We reveal the best ways to pass wealth on to your loved ones.
Around a third of parents say they are unwilling to give their married children financial aid or inheritance, due to fears they will lose that money as the result of a divorce.
That’s according to a survey from Investec Wealth & Investment, which found that 14% of parents have little confidence in the prospects of their children’s marriage lasting for the long term.
So, if you want to pass on money or assets to your loved ones, what’s the best way to do it, free of such fears?
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Through a trust
Putting money into a trust basically means you don’t own it any longer - you’re giving it to someone else (the trustee), to look after for the benefit of a third person (the beneficiary).
As a result, it’s a useful way to give money to a loved one without having to worry about it being subject to Inheritance Tax.
Trusts come in lots of different forms, such as bare, discretionary and mixed, all of which come with different rules. Trusts can be complicated, so it’s worth getting some advice on which one will be best for you.
Gifting money
Gifting money is a popular choice for parents and grandparents who are keen to reduce their Inheritance Tax bill.
Everyone has a yearly ‘gift’ allowance, setting out how much money you can give away without worrying about the taxman chasing your loved ones down for a slice.
There is a flat £3,000 limit each year for gifts, which can be carried over to the following year if you don’t use it, meaning up to £6,000.
On top of that you can hand over ‘small gifts’ of up to £250 to as many people as you like. Weddings are another opportunity to hand over cash to loved ones - parents can give children £5,000 each as wedding presents, falling to £2,500 to grandchildren or great-grandchildren, or £1,000 to anyone else, all free of Inheritance Tax.
On top of that you can also give regular gifts that come out of your income (like a monthly payment to a grandchild for example), and they are also exempt, so long as they do not affect your standard of living.
You can make more significant gifts above and beyond those listed above, known as ‘potentially exempt transfers’.
The catch is that you need to live for at least seven years after making the gift.
For more, read How to cut your Inheritance Tax bill.
Lend money rather than give it away
If you want to help your children out financially, you don’t have to give the money away permanently.
Instead, why not simply lend them cash, with the agreement that they will pay it back in full at a later date.
It’s useful to draw up a loan document in writing, setting out the terms of the loan, such as whether there will be any interest payable and what the repayment schedule is.
Be sure to get both parties to sign this agreement. It should also document what would happen if one of the parties dies, or the parent needs the money back sooner than scheduled.
If your child is buying a property, this loan agreement would need to be disclosed to the lender from the outset as it will make a difference to any affordability assessments.
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Be a guarantor
Young people are increasingly reliant on the Bank of Mum and Dad in order to purchase a property.
One way that you can help your children buy a property is to be a guarantor on their mortgage.
You’re basically guaranteeing that your offspring will maintain the mortgage repayments.
Your financial position will be taken into account in the underwriting process, meaning they will be more likely to get a better loan.
However, it does mean that the lender can pursue you if they fall behind on repayments.
That said, many lenders no longer offer guarantor mortgages, instead preferring parents to sign on as joint mortgagors.
Offset your savings
Some lenders now offer mortgages to first-time buyers which allow the parents to offset their savings against the child’s mortgage.
For example, Yorkshire BS has the Offset Plus mortgage, which allows family members to link their savings accounts to their loved one’s mortgage.
As a result, it reduces the mortgage balance that the borrower must pay interest on.
Other lenders offer similar schemes, like Family BS and Market Harborough BS.
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Pay off their debts
Another option is to pay off your loved one’s debts for them.
This is a relatively safe way of helping them financially.
There’s no risk that the money you give them will be threatened by a divorce, or of the loved one spending the money you give them in a less-than-responsible fashion.
Read more on loveMONEY:
How to cut your Inheritance Tax bill