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.

Not a chance.

is Ex still named or mortgage or deeds? Are you completely divorced with financial clean break?

when can you remortgage? What penalties would you face for early repayment?

the whole thing would make me uneasy but I can see why it’s tempting @Youknownorhing Any ties to Ex would make it a complete no for me.

id also consider that it may preclude your DC from accessing any first time buyer schemes/mortgages

The OP states that the mortgage would be repaid. It is a matter of opinion as to what type of investment will do best in the future so providing the trustees document their decision making process, investing in a single property for the benefit of the minor children would be perfectly acceptable. Whether this is a good investment is irrelevant, the OP asked if it was possible and it definitely is.

I would prefer the investment in property route to granting the trustees a secured mortgage. As others have said, that may be riskier if the OP may struggle to pay the interest. The children will benefit from living in their home and hopefully will see a decent increase in the value of the property in the long term.

Yes, you cannot predict what will perform best, but you can anticipate pitfalls and make a very good assessment of risk. You can have a good understanding of the tax position and how this will reduce returns. You can assess the creditworthiness of an individual and an institution. You can examine diversification. Any professional worth their salt will say that this is inappropriate for the trust.

Which ever you way OP attempts to structure this it is high risk. The trust buys a proportion of the property, and it is virtually impossible to dispose of without disposing of the entire property. It will also likely demand rent on that part of the house, akin to shared ownership schemes. It makes a loan to the mother, the mother, objectively, is junk debt and the level of interest demanded on junk rated debt will dwarf the mortgage. If it is done above board, OP cannot win. The only way she wins is selling out the trust, ergo the beneficiaries.

@Everanewbie FYI I am a qualified and profesional trustee with 40 years experience of managing trusts - it is my specific area of expertise. We see family trusts like this regularly and don't have an issue with this type of arrangement. It can be very tax effective and low cost, unlike many investement options.

You obviously have a different view and you are entitled to that, but I feel like you are pushing an agenda here and guess that you are in the business of selling financial products!

@Drowninginoptions you've honestly facilitated an existing trust, set up by a deceased grandparent for the benefit of two grandchildren where the assets reside in cash to make a loan a trustee so that another loan could be repaid, and/or purchased a share of a single residential home? As a professional trustee do you not see the conflict of interest with OPs intention and the beneficiary?

I do have a different view. In such circumstances I would establish an offshore bond and take advantage of gross roll up, deferred tax and segmentation to assign units to the beneficiaries staggering surrenders to ensure no income tax is payable. The bond would have an underlying portfolio of diversified range of pooled funds that were selected according to the length of time until money is likely to be needed and the risk appetite of the trustees. I would ensure that i employed an adviser to conduct ongoing reviews to ensure that distrivbutions and assignments/ encashments fitted with the trust objectives and the circumstances of the beneficiary. The Trustee mortgage repayments would not come into discussion. NOT ADVICE - HYPOTHETICAL SCENARIO.

Only the 15 years in regulated financial advice, but I know that I have the beneficiaries interest at the heart of what I do.

@Everanewbie the only winner in your scenario are the advisers who will rack up huge fees, typical advice from an IFA.

https://www.farrer.co.uk/news-and-insights/trustees-duties-and-powers-when-making-investment-decisions/

It is not always necessary to diversify. Obviously all trustee decisions need to be in accordance with the trust deed, well-thought through and properly documented. Any assets need to be adequately secured and there are many other aspects that should be considered. It is however entirely possible to invest in a single property, if it is in the best interests of the beneficiaries.

I have not stated that it is the best course of action in this case. To provide individual advice I would require much more information. Of course the trustees may prefer to go with your tax-avoiding structured financial product, and that is their perogative.

@Luckydip1 you are showing your ignorance here. That's like saying the only ones who benefit from having a gas boiler in your home is a gas engineer. Yes an adviser takes a fee for the work they do, but that is because they know what they're talking about. Read this page before extolling the virtues of a mad idea to service the interest of the trustee and dismissing an entire profession based on pub talk. Offshore bonds – a tool for generational planning | Saltus

I have no affiliation to Saltus, i've just used this link as it has a good summary as to why offshore bonds are a far more prudent solution.

Its possible, but you'd better have good justification, ie, cost of disposing of the property being prohibitive but not an investment into a single residential property that happens to pay off the mortgage of trustee. Come on.

and yes, @Drowninginoptions I consider structuring trust assets in a tax efficient manner as being essential, why arrange things to maximise tax? As a personal investor, would you avoid pensions and ISAs to ensure you paid tax? Off course not.

...and investing in the beneficiaries' home would be equally if not more tax efficient!

@Everanewbie I have read the note, I still think, on balance, it would be better to lend the money to pay off the existing mortgage, simpler, lower fees, tax efficient and keeps a roof over the children's head.

How? Stamp duty on acquisition. Income tax on rent, cgt on disposal all at the trust rate. How is this more tax efficient than an offshore bond when distribution is likely to be paid at little or no tax thanks to gross roll up and top slicing relief?

And do you h to honk the solicitor fees for drawing up this paperwork to make this transaction somehow legit would be free?

I wouldn't do it even if you found it was legal. The money will come to them attached to guilt if they feel you've got to move to give it to them. What if you fall out with one/both of them? Keep it separate.

There is NO guilt in having to move !!

I would move tomorrow but the kids lives are here .. my family are all in Northumberland.....

I am
Literally biding my time until I can get out of the south east !!

and so it rolls on and so @Everanewbie bangs on about totally irrelevant nonsense.

@Youknownorhing do what you need to do and ignore the frothers

There is a legal way to do it , that was already suggested here . Op I wish you well , ignore the people being nasty .

Irrelevant? Holding op to her responsibility as trustee both morally and legally is far from irrelevant.

You are just being a bore and what's that nonsense about offshore investments? I live offshore and it certainly isn't worth the average UK resident trying to invest offshore

The law concerning how trusts are run does not care that the trustee is the beneficiaries' mother and does not distinguish between lending money to the beneficiaries' mother and lending money to any other mortgage holder. The law does not distinguish between the trust part-owning the beneficiaries' mother's home and part-owning any other home.

is Ex still named or mortgage or deeds? Are you completely divorced with financial clean break?

I have suggested financial disassociation from the ex-H to the OP and had no reply.

id also consider that it may preclude your DC from accessing any first time buyer schemes/mortgages

No, because minor children cannot own land or buildings in the UK. The trust would part-own the house, not the children.

But if the trust doesn’t end until they are 27 they won’t be minors so would that still apply? If it does surely lots of people would be using trusts to avoid second home tax etc