Video series: ‘Sofa talks’ – Experts answer questions about gifts to your children

This series sees experts at ABN AMRO answer questions from clients. On the sofa today: Tjarko Denekamp (Wealth Planning Expert, ABN AMRO) and Bobby Le Febre (adviser from the Preferred Banking team). In this episode, they zoom in on the topic of gifts to your children.
Question: “I want to save for my child. What options do I have?”
Answer:
The first option is to build capital in an account in your own name. The second option is to build capital in an account in your child’s name, and there are two avenues you could go down. I mostly advise clients to open an account in their child’s name. If you deposit something like €50 a month into an account in your own name from the moment your child is born until their eighteenth birthday, the final amount you want to transfer is likely to be above the tax-exempt threshold for gift tax. You’ll then have to sacrifice capital you’ve paid in. There’s another major disadvantage: if you die before your child is old enough to access the money, the capital will be considered part of your estate rather than as capital you were saving up specifically to give to your child. As a result, it may not be distributed in the way you originally intended.
Question: “What if I want to keep control of the money?”
Answer:
Gifting under administration is an effective way of keeping control over your child’s assets. It lets you give your child access to the money only when you think they’re ready. That may be when they reach a certain age or an educational milestone. A gift deed is a very easy way of recording this arrangement.
However, remember that you’ll need to set up arrangements for gifting under administration before you make the first gift. This means you remain in control until your child is 25, for instance. If you’ve saved to fund your child’s education or help them to buy a home, gifting under administration helps to ensure that money will be used for that purpose. You can’t convert previous gifts into gifts under administration at a later date.
Question: “I’ve heard horror stories about parents having to write to the sub-district court to open an investment account for their kids. What’s that about?”
Answer:
This comes into play when you’re dealing with underage children. Many parents think they can do whatever they like – it’s their kids and their money, after all. However, as the child is legally underage, the sub-district judge will need to step in to make sure the child isn’t exposed to an unjustifiable degree of risk. If you want to invest with a higher risk appetite or want to take out a loan on behalf of your child, the sub-district judge will need to assess whether it’s the responsible thing to do.
Question: “I want to give a gift to my daughter, but not her partner. Can I do that?”
Answer:
You can add an exclusion clause to your gift, meaning that the gift won’t be part of a community of property if your daughter marries into one. Instead, those assets will be owned by her alone. Be sure to record this in writing as a gift deed, so that you can provide evidence when the time comes. Luckily, you don’t need to hire a notary to draw up a gift deed – you can prepare one on our website.
Another thing to remember is that your children-in-law may inherit the assets. The exclusion clause protects your assets in the event of a divorce, but your children-in-law may be entitled to inherit them. If you want to avoid that, you’ll need to make other arrangements.
Question: “How should I talk to my parents about gifts?”
Answer:
There’s no single answer to that question. From experience, I can say that it helps to have a genuine reason for asking, like buying a house or starting a family. You’ll find that people are more receptive once you’ve broached the subject. You might want to talk about what will happen when your parents die, whether they’ve put arrangements in place, or whether their wills are up to date. These can often be ways to start the conversation.
If you have any questions about your finances, or you’d like to talk to an adviser, go to COACH and use one of our exclusive contact options for Preferred Banking clients.