In those you trust? – Wealth Creation or Wealth Reduction?

Many people at one time or another find themselves in a situation where they want to provide financial assistance to family or friends. This assistance may be temporary are permanent, such as a gift.

A common reason these days is to enable sons and daughters to purchase a property.

Whatever the reason for making the financial transaction, you would be well advised to step back and consider the financial risk of such a transaction. Naturally if you are emotionally charged to make the transaction then you may not be open to wise counsel, even so, think, and think again, beyond the immediate transaction.

Let me explain if you are gifting say £75,000 to your daughter (who may currently be single) is it your intention that she should at some point pay you back, you need to be clear at outset.

If several years after the transaction is completed the property is sold, was it your intention that half of the equity (including your gift) should be split between her and her boyfriend/husband, as they are now splitting up or divorcing.

Can you really afford to release that amount of capital long term? If it is your intention that the transaction is temporary then make it a loan (not in name but in reality) and secure your interest.

There are a number of ways to protect your capital and it is best to take advice on all the available options, including the use of trusts. Many people are under the impression that trusts are for rich people, that is not the case. Although it is one reason that their family’s retain their wealth.

Trusts are very common indeed and play a key role in many aspects of everyday life. In this country most company pension schemes are structured as trusts.


However you do not have to use a trust to protect your capital, there are alternatives to consider. The only alternative not to consider – is not taking advice.

I have come across numerous instances of poorly written trusts with confused wording and poor selection of trustees. Like a husband and wife who effected a policy where the proceeds were payable on the second of them to die, yet they were the only trustees on the policy.

I asked if they wanted me to organize a future trustee meeting via a séance after they had departed.

If you have wills or trusts drafted more than 3 years ago, you should ensure you get them reviewed. There have been  many changes to legislation and taxation and it is essential to ensure that your financial affairs are up to date and in order.

Do you have any queries on trusts or how to leave a tax free legacy? Then contact one of our Financial Planning Consultants, at Pareto Lawrence we offer both Financial and tax planning advice to corporate and private clients.

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