Today, there are few lucky enough to be able to afford their first home and so, for many families, help with a deposit comes from the bank of Mum and Dad. While this is a natural expression of love and care for one’s offspring, it is worthwhile giving some thought to getting the legal details right.

The first thing to ascertain is whether the money given to a child is to be a loan or a gift.

If a loan, then ideally this should be recorded in a formal Loan Agreement with the terms for repayment and any interest clearly specified. The parent also needs to be aware that the value of the loan will be an asset of their estate assessable to Inheritance Tax on death.

If a gift, again this needs a formal Deed of Gift so that the parents’ executors who are responsible for administering the estate are clear as to how to treat the amount gifted and the Inheritance Tax consequences (namely, where the burden of any Inheritance Tax should lie if the parent dies within seven years). If this happens and Inheritance Tax is due on the gift, then an uncomfortable situation can arise where the estate can be held liable to pay this which decreases the available estate for any other children. This means one child will have benefited from the gift while the estate suffers the burden of the tax – a sure way to sour any family get-together!

When preparing a Deed of Gift, this problem can be discussed and the parents can decide whether an appropriate provision should be included with the child benefiting from the gift agreeing to be responsible for any Inheritance Tax that may arise from their gift so as to treat all children fairly on death. In addition, further provision will need to be considered in the parents’ existing Wills to ensure the lifetime gift is taken into consideration and the children are all treated fairly, which is often what the parents would like to happen.

Another popular option is for parents to use their money to put equity into the new home and for the child (and possibly their partner) to sign a Declaration of Trust confirming the percentages of the beneficial interest held on trust for the parents. This can be a useful way of ensuring that money provided stays within the family in the event of the child’s relationship breakdown where one party wants the property to be sold. With an ever-increasing rate of co-habitation in the UK, it is becoming more important for parties to prepare such a Declaration of Trust so everyone with an interest in the property has clarity on what percentage of the value of property is theirs, how notice of intention to sell will be managed and how to come to an agreement on the sale value in the event of a relationship breakdown when relations have soured and the parties may no longer be able to communicate effectively.

When the Declaration of Trust establishes the shares by everyone contributing to the pot, the last step is to make sure there is an appropriate Will in place to make sure your share goes where you want it to on death and whether you want the other parties to have a right of first refusal.

So there you have it: the best way of being nice to your children is to say it with the right legal documents (and not just cash) to avoid future disputes. When making loans, gifts or Declarations of Trusts parents need to get it right to ensure their good intentions are achieved and they do not inadvertently end up causing more family problems.

Where there’s a will…

Although the above quote makes everyone smile, it underlines a greater issue; that because we don’t like to talk about death so many of us are unprepared should the worst happen.

Wills
Quite often people say that making a Will is on their ‘to do’ list, but they have never gotten around to dealing with it.
If you want to make sure your assets pass according to your wishes and in the most tax efficient way, then you should make a Will. If you die without a Will then the UK law sets out how your assets pass to family members in order of priority.

Points to note:
• Even where there is a surviving spouse and children you might be surprised as to how your estate is divided where there is no Will;
• The law currently does not recognise cohabiting couples as automatically entitled to a deceased’s person’s estate;
• If you want to leave gifts to charity or friends the law will ignore your wishes;
• If you do not want children to inherit at 18 then you need a Will; and
• The law does not differentiate between members of the same class of beneficiaries, e.g. if your siblings are entitled to your estate, all will receive an equal share.
In a nutshell, do not rely on the legislation to decide how your estate passes. Make a Will.

Probate
After a funeral, the family will need to identify if the deceased left a Will.

The executors or administrators are responsible for administering the estate. Broadly they will be responsible for establishing the assets and debts of the estate, reporting the values to HMRC, proving the Will or proving who is entitled to the estate, and gathering in all the assets, settling debts and distributing the estate.
Probate is the term commonly used to describe the formal process of the administration. Where there is a Will a Grant of Probate is applied for; where there is no Will it is referred to as Letters of Administration.

Once the application is submitted to the Probate Registry, they will issue a Court-sealed document (grant of probate or letters of administration) confirming the people authorised to deal with the estate. This document is needed before the assets and liabilities can be dealt with (e.g. to close bank accounts, sell properties, gather in monies and start paying off debts and tax etc).

It is often surprising the amount of paperwork generated on the death of an individual, however, the role of the personal representative is to make sure everything has been formally dealt with and that a line can be drawn under a person’s paper existence. Administering an estate can be time consuming and often complex. Personal representatives are personally liable for the administration and are accountable to the beneficiaries. Logically the greater the value of the estate the more risk is attached. There are formal reporting duties to HMRC that must be dealt with to ensure penalties are avoided. We would therefore always recommend talking to a professional for assistance to make sure everything is done correctly and relieving some of the stress out of an already pressured and emotional situation.

Mitchell Thompson is an Associate in the Private Wealth Department at Mundays. He advises on a broad range of private client matters, including Wills, estate planning and the administration of estates. He is also experienced in dealing with lasting powers of attorney and deputyship applications to the Court of Protection.

Please contact Mitchell Thompson or Julie Man in Mundays’ private wealth team to discuss the issues above, or any other aspect of your Will. Email: mitchell.thompson@mundays.co.uk Telephone: 01932 590664

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