5 year saving plan for 3 sons to get them on the property ladder

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RickyJ

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My wife and I have decided to open up three saving policies in the New Year for our sons and pay between €3,000 and €6,000 into each account over 12 months for a minimum of 5 years. All 3 sons are in their early twenties and hope to get on the property ladder as some point in the future. As I know they will not be able to do this without help my wife and I, we thought the best way to do this is to take advantage of the annual €3,000 gift tax allowance. My question is in relation to the savings policy. We are leaning towards Irish Life MAPS 5 or 6 for the three policies. Are there any similar policies out there that would have less fees or would be worth considering?

I invested a lump sum 11th March 2020 in MAPS 6 and it is up by 40%. I understand that the timing was very good and that it is unlikely that these gains will be matched in the next few years, but I would prefer this sort of investment over a low risk such as State savings.
 
Hi Ricky
An interesting idea.

Let's say that after 5 years, each son has €20k in their account .

Son A is ready to buy a house, but €20k is not enough to get him onto the ladder. Sons B and C are not going to give them their money to help him.

So, I would suggest that you keep your money and let each son know that you have €20k to help them get on the housing ladder or possibly more.

So when Son A is ready, you can gift him €20k and lend him €20k to be repaid when you need it for Son B.

Or even the full €60k if it brings him below the 80% LTV level and gets him a much cheaper mortgage.

You can give each one €330k so the annual exemption is not worth worrying about.

Brendan
 
How well do the sons get on with each other?
Are they in relationships?

You could suggest that two or possibly three of them buy a house jointly.

It's a bit messy, but it allows people to get on the ladder early.

And if you have a written agreement up front, it make the exit from the partnership easier.

And if there are generous parents in the background, they can also help the exit. For example, in helping the remaining son buy out his exiting brother.

Brendan
 
Hi Brendan,

We also have three rental properties that we bought many years ago to use as a pension fund. These are now mortgage free and will eventually be passed on to them with some cash, hence the plan to avail of the annual exemption now. I would prefer to help them to build up savings, with the hope that they will also save what they can afford in the same policy, in order to have a deposit. The other alternative will mean a tax liability some time down the road, if they receive more than the €330k each (including the properties). It is difficult to predict what will happen in the future but we think it is better to project as accurately as we can, the value of what could be passed on to them and what tax liabilities they may face. We are working back from there in looking at the annual gift exemptions.

I like your idea of possibly funding one property between the three of them in order for them to have something to get onto the property ladder. However, I think it would be more difficult for the three of them to commit to paying back the one mortgage, as they are all at different stages in terms of their work and interests.

Ricky
 
OK

Then really this is about using the small gifts exemption, and that is fine.

Getting them onto the housing ladder is separate. You could gift them one of your rentals or sell it and give them the proceeds to help them buy.

Brendan
 
RickyJ said:
My question is in relation to the savings policy. We are leaning towards Irish Life MAPS 5 or 6 for the three policies. Are there any similar policies out there that would have less fees or would be worth considering?
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It depends on the time horizon involved but some of your sons could be looking to buy as soon as a few years if they are in their early 20s. Over this kind of time span I think cash is best as you can lose a lot with equities in short term. Also no hassle with tax on any gain.

What you can do is buy them five- or ten-year state savings for €3k every year. There is a little bit of interest. They can cash in early and forfeit the interest if they need to move on it to buy a house.
 
PGF2016 said:
The OP had enough resources to not have to resort to this terrible option.
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Hi PGF

When I suggested it, he hadn't told us about the 3 investment properties.

However, we don't know how much help he wants to give.

Joint ownership is messy but it can get people a house they could not otherwise afford and it gets them on the property ladder earlier. So it's worth considering despite the problems.

And given the parents' wealth, they would be in a position to help out when one of them wants to exit the deal.

For example, the big problem with joint ownership is that when B wants to sell, A can't get a mortgage to buy B out. In the OP's case, the OP could lend A the money to buy B out.

Brendan
 
I understand Brendan but I still disagree. I'm obviously biased considering my own very negative personal experience with buying with a sibling. I would strongly advise against that course of action.
 
RickyJ said:
My wife and I have decided to open up three saving policies in the New Year for our sons and pay between €3,000 and €6,000 into each account over 12 months for a minimum of 5 years.
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Hopefully everything will be in their individual names even though you and your wife are opening the accounts.
 
Sue Ellen said:
Hopefully everything will be in their individual names even though you and your wife are opening the accounts.
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Hi Sue Ellen,

Yes, everything will be in their individual names even though there is always the risk that they may dip into the savings when the intention is to get them onto the property ladder.

The real question is in relation to the choice of fund. I would like to introduce them to the idea of having an account that can go up as well as down in order for them to realise there are other more profitable ways to save money. I wish I had known this in my twenties and thirties, instead of having cash in the bank and it being gradually eroded away by inflation.
 
Hi Ricky,
You are being very generous and they are very lucky to have parents who are willing and able to help.
If you want them to learn about investing money, you should leave the decisions to them. If you make all the decisions, they wont learn much.
 
RickyJ said:
I would like to introduce them to the idea of having an account that can go up as well as down in order for them to realise there are other more profitable ways to save money.
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You have €50k today. You want to buy a house in five years. You can choose:

1) €51k guaranteed.
2) 50% chance of €35k; 50% chance of €75k.

I would choose 1) as when it comes to a house deposit in the near term I am pretty risk averse.
 
Hi Coyote

That is a very good way of looking at it.

Your reasoning is correct if you are an individual with €50k who wants to buy a house in exactly 5 years.

But in this case, the timing of the house purchase is not known. And the €50k is only indicative - clearly the father has a lot more so a fall in the value of the investment would not exclude the child from buying a house.

Brendan
 
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