Hello,
My sister has asked me to contact you.
My wife and I are thinking of downsizing. We’re moving from an eight hundred thousand pound five-bedroom house to a £350,000 ground floor flat which we currently rent to tenants. We’ve served notice of termination of tenancy.
We have two children, our son Jeff and his twin sister.
We plan to let Jeff and his wife move into the house. As they would not have a mortgage, the agreement is for Jeff to give his sister £500 a month.
My sister says I’m being stupid, what do you think?
Thanks,
Mo
Dear Mo,
Your sister’s wise.
I doubt you’d met my friend, the kindest of the kind, Jancis Steward.
Think back to the early days of what we generally no longer call the smartphone, recall the apps on those phones were laughably rudimentary – they were crude: they were more novelties than worthy of employment for anything serious.
Those contrivances could hardly be used for anything weightier than splitting the bill when dining out.
Methinks if you needed to split a bill to any degree of accuracy than your facility of with mental arithmetic allowed, you really shouldn’t be breaking bread with the folk at your table.
The inadequacy of those apps which at best could have been likened to a late 19th century chemist opining:
‘penicillin’s been discovered, therefore you should stop washing your wounds’ notwithstanding, our eyes and ears were assaulted with the phrase; ‘there’s an app for that’.
Jancis was the perfect dinner companion; she was the life of the party. She was so engaging a companion that someone said of her, when she got to a party, the party would catch alight – it might not have been in the direction the host had intended, but it would catch afire.
What a Waste
In Easter 2008, equipped with her not so smartphone, on which she’d installed one of those pedestrian, not worth the paper on which it’s written fitness apps, she went hill walking on
To curtail a long exposition, the weather turned, and, as happens to the best of us, she got lost. In her disorientation,
he lost her footing.
She fell.
She died.
If she’d been properly equipped, if she’d been not seduced by the novelty of the stupid phone in her pocket, if she’d had an honest watch, she’d have swindled the coroner out of a fine score, she’d have dined out on the tale of that hill walk for four decades,
What a waste!
I am unable to articulate the extent to which, nearly one and a half decades on, I am still angry that my friend died. What a waste of a life.
What a stupid waste of a fine life.
Does She Know?
On the matter of the scheme of which you’ve provided a precis, does your daughter know? You are in effect selling an £800,000 property and handing the cheque from the sale to your boy Jeff. If your family can survive the bomb you are planting and priming, then your daughter is a far better person than I am.
Also, this business of him bunging his sister five hundred pounds a month, by my abacus, (imagining zero inflation, granted, a feat of imagination that appears fantastic and unreasonable just now), it would take one hundred and thirty-three and a third years for them to get even.
Of course, both your children would then live longer than Methuselah and to top it all, your daughter would need the superior style of patience that would make Job appear as incapable of delayed gratification as a nine-year-old who in September browbeat his stepdad into promising him a PlayStation for Christmas.
A Three Legged Stool
Emergency, it’s like beauty, it’s in the eye of the beholder. It only takes one ‘emergency’ for Jeff to miss a sole £500 payment and that arrangement, which at best had the rigidity of a three-legged stool, would collapse. You must pardon the harshness of my expression, but I know how your sister feels. She must be vexed at the plan. Just like all these years on I’m still annoyed at Jancis for throwing her life away.
Primary School Arithmetic
There is some primary school maths required here.
Write a cheque for £800,000 in favour of your young lady.
If this is beyond you, rather than give the house to your son, sell the £800,000 building to him for half its value. Turn over the £400,000 he gives you to his sister. Because you only got £400,000 for an £800,000 house, the remainder would be a gift.
If you survived the gift by seven years, the sums would have fallen out of your estates, thus there’ll be no IHT due.
Are Your Kin Immortal?
Here comes the fancy footwork.
The act of giving assets to beneficiaries outright is so crude as to merit censorship. Making gifts to individuals absolutely both in wills and in life is childish, as it presupposes the recipients are immortal.
Inheritance planning is at bottom an act of maturity founded on the acceptance of mortality. By giving away assets, you’re merely swelling the estate of the recipient by the amount of the gift, rather than solving the problem, you’re merely compounding it and transferring it to someone else.
By giving away assets absolutely, you’re merely swelling the recipients’ estates, and as they are mortal, when they perish, inheritance tax would come due.
Why not solve the problem once and for ever?
Put the gift to both your children into non-settlor interested trusts of which they would be beneficiaries. They would enjoy unhindered the use of the assets, and more to the point, you’ll be solving several problems of which inheritance tax was one.
I know how your sister feels. I’ll never not be annoyed with my friend Jancis. While there’s merit to the scheme overall, the manner in which you’ve laid it out, to paraphrase a statesman whose name has long since deserted me, is more than a crime, it’s a mistake.
