Last Updated on 1.2.24 by Michael Smoult
With house prices experiencing similar rates of increase as witnessed pre-recession, looking after large sums of money is back on the agenda. The people who are thinking about ways to look after their money are the ones who have got it, of course, namely parents and those with more experience. The huge housing bubble, including sky-high rental payments, is pricing many younger people and those striving to get on the ladder out of the market.
For this reason, we are witnessing more and more complex financial arrangements between family members to give a son/daughter/niece/nephew/grandchild/sibling (delete as appropriate) a helping hand. It is now commonplace for parents to gift or lend part or the whole of a deposit with two-thirds of first-time buyers receiving help from their parents according to lenders’ data. With larger values of money required for deposits the parents gifting or lending their money are becoming more cautious that this money is protected.
Drawing Up Legal Contracts When Loaning To Your Family
Just because the person you are lending money to is a family member is no reason to have a suitable agreement. We wouldn’t think twice about signing a contract with someone who isn’t family, so why not approach all agreement scenarios in the same manner? In fact, knowing how trouble-prone families can be, it’s all the wiser!
Parents loaning money may want a guarantee that if the worst happens that they at least get repayment of the loan they have provided.
How To Protect Your Money through a Gift – Declaration of Trust
Nowadays it is more usual that a parent gifts money to their child. It is also more usual that adult children buy property when they are cohabiting rather than in a marriage. Parents want some security to know that if anything happens to that relationship that their child will re-cooperate the gift that has been given.
A frequently asked question we receive is how parents who help their children financially can protect their investment from finding its way into the pockets of their child’s partner. New family members, such as in-laws and step-family members, can often act as fans to the flame, intensifying disputes or creating new disagreements. Financial feuds are never too far away and appear more than you think on our TV screens, take Downton Abbey, War and Peace and King Lear as examples.
A Declaration of Trust is a legally binding document which records the financial arrangements between the owners, helping to identify the true ownership of a property. It does this by reciting the details of the purchase and perhaps repaying the lump sums first before detailing the percentage ownership of the property.
To give you an example – Brad is buying his first home with his girlfriend Angelina of 2 years. Brad’s parents say they will gift him all of the money for the deposit on the basis that they want to make sure he retains the money should the couple split. Brad is the owner of the property with Angelina, but by completing a Declaration of Trust, his parents’ ‘gift’ is protected without having to be named on the title deeds.
Joint Tenancy vs Tenancy-in-Common
- If you own a property as ‘Joint Tenants’ then each party is a co-owner, i.e. distinct shares and proportions are not identified. If one of the co-owners dies, the property automatically passes to the surviving owner under ‘The Right of Survivorship’, which supersedes any statements made in the will. If parents have put a significant amount of money into the property, this is where it could completely pass to the control of an in-law.
- Tenancy-in-Common on the other hand is where each party has a distinct share. If one co-owner dies, the share doesn’t automatically get passed to the surviving partner, instead, it gets shared according to their will (or the Rules of Intestacy if there isn’t a Will). Therefore the parties may want to consider preparing a will!
If you require assistance in protecting a financial investment in a property or a loan or gift given to a family member don’t hesitate to give me or a member of our Wills, Trusts and Probate team a call on 0161 930 5151 to talk through the best options available to you.