Lending money to your adult child

[The Gauge]

Are there any preferred methods of helping your adult child out financially whilst protecting that money from others making future claims to it?

In a few years I anticipate my son will want to buy his own place, and I should be in a position to help him financially with a sizeable amount of £ but I’m conscious of protecting it from any claim by say a future partner following a failed relationship etc.

Would it work if I set it up as a loan with a drafted letter and with an agreed repayment plan of x amount per month (interest free as I believe any interest is factored into my inheritance tax allowances) that he pays into a bank account in my name, but I give him the bank card for cash machine withdrawals so he has full access to those payments?

Essentially it could be viewed as a loan to protect it, but with him having full access to repayments.

[deggles]

If it's for a property purchase, you could get a charge on the property. Although that may significantly complicate the mortgage situation.

[Nicetobenice]

Edited as deggles beat me to it!!!

[Opapayer]

Between you and him publicly it’s a loan. Between you and him privately it’s a gift. As far as the lender is concerned it needs to be a gift usually.

Just draw up a letter. Tell him it’s interest free and repayable only on sale of the house or if you request it any time after n years. Let him know you’ll never ask for it and that it’s purely protection for both of you. Doesn’t need to be overly complicated either. “I’m lending you £n towards a house purchase. It’s repayable in one lump sum on sale of said property or after 5 years if I request it” then both sign it.

Worked for me back in the day and wiped £30k in equity off my divorce settlement.

[craigjm]

If its to protect it from some future potential partner that currently does not exist I dont think you can do anything now. If it was buying a house now and they already had a partner then you would hold the property as tenants in common and complete a deed of trust. If they dont currently exist I guess the only option would be a pre-nup.

[dingg]

Just give him the money and trust his judgment

Thats what I did

[PoorCarCollector]

dingg said:

Just give him the money and trust his judgment

Thats what I did

Very much this!!

[CoolHands]

Labour are bringing in yet more legislation so no it won’t be protected once someone moves in with him.

[Jon39]

In my experience, repayable loans to descendents do not exist.
We are too kind hearted, so money to help our children, seems to become a gift to good causes.

If they have been taught well financially by you, I am sure they will try hard to respect your overall intentions.
Divorces now seem to all be 50:50, so attempting to alter that in advance looks tricky.

I helped towards a house extension. Now I hear that 'Rachel from Accounts', has an idea for taxing home extensions. Connect all the Planning Permission electronic records (they go back decades) to HMRC and job done.
We have already given the government 20% to build the extension. They probably now want the other 80%, so then every builder is forced to go out of business. I have never claimed benefits, but it does appear to be a less stressful life, than grafting from 8am to 6pm.

[Panamax]

PoorCarCollector said:

dingg said:

Just give him the money and trust his judgment
Thats what I did

Very much this!!

And congratulate yourself on the IHT saving.

[mikeiow]

Panamax said:

PoorCarCollector said:

dingg said:

Just give him the money and trust his judgment
Thats what I did

Very much this!!

And congratulate yourself on the IHT saving.

Just stay alive for 7 years to keep it clean.....

[ChrisH72]

I think these kind of arrangements could have a negative impact on any relationship. Imagine when he tells his partner about the contract you both signed to ensure she's not entitled to anything if it doesn't work out. Awkward.

I agree that it's best to just make it a gift if you want and trust his judgement. Maybe consider only making it enough money for a deposit or something. I think it's best for kids to stand on their own feet as much as possible.

One of my best friends is currently going through divorce after nearly 30 years of marriage. His wife inherited a large sum when her folks died a few years ago. Enough to buy a rental property and stash as much again in savings and premium bonds. She is claiming the money is extra marital and that he should get none of it. I thought she'd stand no chance but it seems like she might just get to keep it. They are locked in a legal battle with expensive solicitors which has gone on for several months now. Meanwhile they are still living together in the same house but hate each other and don't speak. Nightmare. Money always causes problems in a split no matter what you do.

[mikees]

Gift the money to a trust and the trust lends it to your son.
You and other person as trustees. Son doesn’t own the money the trust does. Can’t be included in any future event

[John Henry]

Neighbour inherited a 4 bed detached when his wife’s dad died. At the time it was valued at about £425k.
His daughter had just got married and couldn’t afford to buy it. Her new husband was the significant earner.
Neighbour waived £100k away so his daughter could buy it, with her husband.
18 months later the marriage failed. He paid her off to go and kept the house. Which he ended up with at a sweet discount.
Neighbours also had a son, a few years younger. He got nothing.

[AB]

My Dad did similar for me for my first house. I wasn't married at the time.

When he gifted it to me, he had something drafted that basically said if in the event we split up, he gets the money back from the proceeds. He made it clear to me that it was a gift for me and not my partner.

We got married, had kids, Dad made of point of telling us he'd ripped up the agreement and that he did it to protect me in the early days.

Would I do the same thing? I'm not sure and i have a few years to think about it but I'd like to think I would trust my kids choice of partner.

[CoolHands]

But what he did for you doesn’t hold water, even if it ever did.

[LooneyTunes]

mikees said:

Gift the money to a trust and the trust lends it to your son.
You and other person as trustees. Son doesn t own the money the trust does. Can t be included in any future event

That works, but has the potential to complicate matters significantly if the child needs to borrow additional money (beyond what the trust can/will provide) to fund the purchase. You also, obviously, have the issues associated with getting significant sums into a trust and the costs associated with establishment and management.