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  • FIRST POST
    • HelenFlowers
    • By HelenFlowers 8th Nov 17, 11:18 PM
    • 8Posts
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    HelenFlowers
    Family loan tied in with inheritance
    • #1
    • 8th Nov 17, 11:18 PM
    Family loan tied in with inheritance 8th Nov 17 at 11:18 PM
    I and my brothers co-inherit my parents house, which is on the market at present.
    I am sole executor on the estate for convenience.
    Meanwhile I have offered to lend my brother £25K to cover the costs of his own mortgage renewal, which gets paid back to me when we sell the house.
    Any advice on the format of a letter between us to validate this?
    I trust my brother completely, but obviously would like something written and watertight in case of the unforeseen.

    All thanks marvellous people for help.
Page 1
    • Tom99
    • By Tom99 9th Nov 17, 12:15 AM
    • 550 Posts
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    Tom99
    • #2
    • 9th Nov 17, 12:15 AM
    • #2
    • 9th Nov 17, 12:15 AM
    There are probably several options. One might be a deed of variation, that way you get 1st £25k from estate and split rest 50/50. Its not complicated, easy to draw up with a solicitor and less liable to any misunderstandings than with any sort of loan agreement you could drum up.
    • badmemory
    • By badmemory 9th Nov 17, 2:01 AM
    • 940 Posts
    • 976 Thanks
    badmemory
    • #3
    • 9th Nov 17, 2:01 AM
    • #3
    • 9th Nov 17, 2:01 AM
    There are probably several options. One might be a deed of variation, that way you get 1st £25k from estate and split rest 50/50. Its not complicated, easy to draw up with a solicitor and less liable to any misunderstandings than with any sort of loan agreement you could drum up.
    Originally posted by Tom99
    wouldn't that only pay back £12.5k?
    • zx81
    • By zx81 9th Nov 17, 5:46 AM
    • 14,058 Posts
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    zx81
    • #4
    • 9th Nov 17, 5:46 AM
    • #4
    • 9th Nov 17, 5:46 AM
    But half of that 25k is the OPs in any case.

    Wouldn't it be more suitable to split the pot in half, but then 25k is paid from the brother's share to the OPs share?

    To repay the 25k, you effectively need a difference of 50k, as with the original loan.
    • Tom99
    • By Tom99 9th Nov 17, 6:29 AM
    • 550 Posts
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    Tom99
    • #5
    • 9th Nov 17, 6:29 AM
    • #5
    • 9th Nov 17, 6:29 AM
    But half of that 25k is the OPs in any case.

    Wouldn't it be more suitable to split the pot in half, but then 25k is paid from the brother's share to the OPs share?

    To repay the 25k, you effectively need a difference of 50k, as with the original loan.
    Originally posted by zx81
    Yes my apologies you are correct, DOV says 1st £50k to OP being his own 1st £25k and brothers 1st 25K then rest split 50/50.
    Thank you for pointing out my mistake.
    • purdyoaten2
    • By purdyoaten2 9th Nov 17, 9:10 AM
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    purdyoaten2
    • #6
    • 9th Nov 17, 9:10 AM
    • #6
    • 9th Nov 17, 9:10 AM
    Yes my apologies you are correct, DOV says 1st £50k to OP being his own 1st £25k and brothers 1st 25K then rest split 50/50.
    Thank you for pointing out my mistake.
    Originally posted by Tom99
    I think that you were right the first time. Is the objective not for the OP to receive £35000 more that his brother?

    If the estate was valued at £100000.
    OP gets £25000 PLUS half of £75000 which is £62500.
    Brother gets half of £75000 which is £37500.
    Difference is £25000.

    If OP gets £50000 plus half of the remainder (£50000) he ends up with £75000
    Brother gets £25000
    Difference is £50000.
    Last edited by purdyoaten2; 09-11-2017 at 9:15 AM.
    purdyoaten lost his password
    • zx81
    • By zx81 9th Nov 17, 9:21 AM
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    zx81
    • #7
    • 9th Nov 17, 9:21 AM
    • #7
    • 9th Nov 17, 9:21 AM
    No. He needs to either receive 25k direct from the brother, or 50k from a shared pot. Either way gives the same result.
    • tjg04
    • By tjg04 9th Nov 17, 9:24 AM
    • 12 Posts
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    tjg04
    • #8
    • 9th Nov 17, 9:24 AM
    • #8
    • 9th Nov 17, 9:24 AM
    Step 1:
    OP Gives Brother £25k
    Balances are OP: -25k / Br: 25k

    Step 2:
    OP receives first 50k of 100k estate
    Balances are OP: 25k / Br: 25k

