Bank of Mum and Dad – Be prepared to protect your generosity
In 2016 the Centre for Economics and Business Research stated that family members provided around £5 billion from their own wealth to help their children and grandchildren on to the property ladder.
The ‘Bank of Mum and Dad’ has become a more and more popular way of investing for your children’s future, to ensure that you get a better rate of return on your money, even if you are not the person who is going to benefit.
Interest rates on investments have been low for some time, so helping your children to become homeowners seems a sensible option.
However, are you doing enough to protect your investment to ensure that it is your children who actually benefit in the long run?
Sadly many relationships ,whether married or cohabiting, do not stand the test of time, so how can you protect the funds you have provided for your children if their relationship breaks down?
Merely giving them a lump sum to use as a deposit for their first home, affords them no protection in the event that they are purchasing the property with their partner or spouse. If the relationship fails in the future, in general terms, the starting point in any division of assets is that any equity in a property owned in joint names would be divided equally between the two parties.
However, if you sign a Declaration of Trust you are able to protect your investment by planning bespoke provisions in the document to state what is to happen to your initial investment, and its gain in value, in the event of a relationship breakdown.
A Declaration of Trust confirms the true ownership of the property and the proportions contributed by each party, regardless of the title entry at the Land Registry.
The Land Registry are able to note the existence of the Declaration of Trust on the title register, which will then in turn, alert any future purchaser of the property that there are other interested parties in the proceeds of sale.
This ultimately means that in the event of a relationship breakdown, your initial investment would be returned to you, and therefore be available to be used by your child or children in the future.
Failure to take these steps could mean some or all of your investment will be lost.
Why not seek specialist legal advice from Melanie Cotterill with a free initial consultation to hear how we can help you protect you. Call 01752 546448