Time to spend the inheritance, say kids
Richard Dyson, Financial Mail, 27 July 2009Greedy children desperate for the death of their parents so they can inherit their wealth have long been the villains of countless novels and films.
But in modern, middle-class Britain the reality is quite different.
A growing body of research shows that far from being grasping, the baby-boomer generation - those born in the Fifties and Sixties - want their parents to spend their wealth on themselves rather than leave it in a will.
Strangely, this can put the children at odds with their parents because the older generation often feel a duty to pass on their money to help their offspring.
A survey by the social research charity the Joseph Rowntree Foundation found that a majority of the public thought older people should put their own comfort and enjoyment above the need to bequeath money and property.
But when the responses of the over-65s were analysed, seven in 10 saw leaving an inheritance, including a mortgage-free property, as the priority.
In similar research, Saga, the travel and financial services company for over-50s, found that although seven in 10 adults believed an inheritance would improve their quality of life, only one in 10 were counting on one.
And three quarters said they wanted their parents to use their wealth, including the capital locked up in their property, to improve the quality of their own lives.
Andrea Rozario, director general of Safe Home Income Plans (Ship), the organisation that promotes high standards in the sale of equity-release schemes where older homeowners dip into the equity in their homes, believes that attitudes to wealth and inheritance change through the generations.
The 'silent generation' consists of those born before the Second World War and who are now in their seventies and eighties. They are most likely to want to leave their assets untouched, she says.
'In many cases, these people will endure real hardship rather than spend savings or release equity from their property,' she says. 'This generation is especially committed to the concept of bequeathing wealth to the next generation. They are also more reserved about discussing money generally.' Baby-boomers are far more relaxed about spending their own wealth and about encouraging their parents to part with theirs, says Rozario. It is this trend that is powering the growth of equity release.
The most popular deals are 'lifetime' or 'roll-up' mortgages where homeowners borrow fixed sums. As with any mortgage, interest is payable along with the repayment of the original sum borrowed. But with equity-release mortgages, no interest is paid until either the homeowner dies or sells to move elsewhere or into care. Instead, the interest rolls up. The effect of the borrowing, together with the accumulation of interest, is to reduce the value of the property that may be left in a will. The longer the homeowner lives, the greater the cost of the loan and the less of the property's value is retained to bequeath.
This is the sort of scheme used by Brenda Atkins-Kettlewell, a 61-year-old retired nurse. Twice widowed, Brenda owns her home in Silsden, West Yorkshire, but because she worked abroad for much of her life Brenda has little pension income. With a love of foreign travel and a bungalow that is costly to maintain, Brenda wanted more disposable income. She would rather raise it against her property than sell other investments, such as shares, at today's depressed values.
Brenda has one son who is a successful and wealthy telecoms executive in Canada. 'He said, ''It's your life, your money, you must enjoy it'',' she says. She is using a flexible equity-release scheme from Prudential and, like all lifetime mortgages, the amount it allows her to borrow is limited by her age. As she is comparatively young, she is drawing a sum equivalent to 15% of her property's value now with a small annual 'income' of £1,500 over the next ten years.
When she is older, she can release further lump sums. By 'dripping' the equity out in small sums, she limits the ultimate impact of interest charged to her estate. 'As they say, 60 is the new 40,' says Brenda. 'This process might go on for a long while, so I'd prefer to start small.'
John Barrett, 71, and his wife, Hilary, 63, have gone down the same route. They both have children from previous marriages and their five children have been wholeheartedly in favour of the couple using the money stored in their home to enhance their retirement. John, who served in the police and had a lengthy spell as a claims inspector for a big insurer, and Hilary, who worked in a supermarket, could get by perfectly well on their pensions. But what they did not have was a large lump sum that could pay for a new car, a new kitchen, and a dream trip to Canada, which included a helicopter ride over Niagara Falls.
