Good idea to use my dc inheritance to buy dm’s house?

[Billi80]

My dc is only 9 and is about to inherit money. Would it be possible to use this to buy my dm (her dgm) house via a trust fund? My dm (her dgm) is very short on money and would give her a bit of respite in her later years. As my DD wouldn’t have access to the money till she is 18 it seems a better investment than ISAs, etc. Or is this idea bonkers?

Because she will have spent the cash on rent when she wouldn't have needed rent if she had kept the house. The deliberate deprivation thing is not a set of clear rules but one of them is that any passing on/selling of assets has to be done before there is any expectation that the owner would need care and also the person can't benefit financially from the transaction by any deviation from market arrangements. So market rate/conditions to rent a house if you sell it to a family member or set up an "equity release" type arrangement with a family member.

The fact that the OP has barely replied speaks volumes.
By the time the costs of buying, selling and capital gains are taken into account it would not be a good idea even if it could be arranged with some sort of trust.
Just because property has increased massively in the last 10 years it may not carry on.
Take some advice from a good IFA. Remember the money belongs to your daughter and is not for your mother’s benefit.

Never going to happen in the UK. Especially not within London commuting area.

Sounds like a recipe for disaster. Money and family shouldn’t mix in my opinion. Imagine the awkward situation if you daughter has to evict her granny. If the granny fails to pay rent.

While the house will (may?) appreciate over however many years, don't forget that any gain is currently subject to 24% capital gains tax. (With the present government, who knows what that rate may be in a few years time)

If you are holding residential property to make a capital gain then the rent you get from it in the meantime helps to offset the CGT charge.

Frankly, putting the majority of the money into a passive tracking fund would be much better.

Although, of course, past performance is no guide to future performance (especially with Trump about to come into office in the USA in a couple of weeks time) but take the S&P 500 Index for example - the biggest 500 companies in the US.

Tracking funds that accumulate dividends rather than paying them out are typically up more than 100% over the last five years and more than 30% up over just the last 12 months.

The FTSE 100 hasn't done quite as well. It's only up by about 29% over five years and 10% over one year.

Then there are various tracker funds that concentrate on other areas.

I would suggest the the OP's daughter would be much better off if the money is invested into a range of different tracking funds.

As everyone’s said, not sure it’s a great plan as you have to consider what’s best for your DD only. Possibly if the grandmother pays market rent?

Buying a property in trust for your DD in not a horrible idea, but you need proper legal advice about this and it has to be a proper commercial investment. A more liquid investment such as a share portfolio is possibly a better choice

Aside from the issues raised by PP, what if grandma stops paying rent (l’m a bit short this month dear….) or DD wants to move into the house at 18? Are you going to evict grandma? Aside from the legal issues this can become quite complex in terms of family dynamics. Definitely not a good idea, unless grandma sells the home to the trust and rents elsewhere and the house is let out on arms’ length terms to a third party paying full market rates.

Been 2008 since the last property “crash” - we’re probably due another. Granted these things have always been temporary and prices have increased in the long term. But I don’t think we know how old the DD is, does she need the money in the next 5/10/20 years? May well make a difference.

Even in the 2008 crash, property in London generally held its value and has increased significantly since then.

Even if you could do it legally it is only a good investment if you DM paid market rate rent. You would need to follow landlord regulations. Who would pay for/manage ongoing upkeep and maintenance of the property?

If you don't do it on a landlord/tenant basis you are using your dd's money to benefit your DM, not your dd. Which is legally, and morally very wrong.

You will also impact your dd's eligibility to be a "first time buyer" in the future.

Yes, it is a bonkers idea.

I wouldn't be so sure. If the building falls into a state of disrepair, it can take quite a knock on the value so the ongoing costs will need to be paid for. I don't believe this is a good investment for a child. Then again, I created a Trust for my DC's wine collection so I'm not one to talk....

This is nonsense. If there is enough money to buy the grandmother’s house, and if the money is invested properly, the child will be able to buy a house of her choosing when she reaches 18.

Who are the trustees for your child's inheritance? Money will not be paid to your child until they are 18. If you are the trustee or one of them you need legal advice on whether this is legitimate as you must be able to show it's a good investment.

Absolutely not

My dm (her dgm) is very short on money and would give her a bit of respite in her later year

This is not your DDs concern or in her interest

Honestly I'd be LIVID if I learnt that my mum did this to my inheritance, imagine the awkward chat when granny is still alive and she wants the money for her own home so needs granny to move out, or realises she can't then get the benefits of being a first time buyer and all the help schemes to save money. Who's going to pay for the upkeep? Who's going to pay the selling fees to sell it? Who's going to put the effort into selling it?

Put the money into investment accounts and let it increase in value, that's it, easy. Get in touch with a financial adviser if you need assistance with that.

Your mum has been fine and she will be fine without potentially risking a huge family fall out and getting sued by your daughter in the future. That seems extreme but quite recently a mum and Grandad have gone to jail for spending their daughter's inheritance. Which honestly this feels like you're doing as really it has little benefit to your daughter!

We've been investing money for our children since birth (now 7&6) and have just taken the money and bought a house in their name under a trust. We are renting it out currently and adding that money after taxes back in to their investments. In 12 years, the house price would have absolutely gone up, but we are also investing the same amount as before for them in to S&S.

You're effectively making your daughter financially responsible for her grandma's wellbeing and that isn't fair or right at all. As others have said, it could - and probably will - cause all sorts of issues down the line. This is a really terrible idea, sorry.

That’s not the same thing at all. Lovely for your children though.

@sloecat , but the OP could use her child's inheritance to buy a house in a trust. The mother pays the child the rent, and in 9 years, the child will have a house to do with as they please.

We have used our children's money to buy the house.

Ig sounds like the mum wouldn’t be paying rent though.

In the 1989 property crash London was worst affected, took a hit of 32%!

WRT to this idea I would say it's a big fat no
If your DM needs money and you can't afford to give her some she should look into a lifetime mortgage or equity release or she should downsize.

Yeah and this is a major issue. The DGM cannot live rent free in a property she sold. I believe there is a requirement to pay market rates for rent to get around selling to family, deprivation of assets etc. although not a laywer so I couldbe talking complete bull haha!

From what I remember of children inheriting money, the income of the trust becomes the child's taxable income from age 16.

This is a PIA with more tax forms to negotiate when it just building society accounts and it will be worse to deal with if it is income in the form of rent (or not if you are depriving her of that income).

If it is not what you are used to dealing with, you will need a team of accountants, solicitors, etc to get this right. 😬

here though it’s money you have given the children, which you are investing for them.

there is no legal obligation with regard to the money, you can do what you want with it.

with o/p the dd’s money is from an inheritance, placed in trust. There is a legal obligation as trustee to act in the trust’s best interest. If she doesn’t, there can be legal consequences.

there’s a difference.