Q. My Parents have recently retired but are contemplating working part time to pay the remaining mortgage off. My Wife and I are in a position to repay this fully to help them out, but how will this affect our inheritance and will we become owners of my parents home?
A. You can indeed pay your parents mortgage off, but you do not become the legal owners. Paying off someone else’s mortgage – or any other debt – does not give you an automatic right to their assets unless you make a specific legal arrangement.
To protect your capital you should therefore employ a solicitor to register a charge against the property at the same time as repaying the mortgage. This means that your parents are still the property’s legal owners, but you as the person repaying the mortgage and taking out the charge have rights if or when it is sold. When the property is sold you will be repaid accordingly and therefore get your money back. You could also consider adding reasonable interest to the charge, although this would be at your discretion. The charge against the property would have the effect of reducing any potential liability to Inheritance Tax your parents may face in the future. As mentioned, I would urge you to take legal advice on this before taking any action.
Q. I have been appointed as a trustee of a trust created in my late father’s will. The trust is “discretionary” and for the benefit of my children and my nieces and nephews, ie all my father’s grandchildren. He also left a letter indicating that he specifically wanted the fund to help those of his grandchildren who wanted to go to university to be able to do so. The six grandchildren vary in age from 2 years old to 15. How should we invest the money?
A. This type of trust is quite common, as it is to leave a letter explaining how the “settlor” (ie your late father, who created the trust) would like the trustees to use their discretion. If there are no restrictions in the will as to the investments which can be considered, then you and your fellow trustees are obliged to follow the criteria set out in the Trustee Act 2000. You must choose investments which are suitable to the objectives and timescale of the trust, and you should ensure the investments are sufficiently diversified. If the oldest child is 15, then some funds could presumably be required in as little as 3 years, which would imply that cash deposits would be appropriate for at least some of the fund. However longer term assets such as equities (stocks & shares) would be more appropriate for a time horizon of 16 to 20 years, which could apply to the 2 year old. You are also obliged to consider the interests of all of the beneficiaries, and take proper advice where appropriate. I would recommend consulting a chartered financial planner with experience in this area and possibly one who has taken the qualifications offered by STEP, the Society of Trust and Estate Practitioners, which offers an affiliate membership for suitably qualified Financial Advisers. They will be able to offer initial advice on structuring a portfolio, and also help you to comply with your obligations to review the investments on a regular basis to ensure they remain suitable.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
