Giving money away to children - pitfalls? Suggestions?

Thrugelmir

History is littered with stories of self made family empires that eventually crumbled due one generation simply wasting what they were gifted/inherited. Human nature is often to live life to the full. Money management is a learnt life skill. 

theoretica

One pitfall which I don't think has been mentioned is treating your children differently - giving to one outright and the other not is a potential minefield.

metron

theoretica said:

One pitfall which I don't think has been mentioned is treating your children differently - giving to one outright and the other not is a potential minefield.

Couldn't agree more - and the same sum is going to my daughter.  People's views vary, but we've always kept things equal between them.

metron

mark55man said:

Is there not a spectrum of stuff you could be doing, rather than a binary gift it or not.  Its clear you do not trust D-I-L yet - so why not split the gift up into bits that you don't mind losing to the family and giving these annually until you do.  So each tranche would start the PET clock running and this would be better than contriving an arrangement. A possible advantage of the above is that gifts from surplus income are not IHT'able as long as the arrangement meets certain criteria.  Plenty of threads on that from people who have done it

It does smack to me like you want to both sides of the fence at once and as an earlier poster suggested you need to decide what's more important.  Maybe it is your legal background, but this strikes me as seriously over thinking
   

It's not so much that we don't trust her - she's delightful, and I have no reason whatever to distrust her.  I also fully respect my son's judgment.  However, divorce statistics are a hard fact, and it's by no means uncommon.  Scottish law differs from English law, and in Scotland a gift such as this, pre-marriage, would be excluded from the usual 50/50 divorce settlement - no problem there!

We've been doing the gifts from surplus income, but it's only a large lump sum that will do the trick here, I'm afraid - it's for a house purchase.

The decision's already made - it will be a straight gift.  I was just raising the issue wondering if anyone had any thoughts as to whether there's any simple way to 'protect' the half of it that would disappear in a divorce.  Of course, if that divorce were some years down the road, with children involved, that would be perfectly fair and reasonable.  But perhaps not in other circumstances - though you argue that one both ways!

There is one other option that hasn't been mentioned - a prenup.  Already considered but ruled out as inappropriate.

Dansmam

Interesting discussion! Many different ways to look at it but I have helped my 2 older children with house deposits based on
a) they are hardworking, have worked multiple jobs at the same time when starting off, had minimal help from me and already manage their money better than I did at their age (early 30s).
b) Once it's theirs its up to them to decide what and how they want to protect for themselves from divorce etc. 
c) I'd rather help them now and give them a bit of financial leeway when they can make best use of it.
I will do the same for my youngest when he's ready to buy, he has saved since starting work and is pretty financially savvy.
I always try to treat them equally, that might be different if one was really struggling - but that would be a conversation between us all. 

Albermarle

I don't know how common such a thing is but I was quite shocked.  Also, not only did it financially cut off that side of the family but it also created very bad feelings within the family.  The surviving brother (who was very well-off already) defended the situation by simply saying it was his Mum's will, but despite it being pointed out to him that as sole beneficiary he could vary the will, he decided not to do so.

I think similar family rift situations are all too common. Usually there is something else behind it and then a money issue twists the knife .

Albermarle

And yes, simply being handed those things on a plate might well stifle that ambition and drive.  But so what?  If you're fortunate enough to be handed a house or inherit a pile of money then there's no real need for 'ambition and self betterment' is there?

It is not just about ambition and drive, but also as a general rule you get better/more careful  at handling money issues if you have earnt it yourself, rather than just being given it ( will not apply to everybody of course)

So when you make a large gift they are more likely to use it wisely once they have had some more life/money experience ( in theory anyway) 

Daniel54

Albermarle said:

I don't know how common such a thing is but I was quite shocked.  Also, not only did it financially cut off that side of the family but it also created very bad feelings within the family.  The surviving brother (who was very well-off already) defended the situation by simply saying it was his Mum's will, but despite it being pointed out to him that as sole beneficiary he could vary the will, he decided not to do so.

Not so long ago a colleague asked me to review his understanding of his mother's will ( a seven figure estate) .She is still alive

It left the estate equally to her three sons, but to the surviving sons only if one had died, which sadly was the case.

He was certain his mother would not alter the will to pass any inheritance to his late brother's widow and the will was clear.

So he and his surviving brother have now agreed ( I think in writing between them) that then the time comes they will split the estate three ways by way of Deed of Variation.

This is just to say people can choose to do what is right, and it is sad that in your example the surviving brother chose not to do so.

TVAS

Posh people go to a lawyer for a family trust however as you said IHT immediately.

The son with the new daughter in law do they have kids? Why not pass the money to your grandkids bypassing daughter in law. 

I sympathise with you. I have seen and heard of so many stories that the second wife gets the lot. Because the man does not consider kids from the first marriage. Having said that it is only an expectation not an entitlement to inherit from one's parent. 

metron

TVAS said:

Posh people go to a lawyer for a family trust however as you said IHT immediately.

The son with the new daughter in law do they have kids? Why not pass the money to your grandkids bypassing daughter in law. 

I sympathise with you. I have seen and heard of so many stories that the second wife gets the lot. Because the man does not consider kids from the first marriage. Having said that it is only an expectation not an entitlement to inherit from one's parent. 

No children yet, and they need the money now for a house purchase. Both getting married for the first time.  No reason at all to suppose that things will go wrong with the marriage, but statistics suggest otherwise, and we're talking a fair chunk of money here.

This wasn't instigated at all by my son - he's actually a little concerned about it - and his fiancee had no idea at all it was on the cards.  Indeed it wasn't when they first got engaged - it just seemed a sensible thing to do from my viewpoint, and I accept the risks.  It's given them housing options which will mean they'll never need to move again, and can buy the house for life, with plenty of space and plenty of land around the house.