Through an inheritance our daughter has sufficient money for a 60% deposit
on a house. She has recently married and we are keen to protect her
contribution as well as we can and have started to consider setting up a
Trust Fund and having the fund loan her the money toward a new house.
How will Mortgage Providers react to this. I understand it will be termed a
"second charge" on the property.
Is this from your daughter's inheritance. If she creates a trust that
is actually effective, I believe it will be a gift 'with reservation of
benefit', which has interesting inheritance tax implications. Maybe she
could arrange a deed of variation on the original will so that she never
actually receives the money. Even then it may be subject to some
inheritance tax. I suspect a useful trust would not be allowable for
PETs, so there could be lifetime tax charges. At least the impression I
get on a short bit of research is that the taxation situation is very
difficult to understand.
I assume the loan would have to be secured for that, but, if not
secured, I imagine the scheme could be easily defeated. I'd guess the
difficulty might be in ensuring it really was a second charge, so the
provider had first call when they foreclosed, even though it would
actually have to be made simultaneously.
I wonder if a simple tenants in common arrangement could achieve the
aims of the arrangement.
If the inheritance is your daughter's, won't the husband see such
arrangements a large vote of no confidence.
Generally, I see so many pitfalls, that I don't think you should be
relying on non-lawyers on newsgroups to validate your solution.
First, even - since it'd be a charge related to 60% of the value of the
property, versus their 40% interest.
But there's another angle... Your daughter - herself - has inherited this
money? If so, then it's her money. She can set up a trust, donate all the
money to it, then get the trust to loan it her back - but you can't do
anything of the kind, since it's not your money.
By doing so, she'd effectively be saying to her new husband "No, I don't
trust you in the slightest and am already thinking the marriage was a
mistake that won't last long". Sounds like a self-fulfilling prophecy to
Adrian wrote in news:leka1g$v6e$2
The money was actually left to her mother - but the underlying intention
(will not completed) was that the daughter would benefit.
Legally - the money is currently her mother's money.
Slightly confused here.
A second charge is normally to secure a loan so that if/when the property
is sold the loan can be repaid out of the proceeds of the sale.
The mortgage company will normally, of course, insist on first charge
because that is what the CML handbook states.
So if you are lending your daughter the deposit on the house but you wish
to retain control of the money and perhaps have it paid back over a period
or when the house is sold then this seems a reasonable way of securing the
loan against equity in the house.
It also keeps it separate from the married couple so that if they do split
it should not be part of any settlement.
The part about the trust - are you giving her money in trust so that she
can effectively have the use of it but not own the capital?
Is the intention that the trust will then lend the money to her (and
perhaps to her husband?) to use as a deposit on the house?
Or will the trust buy 60% of the house and rent it to the happy couple?
That is, will the trust wish to share in any increase in the equity over
Anyway, you need the agreement of the first charge holder (who will be the
mortgage company) for you to take second charge.
If they do not agree to this you can still register an equitable charge by
way of a note which records that you have an interest in the property but
does not carry the same rights to sell the property to recover any
Please note IANAL and my terminology is not necessarily the correct 'legal
speak' where some words have very specific meanings.
All completed - We had the agreement of the Building Society and have a
Deep of Postponement in their favour.
The Trust Fund is Loaning the money - but we will not want it repaying
unless the house gets sold due to a divorce.