qualifying services and funding avenues.
For instance, some may qualify for a lesser-known state funding source for care called continuing healthcare, but obtaining it can be a complex process.
Establishing a solid emergency fund can also provide a buffer against unforeseen financial demands from elderly parents or offspring.
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