Making an ‘absolute gift’ directly to your child can create unintended consequences. That well-intentioned gift would now be at risk of your child’s divorce, separation, creditor/bankruptcy claims and inheritance tax.

Consider the following situation:

Christine has an adult son, Tom, who is in a long-term relationship with his girlfriend, Jenny. Tom and Jenny would like to purchase a house together and they’d like to get some support from Christine for a house deposit.

Christine is concerned that if Tom and Jenny split up, her loan to Tom could be under threat as Jenny could walk away without returning her share of the deposit as Tom and Jenny are both on the title of the property.

Christine has no control over the ‘gift’/loan once it’s made.

Our advice is to set up a trust, Christine settles her funds into that trust, and the trust then lends the funds to Tom and Jenny. If Tom and Jenny split up, Christine, in her position as trustee (aided by a professional trustee), can demand that Jenny returns her share of the loan to the trust.

Gift trusts are versatile and can be used in several other scenarios. For instance, you may want to consider gifting a second property to your child but you are concerned about the Capital Gains Tax (CGT), a Gift Trust may still be suitable which could also allow you to holdover any gain. 

Download our guide on Family Gift Trusts.