What happens to a mortgage after death of one party?

dunstonh

dkmax wrote: »

Payments that are assigned to someone else have no bearing on the estate of the deceased. The point here is that a life policy pays into the estate and it is up to the will to divert this to the mortgage if that is what is desired. Bear in mind that there may not even be a mortgage at time of death and there may be additional claims on the estate.

The ISA wrapper is a red herring. The money can't go anywhere else other than through the estate.

I dont see why a joint life, joint owner, first death policy would pay into the estate. It is paid to the surviving owner. A JL second death would go to the estate (unless in trust).

The ISA though has no choice. It will always be part of the estate as you say.

dkmax_2

dunstonh wrote: »

I dont see why a joint life, joint owner, first death policy would pay into the estate. It is paid to the surviving owner. A JL second death would go to the estate (unless in trust).

But we're not dealing with such a policy here are we? The OP said that the policy paid out to *both* parties on death of either one. The surviving partner got one part and the estate the other. Presumably this arrangement arises by virtue of the ISA wrapper mechanism.

We are working with incomplete information here so there are some assumptions that may be wrong, but the policy would not have paid into the estate if it was assigned to anyone else.

The main question was did the payment from the policy have to go towards the mortgage and the answer is no, it did not. The next question is can this situation be undone/corrected.

I'm not convinced anything other than a dispute resolution approach could provide a satisfactory outcome. At the very least there are statutory time limitations that have kicked in already (IHT) or are approaching.

Moglet

Yes, that's correct although L&G told me each party had their own policy each paying out to themselves. L&G paid out two sums. 1) £XXXX which represents the sale of the PEP/ISA holdings for your mother's policies and 2) £XXXX which represents the sum assured for these policies, less the value of the PEP/ISA holdings. plus net interest calculated from XXX (date of death). The total amount was half the value of the original mortgage.

I've spoken to a solicitor found through that STEP link and they've said need to see the T&C's of the policy before they say for sure but they did confirm the mortgage debt was not a debt of the estate. They said I could try writing the mortgage company saying it was payment made in error and request it back but they don't think they'd agree to that as it would be classed as a mortgage advance. The other option is to pursue my SD through the courts. I've contacted L&G to request a copy of the policies and T&Cs.

I suppose the other option is to try talking to my SD and see if he'd agree to give it back through his estate but would there be any way to guarantee that? Even if he made a Will he could revoke it at any time.

What are the limitiations? The only one I'm aware of is 6 years. IHT? Inheritence Tax?

dkmax_2

Moglet wrote: »

The other option is to pursue my SD through the courts.

He may argue that the intent of the policy was to pay towards the mortgage, that the will was improperly drafted and that you have merely changed your mind some years later after administering the estate.

I suppose the other option is to try talking to my SD and see if he'd agree to give it back through his estate but would there be any way to guarantee that? Even if he made a Will he could revoke it at any time.

The way to lock-in any agreement is to assign an appropriate fraction of the property to you or a trust via the deeds, with a written agreement that your SD can enjoy the property until he dies.

Don't forget about the mortgage company and HMRC. They are potentially the third and fourth players in this.

Most time limits are 6 years but many of the ones relating to taxation can be shorter or longer (always in the Government's favour!). I can't recall precisely but I think that IHT rules are less than 6 years, e.g. for recovery of over-payments.

Moglet

Thanks again.

I don't think IHT is an issue, the whole estate would have been no more than £100k even with the death in service benefit and the full house value.

What do you mean when you say don't forget about the mortgage company?