Cash gifts and divorce

patel007

I hope you can help please.

Possibly considering gifting a very large amount of cash to our children - all are married during the past few years. The gist is for the purpose for them to buy, buy2let properties. Cut a long story short, if children divorced in 2yrs or more than 15 yrs, how can we ensure the gift and/or the outcome of the gift remains with our children, their control?

I have been looking up many articles but nothing is clear. About pre-marriage, many talk about contracts but I'm talking about already married and possible divorce

Many thanks.

pphillips

I think you will need to set up a discretionary trust for the benefit of your children.
My advice is speak to a solicitor or a firm that deals with estate planning.

patel007

Many thanks - this is what Google and most of the on-line comments are showing. Thanks again, appreciated.

Malthusian

Any distribution that a discretionary trust makes to your children will become assets of the marriage and may be split with the spouse if they divorce as with any other.

If the idea is that you want this cash gift to provide them with an income (hence the buy to let), and instead of giving the cash, you give it to a discretionary trust which buys a buy to let and distributes the income, then the income from that buy to let will be taxed at 45%. So the taxman may take almost as much as the ex-spouse would if they divorced and the courts split their assets evenly - 45% vs 50%. And they might not divorce, whereas the tax bill is a certainty.

If you are giving money to a trust you need to be very clear about what you are seeking to achieve.

Another option would be to wait until they've divorced and then give them the money, if you are that certain it will happen.

pphillips

Malthusian wrote: »

Any distribution that a discretionary trust makes to your children will become assets of the marriage and may be split with the spouse if they divorce as with any other.

If the idea is that you want this cash gift to provide them with an income (hence the buy to let), and instead of giving the cash, you give it to a discretionary trust which buys a buy to let and distributes the income, then the income from that buy to let will be taxed at 45%. So the taxman may take almost as much as the ex-spouse would if they divorced and the courts split their assets evenly - 45% vs 50%. And they might not divorce, whereas the tax bill is a certainty.

So to be clear, the trust itself is not an asset to marriage but the regular income it provides is part of the assets in the marriage that is considered on divorce even though the trust is set up to benefit the child and not his or her divorced spouse? Could you provide a reference for this assumption as I'm not not sure that it's correct.

I don't see how the taxman vs the ex is a helpful analogy as divorced, single and married people all pay tax. The 45% tax rate is for people who earn over £150,000 but the OP has not said how much their children earn.

Malthusian

pphillips wrote: »

So to be clear, the trust itself is not an asset to marriage but the regular income it provides is part of the assets in the marriage that is considered on divorce even though the trust is set up to benefit the child and not his or her divorced spouse? Could you provide a reference for this assumption as I'm not not sure that it's correct.

If the trust gives money to the child, then it becomes the child's money. And if he has been married long enough for the courts to order that their assets be divided as assets of the marriage, that will include the money given by the trust.

I didn't say that the ex would be entitled to any future income from the trust. Although it may depend on exactly what kind of discretion the discretionary trust has. If the OP's child has a right to ongoing income it might still be taken into account in calculating any maintenance. As you said, advice from a specialist solicitor would be essential.

I don't see how the taxman vs the ex is a helpful analogy as divorced, single and married people all pay tax. The 45% tax rate is for people who earn over £150,000[ but the OP has not said how much their children earn.

You have missed the fact that trusts also pay 45% income tax, and a similarly punitive rate on capital gains, and periodic inheritance tax charges.

True, the OP or his child could pay 45% tax as well, but it would be very rare for both the child and the daughter-in-law to be 45% taxpayers.

paddyrg

Leave the trust to the grandkids with the parents/your kids able to take management fees in the meantime?

hazyjo

Just to check - are they aware of this? I'd be horrified if my mum insisted I bought a BTL. There are so many liabilities and expenses with being a LL, let alone the tax (as above) and 3% stamp duty if I already own a home. Why not cash, or pay towards their mortgages (or for a deposit if they've not bought)?


Might it be better for you to gift them an amount monthly or yearly so the whole lot doesn't go if they divorce? Would make their life easier (presumably) rather than making them start BTL businesses.


Jx

TBagpuss

OK, it's tricky to do because by definiation if you give a gift to the child, it is theirs, and not yours. If you retain control then it is n't a full gift.

One thing you can do is discuss it with your children and they can discuss it with their spouses. There is nothing to stop them having a post-nuptial agreement limiting the spouse's interest in any gifted asset.
Or you may find that when you talk to your children they tell you that they would rather not have the gift limited in that way and that they feel that it would be better for their family relationships not to try to ring fence it. (In which case you are of course free to decide not to give the gift)

martinthebandit

So OP you don't think of your children's spouses as part of your family?

One day, perhaps, they will be fathers/mothers of your grandkids, how will you feel about them then?

pphillips

martinthebandit wrote: »

So OP you don't think of your children's spouses as part of your family?

One day, perhaps, they will be fathers/mothers of your grandkids, how will you feel about them then?

Why do you purport to know what the OP thinks and feels?