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.

The point is that the 'plan' is dependent on OP following through with her intentions, which could change either on a whim or by circumstances dictating. Why should the beneficiaries have to wait for their entitlement until a suitable new home is available? It is a solution that benefits OPs circumstances and some nebulas concept of security for the trust beneficiaries doesn't wash with me.

Good luck OP, I genuinely hope this doesn't come back to bite you. And I hope the home increases in value as you project and that your children receive their entitlement in full.

If you knew all this why did you bother asking?

So glad you got proper advice and have a plan OP. Your kids will benefit from your creative thinking. So much black and white thinking on here, really frustrating. Good luck with it all

This is just nonsense. The trust will be later owners of the house. Any trust fund has an element of risk - the trustees could invest in stocks and shares that don't perform as well as expected, the whole country could go bankrupt and default on gilts... Any number of things. This looks pretty low risk to me.

Hi @longestlurkerever

Sorry, I bite easily. There are a number of factors that allow us to assess the risk of an investment proposition. One is volatility. In this regard the volatility, i.e. price fluctuations, is likely to be low with a residential property.

However, the risks here to consider are credit risk, the value of the trusts investment is dependent on a loan being repaid, and the debtor is high risk liquidity risk in that a quick sale at the correct price without cost is difficult and partial encashment is nigh on impossible. Diversification, the single asset is a share of a single asset in a single asset class. If house prices fall, which they are likely to over the coming year, the value of the investment falls, there is no hedge or diversification.

So, when you consider the risk of default on the loan, property prices falling without hedge or diversification, lack of ability to sale quickly or partially, for a trust, investment in a single residential property or loan secured on the property is a a very high risk strategy, which is inappropriate for a discretionary trust that may need to distribute at any time between now and age 27 when it MUST distribute.

@Everanewbie how is the debtor high risk? You seem to suggest it's because she needs a 'quick sale'

That's not the case? I believe the eldest is around 12 so Mum has up to 15 years to sell the property. She could look to market it when the children leave home and still have years before they're due their money at age 27.

House prices may be likely to fall over the coming year but to suggest they'd fall over the next fifteen years is ridiculous. That's almost certainly not going to happen.

Finally, you're not giving any credence to the value added to the children's lives now.

Perhaps if the money were invested elsewhere they would have more money when they reach age 27 but they could also have less. And there's value in ensuring they remain in their childhood home, close to their school and their friends now. There's also value in having a Mum who isn't stressed about money and is able to ensure they can pursue their extracurricular activities and take part in events like school trips abroad etc. This move offers a secure investment of their money with those funds to be returned to them at age 27 as agreed, whilst also improving their quality of life now in the vitally important childhood years

So glad you have found a way forward!

Life will be far less stressful being able to afford the DC family home and they get a better return on the investment. Win win.

@MLN89 a few points.

No the debtor is high risk objectively in investment terms. The OP has admitted herself that she has a poor credit rating. A loan to a western country carries a low return because the credit risk is low, the UK to default on gilts is unprecedented. A loan to a small business would carry a higher coupon(interest rate paid) because they are much more likely to default. So, a loan to a single mother is a high risk investment that should only be taken if the reward matches the risk, and you are prepared to lose all of your investment for a high return certainly not an equivalent to the interest available on cash deposits or forecasted long term property appreciation without income.

27 is the end point of the trust where benefits must be distributed. The beneficiaries may legitimately demand their entitlement before that. If the trustees refuse, it must be for good reason. As I said up thread, the beneficiary may decide to go to uni, buy a car, buy a house, get married, start a business venture, all before age 27 and all good reasons to access their entitlement, but this would be impossible because the money would be tied up in their mothers' property. So the money that they are entitled to, that would allow them to be educated without debt, have a dream wedding, set up their own enterprises would be denied until DC1 hits his late 20s by which time he is mired in student debt, mortgage debt of his own and unable to finance the private education that him and his wife want for their own DC. That business opportunity was taken by someone else and now he works for them for only £15ph while someone makes their fortune on their idea because the trustee of their trust fund didn't tie their entitlement with a their own home. Extreme, I know, but 1 all more of these scenarios are perfectly possible.

