desperately need advise

misswig

Please feel free to move this thread if not on the correct board

First a bit of background

Me and my exH divorced in 2006. My exH then passed away in 2007 leaving our son, then aged 2, 118 000 pounds as inheritance from his estate. As there was no will, it fell to myself as my sons NOK to act as an administrator/executor on my sons behalf until he reached majority at 18. I appointmed my brother as co-executor/administrator. Initially i invested my sons money in a high interest account and used the interest in lieu of maintenance in order to help provide a roof over our heads. Due to plummeting interest rates, this interest deiminished to practically nothing and myself and my brother both agreed that paying off my mortgage with the 118 000 would be the best use of the money to maximise its potential whilst investing my sons inheritance in bricks and morter which was always the intentione to give him the best start when he reached majority.

Althought the 118000 pound completely cleared my mortgage, my own equity int he property equates to 50 000. I and my now partner are in a position where due to expanding family we find that we have to move to a bigger house. We have tried to sell the property to release both me and my sons equity, however due to housing market, couldnt sell. We are currently in the process of renting it out. I would like to release my share in the property by taking out a small mortgage on it which would be easily paid by the rent and during any periods of non rental we would fund it.

Ideally i would like to transfer the house into my sons name with myself and brother as executors but i dont know when would be best to do so-before or at his Majority. What would be any tax implications,if any, for doing so. Can i actually do this? would it still be possible to release my equity in the house if held in trust in my sons name?

Please help. Any advise on the best way forward to maximise our assets would be very much appreciated

Savvy_Sue

I really think this is the kind of thing you should take legal advice on, and pay for it.

I am not sure that you can register the house in your son's name before he is an adult, and even if you can, it might not be the best thing to do.

I also wonder if you can at this stage set up a trust whereby he does not actually 'inherit' until he reaches the age of 25, or even older: I know there are restrictions which made this not tax efficient for future inheritances, but don't know whether it had the same effect retrospectively. Some 18 year olds are wise and sensible beyond their years and wouldn't sell the house and drink the proceeds, but some are not. And you won't know until the time comes which sort you've got!

If you can find a local STEP solicitor, that might be your best source of advice. If you and your current partner haven't made wills, get them drawn up at the same time!

jigsy_in_spain

Hi, As your son inherited this sum of money at the age of two, I have a feeling that you can only put the money into a trust until he reaches the age of 18. Legal advice maybe the way to go on this one.

heretolearn_2

You need to get legal advice on this.

There are tax implications about restricting his access once he reaches 18, there were changes to IHT a few years ago relating to this, if you put it in trust for him until after that age, there are increasing tax penalties. Here's a link about that but you need to take proper advice.
http://news.bbc.co.uk/1/hi/business/4836802.stm

I'm also concerned that paying your mortgage may not be seen as appropriate use of the funds. Property investment is high risk. Normally you would only use the child's money to assist with their direct living expenses (clothing etc), a private education and so on, but the rest should be safely invested, not used to buy their parents a house! As the child's name is not even on the deeds, it could be seen that you have taken their money... even with the best of intentions ....and I think you need to sort this out very quickly. Your child will have some very pointed questions to ask when they turn 18 if at least the 118,000 isn't there waiting for them or accounted for in direct expenditure on their education and so on. If you've lost a load in equity on your own house, I can forsee I lot of trouble there.

You've got another partner and other children. Right now it sounds as if - god forbid - anything happened to you your child will lose everything as they have no legal claim over the house you bought with their money? Even if you have a will leaving his share to him, this can be challenged in court by your other children (or partner on their behalf) as they are also your dependents. It's only your goodwill that will give them it back , or their going to court when they are older and accusing you of stealing from them...

I really think you made a bad decision there without thinking through the possible consequences. You CANT use your childs money to buy yourself a house.

BillTrac

Two things strilke me as 'wrong' in the OPs initial post

1. Good she invested in a high interest account BUT she used the interest as maintenance? So if this had carried on till your son was 18 the inheritance would still be £118,000 so he would have lost out.

2. As heretolearn said, using your son's money paying off your mortgage was a very bad idea. You have opened yourself up to all sorts of problems. I doubt very much you will ever be able to release your son's money along with your equity.

I think you should have asked questions before using your son's inheritance.

claretmatt

I think the situation has been made more complicated than it should be, but certainly can be "put right".

As your son is a minor the money left by your ex is deemed to be held under "Statutory Trust". This means that your son is entitled to the proceeds of the "Trust" when he reaches 18.

As his mother, administrator and executor you have, along with your brother taken on the responsibility of being the trustee of the money.

A trustee has a number of responsibilities including controlling the trust "property", taking care, keeping accounts, paying tax and considering suitable investments.

The situation is complicated as the trust assets have been mixed up with your personal assets.

I feel that it would be beneficial to separate the assets and establish accounts or investments that can be specifically identified as being owned by the trust.

Trusts are also subject to separate tax rates than individuals and therefore there may be a further liability due from high interest bank accounts and maybe the "trusts" share of the rent.