The great wealth transfer has begun. The baby boomer generation are sitting on a huge amount of money and they are keen to share it with their families.
But modern families have become more complex, something that the law hasn’t caught up with yet, and a well-meaning financial gift could easily end up in the wrong hands.
This is because many of the laws that protect families are based on the outdated concept that most people still live in a nuclear family made up of a married couple and their children — it doesn’t cater for blended families, second marriages or couples living together long before a proposal is even (if ever) on the cards.
If you’re thinking about helping your child or grandchild with a house deposit, tread carefully if they are buying the property with someone else, no matter how head over heels in love they might be. They might be putting in a larger share of the deposit, but as soon as the transaction is complete, it’s seen as joint property and the law often assumes a 50/50 split should they part, unless they explicitly state otherwise.
This means that your beloved daughter’s now ex-boyfriend could walk away with half the money you gave your daughter just days after they move in — and by then, there’s nothing you can do about it. To protect against this scenario, a deed of trust drawn up by a solicitor could help to ring-fence the money but the couple must own the home as tenants in common for it to apply.
• Inheritance tax on pensions has triggered a middle-class panic
Many also don’t realise that while love and marriage may not last for ever, a financial relationship often will. When you divorce, many people assume that getting a decree absolute (the final divorce paper) ends the financial connection between spouses. But it doesn’t. That financial link is still there — and can be there indefinitely.
Your ex can even make a claim on money that you haven’t amassed yet, such as a future inheritance or business success.
The case of Dale Vince, the founder of the green energy firm Ecotricity, and his ex-wife Kathleen Wyatt in 2015 should make us all take notice. Wyatt was granted the right to bring a financial claim 19 years after the pair divorced. Since their split Vince had become a multimillionaire and because they hadn’t sorted out a formal financial agreement, the court ruled that she was entitled to a £300,000 settlement.
• I’m a divorcee. Here are my money tips for soon-to-be ex-wives
A financial consent order can protect you against this. It’s a legal document, approved by a court, that shows that you have severed your financial ties. Yet only half of divorced couples get one. So before you give your divorced child an early inheritance, make sure they have one.
Surprisingly few people also know that getting married voids any wills. Under the Wills Act 1837, a marriage or civil partnership automatically revokes any will, a rule that still applies, although reforms are under way to change it.
In 2023 we reported on the case of three brothers who found out that their mum’s will didn’t count after she had remarried and died of cancer shortly afterwards. They were left with just £9,000 of her £305,000 estate.
Giving your family a financial leg-up could be one of the most generous things that you can do, but you need to make sure you take the right steps to protect the cash. If you don’t it could end up helping someone you may hardly know — or even like.