I agree that property prices are unlikely to fall over a 15 year period, but what I am illustrating here is that property is far from being a risk free license to print money, and is subject to risk.

Essentially, the risk borne by the trust by this arrangement is high, but the return is the same as cash, which is virtually risk free beyond inflationary pressures. And the justification to go against the efficient frontier in this investment is based on wooly backfilling to justify temporary debt alleviation.

Good lord @Everanewbie you do talk a lot of hogwash

@Everanewbie Well luckily neither ypur nor my subjective view of what's high risk is determinative here and the OP has taken advice that's validated her decision. Of course having a stable home and financial security is in the children's interests too. The money is in trust precisely so that decisions can be made on the children's behalf

This !!!!

OP has already explained that the mortgage term is only 13 years as she is due to retire then. If you stick those figures in the government’s mortgage calculator you’ll get a monthly payment of approx 1,400/month.

Reading some of the responses makes me wonder what kind of parents these people had that their first instinct is suspicion that you're somehow trying to defraud your children???

I think the explanation is more simple. Some people are just nasty and judgemental, and love to pile on people to make themselves feel better.

yeah probably hogwash. Not like I deal with discretionary trusts on a daily basis and have completed examination after examination on investment analytics and risk. The problem is people like you just won’t accept that there are people out there who just know more than them about a certain subject. I wouldn’t dare come on here and tell a doctor they were wrong about advising a poster on something medical. Or tell a mechanic that they know less than me about cars. Not being educated on a subject is ok, it’s when people spread disinformation and falsehoods as fact.

It’s quite difficult to not be judgemental when a poster is using funds she was trusted to look after to reduce interstate payments on a loan.

I'd do it, your kids are young and it seems crazy for you to be in debt unnecessarily. I'd get some proper legal advice and get it written up so it's all kosher

The thing is that financial performance is and financial risk is not the only consideration when the best interests of the children are being considered. You are clearly very knowledgeable on those issues and raise important points but you are putting financial performance above all else.

I deal with situations where funds are held on trust for children via my work too. The courts generally consider the circumstances more generally. I think there is a reasonable prospect in this case that a judge would consider it worth accepting a reduced return on the investment in return for secure long term housing for the children and avoiding the upheaval of moving.

It is highly likely that the value of the property will increase sufficient that the capital isn't eroded and there will probably be a gain. The risks of losing the money entirely can be reduced to a low level via legal means.

Solicitors and accountants who often act as advisors to trusts or as professional trustees do this routinely. IFAs are only interested in investments so I wouldn't expect an IFA to be involved at all. No idea what you are talking about!

Trust law specifically allows for this and I personally know of hundreds of trusts that own or part own single properties. It is really not the issue you seem to think it is.

What bank loan? Surely the trustees will pay off the mortgage.

Quite! I am a property solicitor so fully understand this.

Mind you IFAs have done exams so what do we know

I wonder whether there would be any scrutiny of a trustee who invested money in a 'safe' deposit account to avoid investment risk in equities or property then the child realised the purchasing power of the money had eroded by 1/3 to 2/3? depending on the duration of the trust, inflation and interest rates?

It seems to me that OP would have an essential conflict of interest.

Her role as Trustee & proper impartial execution of that role which is to benefit the subjects of the Trust is compromised as the roof over her very head is a prime financial interest.

Dress up the holidays, cellos & ice creams as justification, but is the OP in a position to undertake a promise or legal contract to sell up her home, or build a new financial vehicle, for the Trust to cough up the money when legally required?

For those in the know in these matters: doesn’t the OP place a ‘charge’ on her property if another party has a financial or legal interest in it? Would this affect getting another loan/mortgage if she cannot sell up as planned & needs to cough up for the Trust.

The obvious & simplest action is to renegotiate OP’s current mortgage to something more affordable, & invest separately long term for the Trust to provide a bigger better benefit for the adult to-be children.

There is quite some time & lots of adolescence between now & the due date for the Trust, I would not rely on affable easy-going children remaining so. Also the estranged father lurks offshore, he could land anytime to disrupt matters. As the father he may have influence to act for his children about governance of the Trust & Trustees.

Well, various people have raised exactly this issue, but apparently the OP knows better.

@UniversalAunt well said 👏🏻

<sigh> 🙄