Giving away your hard-earned cash and placing it in the hands of your children or grandchildren is always a nerve-racking business.

You’ve worked for that money, so relinquishing control to the next generation is an emotional and practical challenge.

But growing numbers are facing exactly that choice between handing over wealth in their lifetimes or leaving their loved ones facing a big inheritance tax bill – due to a pernicious change to estate planning rules set to come into force next April.

Pension pots, currently exempt from inheritance tax (IHT), will form part of estates from next year. Almost 40,000 will be hit with higher death duties as a result.

It means that many who were hoping to use pensions to pass on wealth are now working quickly to get spare pension money outside of their estate.

Some may also be tempted to make gifts sooner rather than later, over fears new Prime Minister Andy Burnham could further increase taxes on death to pay for his reforms to social care. 

One option previously mooted is a 10 per cent tax on all estates, although no details have been confirmed.

To do so, they may be forced to hand over larger amounts or make gifts to children and grandchildren earlier than they would otherwise. 

Gifts are free from IHT if made at least seven years before death so many will aim to start the clock ticking, wealth planners say.

But even as they dispense cash, property and jewellery to trim their estate’s IHT liability, they may be wondering if their family will use it in the right way, or if their grandchildren are old enough to take care of it.

As Sarah Coles, head of personal finance at investment platform AJ Bell, says: ‘It’s only human to hope that whoever receives the gift makes the most of it.’

And indeed there are ways to make gifts with strings attached, or to at least make sure it doesn’t fall into the wrong hands…

You may hope your adult child saves your gift for their retirement, or that your grandchild uses it to get on the property ladder. But once you hand that money over, there’s nothing to stop them frittering it away.

Or they may do something with your gifted assets that upsets you.

Perhaps you give them a holiday home where your family has spent many happy summers… only for them to sell it at the first opportunity.

And with 42 per cent of marriages expected to end in divorce, there’s a legitimate fear that a gift you make to even the most settled of family members could end up in the wrong hands.

So, how can you avoid such situations?

The simplest way to take control is to speak to the beneficiary about your wishes.

When you make your gift you can ask that, for example, the valuable bracelet be kept in the family, or that the £100,000 lump sum to your son be used only for him to improve or upsize his home.

This is the cheapest and simplest way to retain some control – as long as they listen and agree! 

But there’s no guarantee they will – plus, you risk offending them if you’re too prescriptive. Ms Coles adds: ‘They might be so affronted by your conditions that they refuse to accept the gift.

‘Or they might feel you are being controlling or manipulating, so that even if they take the gift, it damages your relationship.’ She says you should weigh up how much you value control over good relations going forward.

Growing numbers of families are placing gifts into trusts, says Rachael Griffin, of wealth manager Quilter.

Discretionary trusts, the most common type for IHT planning, allow a donor to give up the ownership of assets and money while giving them greater control over how the gifts are used.

Perhaps you want to start the seven-year clock ticking but are worried that your children or grandchildren are too young to receive an early inheritance.

This is where discretionary trusts come in. They push the gift outside of an estate and into the hands of trustees, who do not own the assets but decide how they will be distributed.

You’ll need to name potential beneficiaries and you can also write a letter of wishes about how you want the gifts to be distributed. 

For example, you may write that you want your children to receive the money when they turn 25, or that you’d like the gift to be used for a house deposit.

This isn’t legally binding, however. It is ultimately up to the trustees to decide how the money is spent but they are obliged to act in the interest of beneficiaries.

You typically need to appoint at least two trustees – one of which can be yourself. The trustees don’t need to take the letter into account if they believe circumstances have changed.

It is vital to take legal advice if you are thinking about setting up a trust. Crucially, the money is not automatically free of death duties. 

If you die within seven years, that gift in trust will form part of your estate. Plus, if you place more than £325,000 worth of cash or assets into trust within a seven-

year period, then the amount over this threshold is clobbered with a 20 per cent entry tax charge.

In addition, anything over this threshold is taxed at up to 6 per cent every ten years, and when capital is paid out.

The trust is also liable for income and capital gains tax.

