Trust issues halt business at the Bank of Mum and Dad
While the Bank of Mum and Dad effectively continues to act as one of the nation’s biggest mortgage lenders, its doors aren’t always open if parents don’t trust their child’s choice of partner.
Research from NFU Mutual found that about half (48 per cent) of all parents with grown up children say a lack of trust in their son-in-law or daughter-in-law would affect when or how they would give money to their child – including any help to buy their first home.
The study found that more than a fifth don’t trust their child’s partner, citing them as being ‘money-grabbing’, ‘secretive’, ‘dishonest’ and ‘lacking intelligence’. One in four parents said they’d like their son-in-law or daughter-in-law to be excluded from benefiting from any gifts or inheritance altogether.
A report by Legal and General earlier this week found that gifting money to children could leave many over-55s struggling in retirement.
Sean McCann, chartered financial planner at NFU Mutual, said: “While the Bank of Mum and Dad frequently throws its doors open to help children get on the housing ladder, there are notable exceptions, especially when there is a lack of trust over their child’s choice of partner.
“Like most lenders, the Bank of Mum and Dad is risk-averse. But just because parents don’t trust their child’s choice of partner, it shouldn’t stop them giving money to help their son or daughter get on in life.
“There are plenty of ways to ring-fence a gift, such as for a mortgage deposit, in case a relationship breaks down. However, it’s much easier to do this before sending a bank transfer than afterward.
“The fear of family money ending up in the hands of someone else – be it the taxman or a child’s untrustworthy partner – is very powerful but quite often some simple financial planning can ensure a gift of money will stay in the family. Whether it’s in your lifetime or afterwards, there are many ways you can make sure gifts will only go to the people you care about.”
How to protect a cash gift to your kids
- If your unmarried child is using a gift from you to buy a house with their partner, a ‘declaration of trust’ can help ensure that if the relationship breaks down, the deposit they paid and the share of the property they bought is returned to them after any mortgage is repaid.
- Lending rather than gifting money to your child and their spouse allows you set out in what circumstances the loan would be repaid to you. This should be formally documented.
- If you’re worried about what happens after your death, you could set up a trust in your will. There are a number of options but one of the most common is to give your child a ‘life interest’ in property or investments. This gives them the right to live in the property or enjoy the income from the investments for their life, but not ownership of the asset.