    Step 3:
    Even split of remaining 50k of estate
    Balances are OP:75 / Br:75k
    • Tom99
    • By Tom99 9th Nov 17, 9:38 AM
    • 550 Posts
    • 321 Thanks
    Tom99
    • #9
    • 9th Nov 17, 9:38 AM
    • #9
    • 9th Nov 17, 9:38 AM
    Step 1:
    OP Gives Brother £25k
    Balances are OP: -25k / Br: 25k

    Step 2:
    OP receives first 50k of 100k estate
    Balances are OP: 25k / Br: 25k

    Step 3:
    Even split of remaining 50k of estate
    Balances are OP:75 / Br:75k
    Originally posted by tjg04
    Yes I agree with that. It was only when I put the same figures tjg04 has in a spreadsheet I realised my initial error. Minor correction, I think based on £100k value tjg04 step 3 should be OP £50K Br £50K.
    • HelenFlowers
    • By HelenFlowers 11th Nov 17, 11:06 PM
    • 8 Posts
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    HelenFlowers
    Thank you everyone, both for the suggestion, and the maths. I have actually two brothers, only one is getting the loan, but I will work it out!
    • HelenFlowers
    • By HelenFlowers 11th Nov 17, 11:31 PM
    • 8 Posts
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    HelenFlowers
    So just checking the legals, if I take this course and do a deed of variation:
    I would gift my brother £25K
    Then receive an extra £25K from my parents estate.

    Would there be any tax issues with the 'gift'?
    • observations from a hill
    • By observations from a hill 12th Nov 17, 12:21 AM
    • 140 Posts
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    observations from a hill
    I don't understand the question here.

    Do you as executor have access to 25k from the deceased funds to pay over to your brother?

    If so then, if you and the other beneficiaries agree, you are able to make him an interim distribution of the money. This is just an accounting exercise in the final estate accounts where he just got that money in advance, and its deducted from his share of the balance of the estate.

    OR are you proposing to lend 25k of your own money to your brother pending the sale of the house? This would be a personal loan between yourselves, and subject to whatever conditions you mutually agree.
    • Tom99
    • By Tom99 12th Nov 17, 1:37 AM
    • 550 Posts
    • 321 Thanks
    Tom99
    So just checking the legals, if I take this course and do a deed of variation:
    I would gift my brother £25K
    Then receive an extra £25K from my parents estate.

    Would there be any tax issues with the 'gift'?
    Originally posted by HelenFlowers
    That complicates matters slightly. The DOV needs to transfer £25k from you brothers share of the estate to you, so if there are three of you, it might say:

    You = 33.3%+£25k
    Br1 = 33.3%-£25k
    Br2 = 33.3%

    I don't think there should be any tax consequences, the DOV will no longer be valid for IT and CGT purposes because consideration has been given by you to your brother. You can probably drop the tax clause from the DOV altogether.

    It is not a loan agreement because you are immediately being given £25k share of house. You are sole executor so can direct solicitor how to pay out completion monies so it should be far more tidy than any loan agreement could ever be.

    You will need a solicitor to draw up the DOV to make sure to %ages are correct. The DOV will probably be between Br1 and you as executor, it does not need to involve Br2 since his share is not being altered.
    • Jenniefour
    • By Jenniefour 12th Nov 17, 1:08 PM
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    Jenniefour
    This is not a DOV issue at all, and I strongly recommend you don't even consider going down that road. DOV's are used to alter the contents of the will, providing the beneficiaries who are giving up some/all of their inheritance agree. In this case, the instructions in the will are not being altered at all.

    This is a personal loan from yourself to your brother, assuming you are willing and wish to do that, and will be repaid when the proceeds from the sale of the property are distributed. Get a legal agreement drawn up which reflects accurately the conditions/terms you and your brother agree, which he needs to pay for as he's the recipient of your generosity.

    This looks, on the face of it, as though your brother is entering prematurely into financial commitments which wouldn't have been possible without this inheritance. That is not your problem and as executor you need to make sure you are meeting your legal obligations properly. Counting the chickens before they've hatched comes to mind. If you don't have the funds yourself to lend to your brother then he must wait until the house is sold.
    Last edited by Jenniefour; 12-11-2017 at 1:12 PM.
    • Tom99
    • By Tom99 12th Nov 17, 1:25 PM
    • 550 Posts
    • 321 Thanks
    Tom99
    This is not a DOV issue at all, and I strongly recommend you don't even consider going down that road. DOV's are used to alter the contents of the will, providing the beneficiaries who are giving up some/all of their inheritance agree. In this case, the instructions in the will are not being altered at all.

    This is a personal loan from yourself to your brother, assuming you are willing and wish to do that, and will be repaid when the proceeds from the sale of the property are distributed. Get a legal agreement drawn up which reflects accurately the conditions/terms you and your brother agree, which he needs to pay for as he's the recipient of your generosity.

