News & Insights

Protecting Gifts to Children

The use of Declarations of Trust, Cohabitation Agreements and Post-Nuptial Agreements when making substantial gifts to children (or other family members).

The recent SDLT holiday has led to a huge increase in property sales and purchases as current and would be homeowners race to take advantage of the significant saving that they might make on a purchase if they can complete by 31 March 2021. The announcement today that the SDLT holiday will be extended to June has therefore come as very welcome news to those who have yet to complete their transaction and also to those who might now want to move and take advantage of the tax saving.

For first time buyers and those upsizing, it is often the case that they will be receiving financial assistance from their parents or other family members to help finance the purchase. Frequently those providing the assistance, or the buyer themselves, will want to ensure that that their initial financial contribution is protected and will remain the property of their child and not, for example, their partner or spouse.

We are therefore frequently instructed to prepare declarations of trust to document the buyers’ respective interests in the property and to reflect their uneven contributions to the purchase. When properly entered into, a declaration of trust is binding upon unmarried couples. They are therefore very worthwhile to put in place, as they are often protecting many thousands of pounds.

However, where the buyers are married, a declaration of trust is not necessarily binding, as the court has the power to interfere with a declaration of trust on divorce. Accordingly, where a couple is married then they should also enter into a post-nuptial agreement alongside the declaration of trust to record their intentions and to give the declaration of trust the best chance of being upheld by a court on divorce. Provided that a post-nuptial agreement is properly entered into and certain conditions are complied with, then it is likely to be upheld by a court on divorce.

As well as a declaration of trust, unmarried couples may also want to consider entering into a cohabitation agreement. Whilst a declaration of trust deed is conclusive in relation to interests in real property, it will not cover assets such as investments, savings accounts, company interests or chattels e.g. cars. A cohabitation agreement can set out what the parties intend in relation to the ownership of such assets, including those owned in their sole names or those bought with joint funds, and would therefore act as the equivalent of a declaration of trust in respect of such assets.

If you are interested in finding out more or wish to put in place a declaration of trust, cohabitation agreement or post-nuptial agreement then please contact Lindsay Davies in the Family team.