Investing children's inheritance in our family home.

[Youknownorhing]

My Mother left her house split four ways. Myself. 2 siblings and my two children. So 25% for each child and 25% slit equally between GC in trust. They can have when they are 27.

I am a single parent in a house worth £400k. Ex left me with the mortgage and skipped off abroad with OW. He is in Dubai where CM is unenforceable.

My mortgage went from £500 to £1400 in January. I had already put my inheritance into the house to reduce mortgage to £150,000.

The children's share is £167k.
It seems ridiculous that I pay this money for a loan when there is money in a discretionary trust of which I and my best friend are trustees. The money makes bugger all in interest. The sea single thing to do in my eyes is to pay off my mortgage with the children's money . (I would do it via a lawyer so that their percentage of ownership is clearly recognised and recorded at the land registry )

Kids are 11 & 13.

I currently struggle to pay for day to day life for us all now the mortgage has increased . Doing this would free up my salary and allow us to have a few treats and perhaps even a holiday this year - something not on the cards at the moment .

Other trustee is more than happy . Can anyone see any problems doing this ?

Obviously I will have to sell in 15 years or so. But until then it seems a much better way to invest their money which will benefit us all.

and even if they did, which would be rare, it certainly wouldn’t be a single residential directly held home, under first charge and mortgaged to a single mother who is far from financially sound.

I would make an interest free loan from the discretionary trust to the home, paying off part of your mortgage so reducing the monthly mortgage payments, on the proviso that the home is sold when the younger child leaves home at say 18 and the trust is repaid.

Quite.

Also the stress and difficulty in selling a home and buying a new one is being completely overlooked. Particularly when you are late 50s +

what does the trust get out of this arrangement? A loss (in real terms, after inflation) making unsecured loan to a single mother up to her eyes in mortgage debt? What kind of an investment opportunity is that?

Not if the house is on a trust . That’s easily averted

Would having money or assets in trust affect your assessment for student finance? (May not be relevant here but I'm interested!)

How would they get their money when they need it though if it's tied up in the house?

@Everanewbie the children who are the beneficiaries benefit from being able to stay in the family home without it having to be sold and as it is a loan there is no downside risk, even if the value of the property falls, the trust is repaint in full.

There could be a loan agreement that interest is payable at 10% per annum, from the youngest child's 18th birthday to ensure the property is sold and the loan repaid.

The trustee act 2000 insists that a trustee act without prejudice between beneficiaries and invest trust assets with sufficient regard to diversification and suitable investments for the term. What part of a single leveraged residential proper fulfils that only? One beneficiary is not her child. She has an equal duty to both.

There could be, but why 18? Why would the trust have second charge? Would it even be secured? Objectively it’s a terrible investment decision

No both beneficiaries are her children

@Everanewbie the loan could have a first charge to make it more secure and even charge interest to make it more commercial. What do you think would be a better idea?

It's not an investment, it's a very secure loan, which benefits both beneficiaries providing a home and stability for the time they are in education.

Oh FGS! Late 50s is old in your opinion?

Many people are moving in their 70s and 80s. Talk about being ageist!

I am not ageist. I am late 50s myself. This is my family home with all the memories that go with it. I'd find selling it really hard. I talked a lot about this last year and people definitely underestimate the impact.

I can well imagine the OPs kids having kids themselves by 27 and the OP not wanting to downsize because she wants them all to be able to stay with her. There will always be some reason not to want to do it.

@Youknownorhing Kindly, after reading your update, you are basing a lot of your ideas on things that could change.

You say you will retire at 60 or 65? ( you're now 47? 52?)

What if (sadly) you were ill and couldn't work for the next 13 years as you plan to do? Your pension would be reduced.

What if the company changes its pension provision or length of service for pensions?

It's not possible to predict any of these so they can't be part of your plan.

Because that is the yardstick by which trustees are measured in law. Obvioulsy other investment options are available, but a trustee is always judged on reasonableness.

Well that's all about you. I'm older by a long way and know I will move one day closer to my children. Maybe in my 70s. I find that exciting, not scary.

Well do you think the mortgage lender will give up their first charge? Do you think a solicitor will appoint debt collectors on behalf of the beneficiaries if she defaults? On the face of it, yes a commercial rate loan would generate a decent return, but it is incredibly high risk as it would be dependent on the solvency of OP, without the collateral and contingency held by the bank.

What do I think the OP should do?

1 Seek mortgage advice and explore methods of reducing her mortgage payments, and whether downsizing may be an option if all else fails.

2 Pursue avenues where her exh pays his proper maintenance

3 Discharge her duties as trustee properly by engaging the services of a chartered financial planner (maybe talk to 3-4 if she has trust issues) in her capacity as a trustee, and establish a properly diversified investment plan for the trust assets that are exclusively in the interests of the beneficiary and are of an appropriate risk with appropriate protections.

4 If she can't do 3 without threatening to act criminally with trust assets, resign as trustee and appoint a more suitable individual that respects the role, preferable a professional.

Neither investing in a single leveraged property and leaving it in cash with a 14 year investment horizon with inflation hitting 10% are reasonable.

Well that's your opinion. Why haven't you done it yet?

Although leaving the money in cash is a better option than investing in a borderline insolvent debtor.

@Everanewbie
I see no reason why the mortgage lender wouldn't give up the first charge given it will now be a much smaller mortgage. It would not be in the OPs interest to hold on to the house after the cut off date due to the punitive interest so she would be keen to sell then. The loan and interest would be paid out of the sale proceeds. It is not high risk, it is low risk, you have a first charge secured on a residential property.
Well do you think the mortgage lender will give up their first charge?

What do I think the OP should do?

1 Seek mortgage advice and explore methods of reducing her mortgage payments, and whether downsizing may be an option if all else fails.

The OP could extend the term or go interest only, but I'm assuming these options have already been explored. Could downsize but not a good option for the children.

2 Pursue avenues where her exh pays his proper maintenance

If he is overseas and I don't think you can rely on having much luck with this.

3 Discharge her duties as trustee properly by engaging the services of a chartered financial planner (maybe talk to 3-4 if she has trust issues) in her capacity as a trustee, and establish a properly diversified investment plan for the trust assets that are exclusively in the interests of the beneficiary and are of an appropriate risk with appropriate protections.

Employing a third party trustee is very expensive, the cost will fall on the trust, so less money for the beneficiaries.

4 If she can't do 3 without threatening to act criminally with trust assets, resign as trustee and appoint a more suitable individual that respects the role, preferable a professional.

Again employing a third party trustee is very expensive. Those annual fees really eat into returns.