    This looks, on the face of it, as though your brother is entering prematurely into financial commitments which wouldn't have been possible without this inheritance. That is not your problem and as executor you need to make sure you are meeting your legal obligations properly. Counting the chickens before they've hatched comes to mind. If you don't have the funds yourself to lend to your brother then he must wait until the house is sold.
    Originally posted by Jenniefour
    By the DOV the brother is giving up £25k of his inheritance in return for £25k cash now.
    The only downside is that the OP has to wait until the house is sold to get back the £25k
    That is a much less risky way of dealing with the matter than by way of a loan.
    • Jenniefour
    • By Jenniefour 12th Nov 17, 2:45 PM
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    Jenniefour
    By the DOV the brother is giving up £25k of his inheritance in return for £25k cash now.
    The only downside is that the OP has to wait until the house is sold to get back the £25k
    That is a much less risky way of dealing with the matter than by way of a loan.
    Originally posted by Tom99
    I can't emphasis this enough - this is nothing whatsoever to do with a DOV. The will is going to be executed as per mother's wishes and instructions in her will - there is no change to what the beneficiaries will eventually all receive so there is no change to the will. In this case, as OP has explained, when the property sale has completed the proceeds will be shared equally between the siblings.

    Where is this cash going to come from? It's going to come from OP's personal funds which have nothing to do with her role as executor of the estate, and neither should it be conflated with that. The only connection is that her brother is making plans to spend some of his inheritance before the house sale has completed, and before the estate can be finally settled. So OP is considering, out of the goodness of her heart, lending a significant sum in anticipation of it being paid back when the estate is finally settled. Which also needs to be in the legal agreement concerning the terms agreed by OP and her brother.

    Op said, in her opening post:- "Meanwhile I have offered to lend my brother £25K to cover the costs of his own mortgage renewal, which gets paid back to me when we sell the house.". What could be clearer than that? I am reading that as though OP does have the personal funds and is willing to lend her brother the money. That is her choice as his sister, and she shouldn't allow herself to be pressured into doing that just because she happens to have the money to hand in her own personal funds or because she is the executor. It is most certainly not part of her role and legal obligations as executor to bail out any beneficiaries who are making premature financial commitments before they have actually received their inheritance.

    There is no reason to consider or treat this loan any differently from any other personal loan to a family member. The usual advice on this board would be "don't do it", quite properly. Too many tales of woe. It just so happens, in this case, and providing the legal agreement is drawn up properly to state that it will be paid back when the estate is settled, it does offer some assurance that OP will get her money back. But OP needs to consider first how long, realistically, it will take for the house to be sold, and would she be happy loaning this money if it takes a year or more. Housing market is cooling now. Most people in her shoes would be saying "no" to the brother but that's her choice.
    • Yorkshireman99
    • By Yorkshireman99 12th Nov 17, 3:24 PM
    • 3,299 Posts
    • 2,653 Thanks
    Yorkshireman99
    I and my brothers co-inherit my parents house, which is on the market at present.
    I am sole executor on the estate for convenience.
    Meanwhile I have offered to lend my brother £25K to cover the costs of his own mortgage renewal, which gets paid back to me when we sell the house.
    Any advice on the format of a letter between us to validate this?
    I trust my brother completely, but obviously would like something written and watertight in case of the unforeseen.

    All thanks marvellous people for help.
    Originally posted by HelenFlowers
    This really is very unwise. All sorts of thing could go wrong. Worst case your brother gets run over by a bus and you can't recover th funds. In any case as executor you are obliged to act independently and to treat all beneficiaries equally. You must treat any loan as completely outside the estate. If you really must do it then go to a solicitor and get and agreement drawn up by them after both taking independent advice. As for the suggestions about using a DOV etc. they are a complete non starter.
    • Tom99
    • By Tom99 12th Nov 17, 4:48 PM
    • 550 Posts
    • 321 Thanks
    Tom99
    This really is very unwise. All sorts of thing could go wrong. Worst case your brother gets run over by a bus and you can't recover th funds. In any case as executor you are obliged to act independently and to treat all beneficiaries equally. You must treat any loan as completely outside the estate. If you really must do it then go to a solicitor and get and agreement drawn up by them after both taking independent advice. As for the suggestions about using a DOV etc. they are a complete non starter.
    Originally posted by Yorkshireman99
    Why do you think a DOV is a non starter?
    • sleepymans
    • By sleepymans 12th Nov 17, 4:53 PM
    • 616 Posts
    • 914 Thanks
    sleepymans
    Are the current owners of the estate alive or dead??
    Goddess
    • enthusiasticsaver
    • By enthusiasticsaver 12th Nov 17, 4:58 PM
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    enthusiasticsaver
    This is nothing to do with the parents estate. It is a personal loan from OP to brother and my advice would be tell your brother to wait until estate settled before doing anything to mortgage. Why does he need £25k to renew his mortgage?
    4 weeks to go until early retirement in December . Debt free and mortgage free.

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