Should the bank of mum and dad consider a declaration of trust as a condition of gift?
Q: My husband and I are considering giving my son a gift of cash to buy his first house with his fiancée and her two daughters. The gift would be quite a sum and we are worried about what might happen in future if my son were to separate from his partner. Would she be able to profit from our gift and what can we do to protect it?
A:During the pandemic, we’ve seen an influx of questions like these as parents help their children to take advantage of cheaper mortgages by gifting them a deposit and getting them on the housing ladder.
However, you are quite right that when your son marries his fiancée, the gift will become part of their matrimonial assets, so if they divorced the proceeds of the home sale could be split between them.
There is a solution. You could enter into a declaration of trust, which would outline how much of the property each person would own if the property was sold. If you gave your son £25,000, for example, you could then specify that you would like that amount returned to you upon the sale of the property. Your child and his fiancée would have to agree to this and it would become legally binding - but it would certainly be a good compromise.
You could also consider loaning your son (and his fiancée) the cash, which would give you more control in a separation, as the funds would be excluded from any settlement. The couple could then pay you back the loan when the house is sold.
Whether you choose to gift or loan the amount to your son, you would also need to be mindful of Inheritance Tax (IHT), which would be payable upon your death if you were to pass away within 7 years of giving that gift.
It is essential that you take the right advice that is appropriate for your own circumstances. Speak to the Private Client team at Downs Solicitors to see how we can help.