Jim Sawer, Partner in our Private Client team, writes in Moneywise answering the question on giving money to grandchildren but controlling how it's spent.
The reader would like to know if their parents can put money in trust for their adult children with the provision that they only use it to buy a property or business. The reader explains that their adult children are all in their 20s and that the amount would be £10,000 each. The reader would like to know if it would be better to give them £3,000 each year to avoid inheritance tax (IHT) as their parents are both in their 80s.
The parents have four options;
- Wait until the children are ready to buy a property / business and make the gift then;
- Give the children money and trust the children to keep a promise to spend it only on a property / business;
- Give the money to you and simply rely on you, without any binding "trust", to pass it on at the appropriate time by way of further gifts; or
- Put the money into a trust for the children, of which your parents themselves, or, perhaps you and your husband, are Trustees. The Trustees could then advance £10,000 to each child at the appropriate time.
For IHT purposes, the sooner the gifts are made, the sooner the survivorship clock starts running; after surviving 7 years, the sums will drop out of account for IHT. If your parents contribute equally to the gifts (whether outright or into trust) the first £12,000 of the total given may be automatically exempt (using annual exemptions) with no survivorship requirement."
If IHT is the main concern, than an outright gift is simple and effective. If control of the way the money is spent is the bigger concern, then they might, indeed consider creating a trust."
Jim then goes on to explain that given the sums involved, the legal fees for creating the trust and annual tax reporting requirements might be considered disproportionate.
This article was first featured in August's 2020 issue of Moneywise.
About the author
Jim Sawer is a partner in our Private Client team. He has a broad private client practice and has advised families in the UK and overseas, including those with commercial and landed interests, for over 30 years. Clients appreciate his ability to identify the true crux of a matter promptly and his results-orientated approach to resolving private client issues in the family context.