Property transfer on death

simmonsn

Much of the thinking is to give the children a helping hand by not converting the equity in the property into cash - which would only really benefit whoever they then bought a property from.

In practical terms, if say one child bought out their sibling and paid off the existing mortgage, one would end up with a house to meet their growing needs at a mortgage they could more easily afford (£150K cf £200K). They gain a property that is worth more than their mortgage, and have the benefit of further equity in the future. The other sibling would get their share as cash, which helps them work towards ownership in the (more expensive) area that they live.

beecher2

Not sure I follow - the equity would be converted into cash if they sold the house. They'd be able to use the money as a deposit and so would still have a property worth more than their deposit.

It seems overcomplicated, and not really achieving anything, unless I've missed something.

TBagpuss

If the childnre prefer to have the house than cash, then, provided that they were able to clear the existing mortgage and other other debts of the estate, there is no reason why they couldn't do so.

if part of dad's thinking is that he would like some cash now so he can enjoy the time he has left, then yes, he could sell the house to the kids, provided that they could raise enough to pay off the mortgage.

Unless he wants money now, there is no real advantage to transferring the property now as opposed to doing it after he has died.

Either he, or the children, would need to think about the practicalities of the children sharing ownership of the property - they would need to get a declaration of trust drawn up making clear who would be responsible for what, what happens when one of them wants to sell, etc.

it may well be that it would be more sensible for them to sell the house and each use the money as a deposit; if the low-income daughter had £77K + her current equity as a deposit could she afford a house? (possibly a larger part buy / part let, if the current one is too small)

I suggest that you advise your friend to speak to a solicitor, perhaps one who is a STEP member, who will be able to discuss his options with him, and what the various advantages and disadvantages.

Newly_retired

Looking ahead to the future, I can foresee problems with the two children jointly owning the property.
One may want to realise their share of this asset to buy their own property.
Or they may tolerate the other sibling living there but feel resentment that they can't afford to buy them out.
Sounds to me like a recipe for family problems.
Better to sell, pay off the mortgage and any other debts, then each of the siblings inherits their half of the proceeds and can use it as they see fit.

RAS

Has the person who is dying got insurance or a death in service benefit that would cover the outstanding mortgage debt? Or any other death benefit?

xylophone

Has the person with the terminal illness a pension scheme?

If so, has he contacted the Administrators?

getmore4less

There is some complicated thinking going on.

Step back.

If the house is ideal for one of the families to live in then start with that objective and work back out how to achieve that.

Inheritance or pre death partial gift(due to mortgage) makes little difference to the end result, but if they have a place to sell is that going to be possible in the timescales that both siblings will be happy with.

If the person want to give equally to their kids can the one taking on the place raise the funds to make it equal?

If it is not ideal(or they just don't want it) for either sibling then why not just let it get sold so they can buy what they want/need

The down side of gifting is the risk of CGT if the intended recipients won't be living there but if that is temporary and they live there long term unlikely to result in any CGT.

As long as the equity ends up in property it makes little difference except for the costs of one extra buy/sell cycle.

booksurr

simmonsn wrote: »

Much of the thinking is to give the children a helping hand by not converting the equity in the property into cash - which would only really benefit whoever they then bought a property from.

In practical terms, if say one child bought out their sibling and paid off the existing mortgage, one would end up with a house to meet their growing needs at a mortgage they could more easily afford (£150K cf £200K). They gain a property that is worth more than their mortgage, and have the benefit of further equity in the future. The other sibling would get their share as cash, which helps them work towards ownership in the (more expensive) area that they live.

you seem terribly confused, why are you advising on this matter, wouldn't it be better left to a professional?

- house owner dies.
- House has outstanding mortgage of 45K .
- The will leaves the whole estate to 2 beneficiaries who are (coincidentally) the children of the deceased.
- child A wishes to live in the house. Child B does not
- both beneficiaries are (coincidentally) the executors of the will. Legally a beneficiary is perfectly able to also be an executor.

1. the executors must pay off the o/s mortgage of 45K. They can do this either by using cash in the estate (if there is any) or, if insufficient cash in the estate, by selling the property to raise the cash.

2. Child A wishes to buy it

3. let us assume the estate has no cash so the beneficiaries must inject cash into the estate to pay off the mortgage and we assume a 50/50 split so for an estate worth 200k each is entitled to 100k but each must inject 22.5k of cash into the estate so that the estate has 45k cash to pay off the mortgage leaving each person with a net value of 77.5k

4. Child A must therefore pay 122.5k into the estate to purchase the house. This comprises Child A's 77.5k share plus their 22.5k contribution and omn top of that also includes child B's 22.5k share of costs . that was child A gets to own the house as their share of the inheritance and child B gets their inheritance in the form of cash

5. upon receipt of 122.5k cash from child A, the executors pay off the 45k mortgage, leaving 77.5k which is given to Child b as their net share of the estate after estate costs

there is absolutely no reason to sell the house before death. indeed to do so would be counter productive since:
- child A would then be exposed to capital gains tax
- child B would not benefit from any future growth in value of the estate so would end up receiving less than 50% share of the total inheritance

getmore4less

^
Only problem is you got the numbers wrong.

A and B share is £100k - £22.5K

A needs to raise £122.5k to buy the house.

MadelinesMum

Have you checked the terminally ill family member has not got life insurance? This would probably pay the mortgage off on death. Most mortgage brokers really push this at the time, so s/he might just have a policy.