If you fear a marriage could be on the rocks or there is a rogue daughter or son-in-law, there are ways to mitigate this risk.

If your child does get divorced, matrimonial finances tend to be split. So the best chance of them retaining control of your gift is to prove it’s a non-matrimonial asset as these are typically excluded.

Keeping a gift in a separate bank account in their own name can help, rather than keeping it in a joint account used for household spending. They should also avoid using the money for family purposes such as holidays or bills.

You can write a letter to your child confirming your intentions for it to be a personal gift.

Ms Coles suggests encouraging your child to draw up a pre-nuptial agreement – or even a post-nuptial agreement if they’re already married – designed specifically to protect the gift. 

These can specify in advance that gifts or inherited funds are to remain outside of the matrimonial pot.

You won’t retain control over the money but such measures can add a certain level of protection.

These steps aren’t guaranteed to protect the gift from being split during a divorce, and both pre-nuptial and post-nuptial agreements are not automatically binding but courts in England and Wales do give them significant weight.

If you are worried about young adults squandering away your generous gift, you could always consider using it to set them up for later life.

Sean McCann, of NFU Mutual, is seeing more of his clients pay gifts into their children’s pensions, locking away the money until they turn 55, rising to 57 by April 2028.

Again, you won’t retain control of the money but you might sleep a little easier knowing they can’t touch it until retirement.

The beneficiary also receives tax relief on your contribution, which will boost their pot further. 

This is an automatic 20 per cent boost to their pension on your gift. Higher-rate and additional-rate taxpayers can claim an extra 20 and 25 per cent relief, respectively.

Paying into a junior individual savings account (Jisa) could work for younger children if you want them to benefit sooner thanpension age.

Up to £9,000 a year can be funnelled into one of these wrappers, where the cash savings or investments grow free of tax. 

The child can take control of these accounts when they turn 16 and access the money at age 18.

Gifting an asset rather than spare cash may mean your child or grandchild is less likely to fritter it away.

For example, if you gift your child your second home, they may be reluctant to sell it, explains Ian Dyall, of wealth manager Quilter.

But this does have its pitfalls. If you continue to use the holiday home free of charge for your own benefit you’ll fall foul of the so-called gifts with reservation of benefit rule. 

For example, Mr McCann says one couple put their holiday home worth £650,000 into a discretionary trust with their children as the beneficiaries.

But if the parents continued to use the holiday home, the property wouldn’t be counted as a true gift by the taxman.

The couple would need to document that they paid market rate rent of £1,000 per week to the trust.

This is even more of an issue if you are gifting your main home to your children during your lifetime. You can do this but if you continue to stay at the home rent free, HMRC will treat the gift as if you never made it.

Instead, you’ll need to either stop living there or pay rent at the market rate to the beneficiary. 

You will also need to make sure you aren’t being too prescriptive when you give away your home, stating that they can’t redecorate it within your lifetime, for example. 

This is a grey area but it may fall foul of the gifts with reservation of benefit rule, Ms Coles explains.

Plus, of course, there’s also a risk that your child could boot you out of the home if your relationship sours.

If you don’t want to make a gift in one go, you can make smaller payments regularly via one of the most generous IHT allowances. 

This is called the ‘gifts out of normal expenditure’ exemption and these payments are free of death duties.

The tax office has strict rules for what counts as one of these payments – they must be regular, made out of income instead of capital and not impact your standard of living.

Meet these and you can pass on an unlimited amount of money without the need to survive for seven years.

You should write a letter stating the value of the payments, how often they are made and that they are made from surplus income.

Passing on wealth this way can give you an opportunity to see how well the beneficiary manages the money.

You can’t dictate what they do with the money but you can say you are giving it to them to help with their household costs or with their children, for example.

If after three years you find that your son has instead paid for a world cruise using your gift, you can stop making the payments, Ms Griffin says.

Instead, you can use this rule to make direct regular payments for school fees or other household bills. If you later need that money for care, you can stop making the payments.

• How are you handing over wealth to loved ones? Let us know at moneymail@dailymail.co.uk