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Making sure your money stays in the family

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Thursday October 10, 2013 at 6:39pm
Divorce is not easy at the best of times, but it’s the process of sorting out the finances when a couple split up that is often most difficult. It’s the area where great disagreements can occur and if you’ve not prepared adequately a great deal of family wealth can be lost. Quite often we read about divorce settlements where one party provides most of the assets but the courts split the pot equally or at least disproportionately to the way the bulk of the wealth was accumulated. This seems particularly unfair when a parent has provided some of that wealth in the form of a gift to their child.

It is not unnatural for parents to want to give money to their children, especially now that house prices are so high. Many parents provide the funds for the deposit for the son or daughter’s first house. The problems arise when children marry and then divorce. The gift is often lost in the divorce settlement and the parents are frustrated that half of their gift has now gone to the former son or daughter-in-law and their own child has suffered real loss.

It doesn’t have to be this way.

Protect your financial gifts in a trust

Much of our estate planning for clients is driven by the desire for parents to ensure their hard earned money is safeguarded for their children and is not lost outside the family. This is achieved by the parent making the gift into trust. The son or daughter then borrows the money from the trust. The loan is made without a fixed repayment date and at nil interest. In this way they have the benefit of the money.

However, should they divorce, the trustees who must act in the best interests of the beneficiary (your son or daughter) will recall the loan. The net effect is that the loan from the trust is a debt payable out of the divorce proceeds. Once the divorce is over the child can borrow the money again.

This is just one use of Trusts in estate planning, there are plenty of others, however by simply arranging your affairs in a different way you can achieve the same result of helping your child to buy a house, set up a business or whatever you want to do. However, you also protect the money should they divorce in the future.

The real message is, manage your wealth carefully and look to do all you can to keep your hard earned money in your hands, not someone else’s, whether that’s the tax man or your child’s ex.

Andy Parker
Chartered Financial Planner, Birmingham

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here