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.

@Milger What is "so blithe" about suggesting that the poster does everything legally and above board and suggesting that she covers all eventualities such as her possible untimely death and any future remarriage? That's not "blithe" that's considering all possible future scenarios before she makes the big decision whether to go ahead or not and protecting her children's interests if she does!

It isn't dead money, it's not being invested wisely if you are only earning 5k interest in 167k!

Can you put some into a

Junior isa for them and perhaps a sipp. Invest in index funds so that will be growing for them. It's all low at the moment in terms of the return but that means you can buy more of the index fund for them.

The trust has a responsibility to ensure the best returns on the childrens' inheritance, paying off your mortgage is not a good first option imo.

@StevieNicksfan ..agree with you.

This. If DC are not going to touch the money for 12+ years you should get some financial advice about investing it for higher expected returns (like in shares).

It would be a very, very wealthy person who could just happily allow £18k per year to pass them by.

OP, there is no ethical dilemma as long as you don't turn into a different person in the next 15 years. One who for some reason no longer cares for her children's best interests.

It makes absolutely no sense whatsoever for your kids not to benefit from an additional £18k of family money per year throughout their childhoods and the likely increase in the value of their inheritance by the time they reach 27.

You do need to take into account what will happen if the property market does something crazy and the value of the property decreases. IMO opinion they should be receiving at least the current value of their inheritance at 27, with any shortfall made up by you, as the person who took that risk on their behalf. Perhaps some of the £18k savings can be invested to build up funds in case of this.

That makes no sense. By dodgy mortgage do you mean you have a poor credit rating?

Have you reported all the frauds? It doesn't matter if he's abroad, get the criminal investigations underway and let them work it out.

Maybe focus on cleaning up your credit rating as the priority, and use the trust (you said it's making £5k a year?) for the benefit of your kids in the interim. School trips, activities, holiday etc can easily be furnished by that.

Are you also saying that you'd save £18k a year if you used their money to pay down the mortgage? How much will the kids lose in interest if that's they case? Will you make that up as well?

What if you can't sell the house when they are 27? How does that work for them?

If they want to go to university, you won't have the cash available from the trust to pay for that, they'll need to take out loans. My mates parents bought a flat for her to live in whilst at university - you're also denying them that as an opportunity.

If they don't want to go to university, you'll be preventing them from using the cash for their benefit - a house deposit, further education or training, a year off to travel....

This might hold some pressure off you, but it's going to deny your kids so much benefit in the longer term.

No. The money is not to help you or your children now. It’s to help your children when they are 27.

Your job is to provide for them now, it’s not their inheritances job to provide for them.

You cannot predict the future, so many things could happen.

I deal with trusts in my work; I caveat the below advice because I don’t work in the field of inheritance, probate etc - but work in financial services looking at source of funds/wealth etc.

from my experience, you would need to demonstrate the benefit for the child, specifically in a quantifiable benefit (I.e numbers) rather than qualitative (I.e happy childhood) for this to be even considered. I’ve seen instances where the trust buys the house, and then the children live in that house as the beneficiaries of the trust; the asset would be theirs though, not yours if they are sole beneficiaries and you are just a trustee.

Simply taking this money and mixing it with your assets would most likely not be permissible; when you try and pay off your mortgage with the inheritance funds of your children, it will be quite clear that you do not have authority over those funds as technically they are not yours, they are held in trust for your child(ren).

No judgement on the emotional side of what you’re trying to do - but from a technical standpoint I think the idea is a non-starter. But speak with a wealth planner as there may be other options available to you.

I don't think it would be morally right (or possibly even legal) to do this, unless you are actually planning to put the house in your children's names as well as in yours.

Better to look for a high interest savings account for the children's money, which could develop into a very nice house deposit by the time they get access to it at 27.

@Eurodiva Thank you.

I think it is a good idea provided it is done carefully.

Is your divorce finalised with a financial settlement?

If you use the kids money on lifestyle activity it will ebb away. The chances are that invested in the house it will grow. The investment will also start improving their lives Straight away as your expenses go gown.

You must be willing to sell up and buy a smaller house or in a cheaper area.

You should get a formal written valuation of your house so you know what % the kids own. This should not be based on what you paid x years ago or what you still owe but what their share is worth today.

See if the trust can own a share of the house so your kids don't lose their first time buyer status.

