Why Grandparents Are Skipping A Generation
Tuesday 15 July, 2025
Several personal, emotional, and financial factors are prompting grandparents to leave inheritances directly to grandchildren. Understanding the underlying motivations can help families navigate these decisions with clarity and compassion.
Why Independent Financial Advice Matters
While these choices can be driven by heartfelt intentions, inheritance and wealth planning involve complex financial, tax, and legal considerations. Seeking independent financial advice from a qualified financial adviser ensures decisions are made with a full understanding of the available options, risks, and potential consequences. Professional guidance can help families structure legacies that are both tax-efficient and aligned with their values, while avoiding unintended pitfalls.
Financial Independence of Adult Children
Many grandparents feel their children are already financially secure, with established careers, properties, and pensions in place. As a result, their focus naturally shifts to the younger generation, who are just beginning their adult lives and may face significant economic challenges such as student debt, soaring house prices, or job market uncertainty.
Strategic Tax Planning
Bypassing a generation can, in some cases, reduce the overall inheritance tax liability for a family. For example, if the children’s own estates are already substantial, passing money directly to grandchildren may avoid compounding tax liabilities in future. In addition, there are specific tax allowances and exemptions that may apply when gifting to grandchildren, depending on how and when it is done.
Supporting Key Life Milestones
Grandparents often want to help with pivotal life events such as funding university education, contributing to a house deposit, or paying for a wedding. By providing this support earlier in life, either through lifetime gifts or an inheritance structured to benefit the grandchild directly, they can make a tangible difference at moments that matter most.
Potential Benefits of Leaving Inheritance to Grandchildren
There are several clear advantages to this approach, particularly when it is planned carefully and with appropriate financial structures in place.
Direct Impact and Timely Support
Passing inheritance directly to grandchildren allows grandparents to have a more immediate and visible impact on their descendants’ lives. This might mean enabling a first home purchase, helping fund higher education, or providing a financial cushion during the early stages of a career. The ability to provide this support at a time when it can be most useful and appreciated is a compelling reason for many.
Inheritance Tax Mitigation
With the right financial advice, grandparents can make use of inheritance tax exemptions and reliefs. For instance, gifts made more than seven years before death may fall outside the estate for tax purposes. Trusts and other financial structures can also be used to reduce tax exposure, while still allowing a degree of control over how and when the inheritance is used.
Protection and Long-Term Planning
When inheritance is left via a trust, there is potential to protect the funds from third-party claims, such as divorce or bankruptcy. This helps ensure that the money genuinely benefits the grandchild and is preserved for the long term. Trusts can also be tailored to provide funds gradually, avoiding large lump sums being handed to young adults who may not yet have the experience to manage significant wealth.
Key Considerations and Possible Disadvantages
Despite the benefits, there are important considerations and risks that families should be aware of before deciding to leave inheritance to grandchildren.
Level of Maturity and Financial Responsibility
One of the key concerns when leaving assets to younger beneficiaries is whether they are equipped to manage them wisely. At 18, when many trust funds become accessible, not all recipients will have the financial literacy or discipline to handle a significant windfall. Without safeguards or staged access, there is a risk that the inheritance could be spent unwisely or depleted quickly.
Impact on Family Relationships
Choosing to skip a generation can create tension or misunderstanding within a family, particularly if it is perceived as a lack of trust or favouritism. Even if the decision is well-intentioned and financially sound, it’s important to communicate openly with all parties involved to avoid resentment or confusion.
Complexity of Trusts and Legal Structures
Setting up a trust or alternative vehicle for inheritance involves legal and administrative responsibilities. There may be ongoing trustee duties, compliance with tax reporting, and decisions about how funds are managed and distributed. Without proper advice and oversight, these structures can become burdensome or ineffective.
Popular Options for Structuring Inheritance to Grandchildren
There are several ways to pass wealth to grandchildren, depending on the size of the estate, the intended outcomes, and the age or needs of the beneficiaries. Here are some of the most commonly used options:
Bare Trusts
In a bare trust, the grandchild is the absolute beneficiary, and the trustee holds the assets until the child reaches 18 (or 16 in Scotland). These trusts are simple to set up and offer a straightforward way to pass assets, but they also hand over full control to the beneficiary at a relatively young age, which may not always be ideal.
Discretionary Trusts
Discretionary trusts offer far greater flexibility. The trustees can decide when and how much to distribute to each beneficiary, taking into account their circumstances at the time. This can be helpful if the grandchildren are young, vulnerable, or have different needs, as the funds can be tailored to suit their individual situations.
Junior ISAs and Pensions
While not traditional inheritance tools, contributing to a Junior ISA or even a Junior SIPP (self-invested personal pension) can offer tax-efficient, long-term financial benefits. These options allow funds to grow over time and be accessed when the grandchild child reaches 18 and potentially more financially responsible.
Lifetime Gifts
Making gifts while still alive allows grandparents to see the impact of their generosity. Annual exemptions (currently £3,000 per donor per tax year) and small gift allowances can be used without incurring inheritance tax, and larger gifts can also become tax-free if the donor survives for seven years after making them.
The Importance of Professional Financial Advice
Every family’s circumstances are unique, and inheritance decisions, especially those involving trusts, tax implications, and family dynamics, require careful consideration. What works for one family may not be appropriate for another, and without expert guidance, there’s a risk of unintended consequences.
At Lonsdale, we offer personalised financial planning tailored to your goals and family structure. Our experienced advisers will help you understand your options, assess the financial and emotional impact of your decisions, and structure your estate in a way that aligns with your wishes and protects your family’s future.
A Word from Jacintha Douglas, Financial Adviser, Chippenham, Wiltshire
“Increasingly, we see families looking for ways to pass wealth directly to grandchildren, not just for tax reasons, but to support them at the times they need it most. With careful planning, it’s possible to create a legacy that makes a real, positive difference without causing unintended complications. Every family situation is different, so taking qualified financial advice is vital to get it right.”
Contact us today to arrange a consultation and take the next step towards securing a thoughtful and lasting legacy.
Please note: A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. This is for information only and does not constitute advice. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.
Sources: www.legalandgeneral.com, www.onefamily.com, www.gov.uk/inheritance-tax, www.fca.org.uk, www.moneyhelper.org.uk, www.ons.gov.uk
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