Gifts for a purpose.

[IsleofWightPete]

I am about to receive a reasonable inheritance, and want to use a chunk of it to help my 5 kids and one non-family party by giving them each a five figure sum to help when the time comes to put down a deposit on a house. 4 of them may be in a situation to do this in the next year or two, the fifth might be in 3-5 years or so, and the youngest is likely to be more than 5 years away.

They have all asked me to hang on to it for them, as they all want to ensure (as I do) that it is not spent on day to day stuff, and it is really there to help them when they need it for a house purchase. So I am putting the money in an account separate from my normal accounts (so that I also don't spend it!)

That is all simple enough.

But now the questions and doubts start to enter my head.
Have I actually made a gift yet? Will the money in the account be theirs or mine? If it is theirs, I presume I must pay it across on demand, even if they want to spend it in some other way? If I die, is the money part of my estate (subject to the 7 year rules) and does the 7 years period start from the date I put the money there for them, or the date they ask for the money to be transferred. Is there anything I can / should be doing to protect this from unnecessary IHT liability.

Finally, although my inheritance was from my family I legally gifted half of my inheritance to my wife. However, both our shares will be received into a joint account, and will be pooled as we do for everything. So it is a moot point whether these are my gifts, her gifts or joint gifts. I guess we need to decide and clarify that?

It was all so simple until I started thinking it through!

[swill453]

I'll just throw a spanner in the works by suggesting if you made a Deed of Variation for the appropriate bit of the inheritance to go directly to them now, you would save any worries about inheritance tax and the 7 year rule for your estate.

Scott.

[malakoffee]

How about a Deed of Variation so that the beneficiaries become the new legal owners.

They lend the money back to IoWPete as custodian. Open-ended, 0% loan ( documented, of course ).

Funds released as requested, when required . . . .

[Clitheroekid]

How about a Deed of Variation so that the beneficiaries become the new legal owners.

The problem with a Deed of Variation is the the money is then the children's absolute property to do with as they wish, and neither IOWP or the children want that to happen.

The obvious answer is to create a trust. The money would be paid to the trustee(s) with specific instructions to pay it to the children to use for a deposit on a house. Providing it's set up properly then once the money is paid to the trustees it would cease to be part of your estate, but neither would it belong to the children, so that none of them could demand payment.

However, in view of the time scales and the relatively modest sums involved (and assuming you're not likely to die within the next few years) I would question whether it's worth all the expense and hassle of setting up a trust. The fact that the money's been put in a separate account should be enough to differentiate it in your own mind so that you won't be tempted to spend it, and it also retains 100% flexibility as to how the money's used. Circumstances may change so that you no longer want to use the money in this way, and to my mind it would make more sense just to retain it in your own name.

[k333]

I am about to receive a reasonable inheritance, and want to use a chunk of it to help my 5 kids and one non-family party by giving them each a five figure sum to help when the time comes to put down a deposit on a house. 4 of them may be in a situation to do this in the next year or two, the fifth might be in 3-5 years or so, and the youngest is likely to be more than 5 years away.

They have all asked me to hang on to it for them, as they all want to ensure (as I do) that it is not spent on day to day stuff, and it is really there to help them when they need it for a house purchase. So I am putting the money in an account separate from my normal accounts (so that I also don't spend it!)

It was all so simple until I started thinking it through!

It looks simple enough, but maybe I'm missing something! You just open joint accounts with each of the children and do it in such a way that they can't get at the money by themselves. I'd ask at local bank and building societies about how best to achieve this, but would expect some of them to have a suitable solution. For example both signatures could be required, or there could be a single passbook and you keep it hidden away somewhere.

- K

[k333]

Incidentally to avoid IHT each account would need to be funded by the child, so they would need to own the money for a short while if you went down this route.

- K

[Lootman]

You just open joint accounts with each of the children and do it in such a way that they can't get at the money by themselves. I'd ask at local bank and building societies about how best to achieve this, but would expect some of them to have a suitable solution. For example both signatures could be required, or there could be a single passbook and you keep it hidden away somewhere.

Another benefit to that idea is that, were you to suddenly die, the money would be immediately available to your children. There would be no need for probate for the children to have immediate and full enjoyment of the money. (IHT may still be due, but the delays, hassles and risks of probate are avoided).

There is the matter of ensuring that the children don't take the money out too early. But that can be prevented either by needing two signatures, as you suggest, or even by not letting them know the account exists nor provide them with any means to access the account. But of course they'd need to know about them in the event of your death so the documentation could be stored with your will, POA and whatever letter you want to be opened upon your demise.

For IHT purposes I believe that the opening of such an account should count as a gift of 50% of its value at the time that the account is opened. The other 50% would be a gift at the time the money is withdrawn and given to the child.

[k333]

You just open joint accounts with each of the children and do it in such a way that they can't get at the money by themselves. I'd ask at local bank and building societies about how best to achieve this, but would expect some of them to have a suitable solution. For example both signatures could be required, or there could be a single passbook and you keep it hidden away somewhere.

Another benefit to that idea is that, were you to suddenly die, the money would be immediately available to your children. There would be no need for probate for the children to have immediate and full enjoyment of the money. (IHT may still be due, but the delays, hassles and risks of probate are avoided).

There is the matter of ensuring that the children don't take the money out too early. But that can be prevented either by needing two signatures, as you suggest, or even by not letting them know the account exists nor provide them with any means to access the account. But of course they'd need to know about them in the event of your death so the documentation could be stored with your will, POA and whatever letter you want to be opened upon your demise.

For IHT purposes I believe that the opening of such an account should count as a gift of 50% of its value at the time that the account is opened. The other 50% would be a gift at the time the money is withdrawn and given to the child.

Yes the simplified admin at death was a significant consideration.

As for opening an account without them knowing, I would be amazed if this were possible given that banks have to be quite careful about accounts being opened these days (but could be wrong of course!). Gone are the days when you could be Mr Irland Revenue and nick some cheques

- K

[genou]

For IHT purposes I believe that the opening of such an account should count as a gift of 50% of its value at the time that the account is opened. The other 50% would be a gift at the time the money is withdrawn and given to the child.

I'm not sure about the position in England, but that is wrong in Scotland. You can document what the intention behind the joint account is, and allocate everything to the donee - by default it would all remain with the donor if that is not done.

See page 10 of here - https://www.gov.uk/government/uploads/s ... 6/c3_2.pdf - for HMRC's view.