14 Financial planning, legal & retirement


13 FEBRUARY 2021 • THE GOOD LIFE DISTRIBUTED WITH THE SATURDAY DAILY MAIL


The bank of mum and dad


Te pandemic, which has blighted the UK for the past year, appears to have created a desire for many children to leave the family home. Understandably, having one’s own space at a time of


lockdown becomes hugely


desirable, but many children have to rely on the generosity of their parents to get them started. It’s important for parents to consider the best way to pass over money.


GIFT OR LOAN? Money can be given by way of a loan or a gift. A loan should be recorded in a formal agreement, setting out the terms for repay- ment, interest etc. A deed of gift confirms beyond doubt to any enquirer (e.g., HMRC) that the money has passed from parent to child.


INHERITANCE TAX Parents also should be aware of inheritance tax (IHT)


implica-


tions on passing money to chil- dren. If a loan, then the loan value outstanding at death will be an asset of the parent’s estate and assessable for IHT. If a gift, and made in the seven years before death, the gift aggregates with the rest of the parent’s estate and could be subject to IHT.


OWNERSHIP OF PROPERTY Often a concern of parents is that if they gift money to their child to help buy a property, how is


that gift secured for their child’s benefit when they’re buying with another person. A declaration of trust can be used to set out the ownership of the property and how the proceeds of sale should be divided on sale. Pre- and post-nuptial agree-


ments provide some protection and will be taken into consid- eration by courts in divorce proceedings. Where a child is purchasing a


property and a partner is moving in but only contributing to outgo- ings, a cohabitation agreement can set out the terms of the occu- pation and can protect financial investment in a property.


PROTECTING YOUR CHILDREN’S INHERITANCE How to protect the family wealth is


also a common


PARENTS SHOULD ALSO BE AWARE OF INHERITANCE TAX (IHT) IMPLICATIONS ON PASSING MONEY TO CHILDREN


letter of wishes to the trustees. Tis letter sets out your reasons for setting up the trust and who is intended to benefit. It can ask the trustees to consider the chil- dren’s circumstances (such as whether a divorce is likely) before distributing anything to them. Which option is best is


concern.


Ensuring your wills are regu- larly reviewed is a good first step. A discretionary trust can help provide protection from a claim e.g., on divorce. In a discretionary trust, no beneficiary listed has an automatic right to benefit from it (it’s at the discretion of the trus- tees). If one of the beneficiaries was to become divorced in the future, their spouse would have difficulty claiming that the bene- ficiary is absolutely entitled to assets from the trust and that it should form part of the divorce settlement. It’s usual when setting up a trust to write a non-binding


dependent on a number of factors. To avoid disputes and to protect monies given to children, it’s important to seek profes- sional advice from the outset.


Thackray Williams is a leading law firm with offices in London, Bromley and Kent. For further information, go to thackraywilliams.com or call the private client team on 020 8290 0440


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