My mother wants to give money and gifts to family. What if it leaves her short?

27 August 2019


My mother recently received an inheritance from my late father, and also has some money from her late mother. This money was left directly to her, but with an informal understanding that some of it would benefit her children and grandchildren. Taxes have been paid on these sums.

She wants to give quite a large sum to her children and grandchildren. If she dies within seven years of the gift, inheritance tax (IHT) wouldn’t be a problem as she doesn’t own property and her entire estate is worth less than the £325,000 IHT threshold.

She also wants to buy her children gifts including televisions and holidays. My worry is that giving all this money away could affect her in the future. She has no income apart from her state pension so if she runs out of money, she would need to claim housing benefit to help with her rent. What would you advise she does?

AR/Welwyn Garden City


Before your mother makes any gifts to children or grandchildren – or indeed buys them expensive items – she needs to consider her own financial position, which sounds a little precarious.

She should work out how much she wants to live on each month. Notice I said “wants” rather than “needs”: it is all about determining her desired lifestyle. How much of this is provided by her existing income? Assuming there is a shortfall, how much would then have to be provided each year from the capital available to your mother from the two inheritances?

Then she needs to work out how long that capital would last her if it is used to make up this shortfall. In other words, a cashflow based on reasonable assumptions about inflation, life expectancy, and returns on the capital. Your mother should also keep a contingency fund in case of any unexpected or emergency spending.

Without going through this exercise, it is impossible to say whether there is scope to make gifts to children and grandchildren during her lifetime, or what amounts these could be.

There is no point in her giving money and gifts away and then having to rely on benefits. In any case, the gifts could mean she is not eligible for certain means-tested benefits if they are construed as “deliberate deprivation”. This means deliberately giving away or spending assets in order to fall below a threshold at which benefits normally become available.