Family loan tied in with inheritance

2

Comments

  • 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
    Tom99 Posts: 5,371
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    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'?

    [FONT=Verdana, sans-serif]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:

    [/FONT] [FONT=Verdana, sans-serif]You = 33.3%+£25k[/FONT]
    [FONT=Verdana, sans-serif]Br1 = 33.3%-£25k[/FONT]
    [FONT=Verdana, sans-serif]Br2 = 33.3%

    [/FONT] [FONT=Verdana, sans-serif]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.

    [/FONT] [FONT=Verdana, sans-serif]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.

    [/FONT] [FONT=Verdana, sans-serif]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.[/FONT]
  • Jenniefour
    Jenniefour Posts: 1,386
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    edited 12 November 2017 at 1:12PM
    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.
  • Tom99
    Tom99 Posts: 5,371
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    Jenniefour wrote: »
    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.

    [FONT=Verdana, sans-serif]By the DOV the brother is giving up £25k of his inheritance in return for £25k cash now.[/FONT]
    [FONT=Verdana, sans-serif]The only downside is that the OP has to wait until the house is sold to get back the £25k[/FONT]
    [FONT=Verdana, sans-serif]That is a much less risky way of dealing with the matter than by way of a loan.[/FONT]
  • Jenniefour
    Jenniefour Posts: 1,386
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    Tom99 wrote: »
    [FONT=Verdana, sans-serif]By the DOV the brother is giving up £25k of his inheritance in return for £25k cash now.[/FONT]
    [FONT=Verdana, sans-serif]The only downside is that the OP has to wait until the house is sold to get back the £25k[/FONT]
    [FONT=Verdana, sans-serif]That is a much less risky way of dealing with the matter than by way of a loan.[/FONT]

    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.
  • 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.
    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
    Tom99 Posts: 5,371
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    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.

    Why do you think a DOV is a non starter?
  • Are the current owners of the estate alive or dead??
    :A Goddess :A
  • 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?
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  • Wow. Lots of replies and few questions there.
    So yes, the 25K is my own, not from the estate.
    The estate (house only, no cash left after tax), which I as executor have some control over is the reason I am happy to do this loan, otherwise I would not have offered.
    So I am still a little confused now, DOV or no loan agreement?
    Someone mentioned the possibility of death - that is exactly the reason I would like a legal agreement for this, so if either of us got hit by the metaphoric bus, our beneficiaries would have a clear path.
    All thanks for replies so far, and any further help.
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