You really, really need to take legal and financial advice about this proposal, not just to record the children’s interest but on the idea as a whole and whether it’s a breach of your trustee duties, which it may be.

Even if you don’t go ahead with the idea, get some advice. As trustee you have various duties regarding the money (a duty to invest, to use reasonable care and skill etc) which you may not be fulfilling at the moment.

I don't see the issue here (ex financial adviser although I know things change).

With the money you save you could easily invest the £5k a year interest into an investment trust too so the kids are not losing out on 'interest' they would have got.

The main thing is being able to demonstrate and justify decisions which seems to me you and the other trustee are aware of.

Definitely get proper legal advice too.

They cannot access it until age 27 and I will sell when eldest is 26

You simply can't predict the circumstances in order to promise this. What if you can't sell at that time due to your own situation, or theirs? What if the house is worth much less and you effectively 'lose' their money?

No. The money doesn't belong to you and any number of things could go wrong. I'd be inclined to play it safe and just keep their inheritance separate.

Considering you sound absolutely horrific at money management and have made very bad financial decisions I would say leave their money alone and would suggest moving house, working more hours and checking if there's any benefits your not claiming. It's your responsibility to provide for your children not for them to pay for your lifestyle

But if you have a poor credit rating (I understand the circumstances) then your children's money is going to be eaten up in interest payments when they should be earning interest

You really need to calculate:

The sum they could get at age 27 if the money was properly invested (ie not in an easy access saver)

Vs

The sum they will get at age 27 if it is invested in the house, using a best and worst possible case scenario re house price changes

I doubt this will be in their long term financial interests which is why it could be challenged, not least by them at age 18

I assume your husband is off the deeds and not just the mortgage?

As another PP suggested, rearranging to an offset mortgage with your children's share fully offsetting the value of the mortgage is much more sensible as the funds will be instantly accessible when the children need it

You would still need to allocate money every month towards paying off the mortgage amount and to giving your children additional money in lieu of interest on their inheritance (the offset money will make no interest). This will take some of the pressure off, but you may still have to sell up when the kids are 27 if you haven't managed to pay off the mortgage in the meantime - once the offsetting money is gone you will need any mortgage remaining to be affordable.

You can 4% fixed on savings which is not nothing…..

As a PP has said, those repayments are crazy. I know people with a mortgage far more than that and they are paying just over £1k a month.

You are being ripped off by whoever you are with.

You need to try to sort this as a priority.

Why can't you get a new mortgage in your own name?

As a child can’t own property, and the money is left in the trust, would you be transferring title to the trust?

Would you then be paying rent to the trust?

I suspect both answers are no.

so then, even though the trust is being mismanaged, albeit it it a difficult time to profit from investments, that will end in a year or so, and the trust should get a return of between 5 to 10% per annum.

if it’s you intention that you will protect the kids from this loss, by not simply returning them the amount borrowed, but returning amount borrowed plus a return (perhaps either a fixed amount or a share of the assets increase in value when sold, with a specified period of when it should be sold, with a caveat of market volatility variance (eg. Don’t sell it at the bottom) - then this should be fine, as long as it’s drafted legally.

anything else - is fraudulent. You will be effectively stealing money from your children. Your obligation to provide a roof over their heads, does not entitle you to their assets.

if you are a trustee you are personally liable to ensure that the best decision for the trust is made. If at any time, during ‘informal’ arrangements, who will protect you and the other trustee. The kids can’t give permission for this - your bequeaver didn’t want the money to go to you. Perhaps well intentioned thinking that IHT purposes might be served better by this mechanism. Perhaps not.

very shaky ground I’m afraid.

if you fall out with somone who knows what you are thinking (and do) unless it’s above board, they could report you. Big chance to take.

I think the mistake here is that you should have been provided for as part of this, knowingly that in the short term this would improve your family fortunes (less or zero mortgage) and ultimately would be an inheritance to your kids and their families. But clearly, this decision wasn’t made and thus, you cannot benefit.

Sorry. I do get why it seems ok on the face of it, but when you factor in the bequeathors wishes, the responsibility of the trust managers, and what those children should receive long term, (5% return over 10 years means you will owe interest of 62% the initial value) then it becomes criminal that they won’t receive this.

You need proper financial advice about this.

If they own part of your home, they might not be able to get first time buyer mortgages in the future. Plus you might have to pay them "rent" for their share.