Could a gifted house deposit be considered part of an estate?

Ergates

Slightly complicated situation on the horizon.

The plan is for my in-laws to come and live nearer to us. They will sell their house then use the equity from it as a deposit. We (my partner and I) will then get a mortgage for the rest, as there is no way they'll get one and the house will be in our name. They will, effectively, be giving us the deposit as a gift.

My concern is about what happens when they die - specifically, when my FIL dies. My FIL has a very large amount of unsecured debt (I don't know how much, but it's in the high 10s of thousands). There is no way on earth he will be able to pay this debt off and there is no way he'll have enough assets to cover it.

If the house is in our name is it still possible is creditors will be able to consider it part of his estate? Does the 7 year limit that applies to inheritance tax also apply to debts? Is there a limit for debts? is it longer or shorter than 7 years?

With IHT there is the concept of "gifts with reservation of benefit", where you give your house to your children but stay living in it (in an attempt to reduce the value of your estate). For IHT purposes, if you do this then your house is still to be considered part of your estate. Is this also true for creditors? Also, would this still be true for us given the in-laws had never actually owned the house, but did gift us the deposit?

We will be speaking to a solicitor before we put anything in place, but I wondered if anyone had any thoughts/experience on this?



NB: To be clear - whilst I *really* don't care if my FIL's creditors get any money back or not, neither am I wanting to defraud them of what they're owed. I don't really care about keeping any money from my in-laws, I just want a quiet life with minimal complications.

Yorkshireman99

Ergates wrote: »

Slightly complicated situation on the horizon.

The plan is for my in-laws to come and live nearer to us. They will sell their house then use the equity from it as a deposit. We (my partner and I) will then get a mortgage for the rest, as there is no way they'll get one and the house will be in our name. They will, effectively, be giving us the deposit as a gift.

My concern is about what happens when they die - specifically, when my FIL dies. My FIL has a very large amount of unsecured debt (I don't know how much, but it's in the high 10s of thousands). There is no way on earth he will be able to pay this debt off and there is no way he'll have enough assets to cover it.

If the house is in our name is it still possible is creditors will be able to consider it part of his estate? Does the 7 year limit that applies to inheritance tax also apply to debts? Is there a limit for debts? is it longer or shorter than 7 years?

With IHT there is the concept of "gifts with reservation of benefit", where you give your house to your children but stay living in it (in an attempt to reduce the value of your estate). For IHT purposes, if you do this then your house is still to be considered part of your estate. Is this also true for creditors? Also, would this still be true for us given the in-laws had never actually owned the house, but did gift us the deposit?

We will be speaking to a solicitor before we put anything in place, but I wondered if anyone had any thoughts/experience on this?



NB: To be clear - whilst I *really* don't care if my FIL's creditors get any money back or not, neither am I wanting to defraud them of what they're owed. I don't really care about keeping any money from my in-laws, I just want a quiet life with minimal complications.

Sounds like the whole objective is to defraud FIL's creditors and could be seen as conspiracy. You certainly need professional legal advice.

Keep_pedalling

If you want a quite life without complications you really should not be contemplating this. if his creditors decide enough is enough and make him bankrupt within 5 years of this transaction they can indeed pursue you for the recovery of the gifted money.

You will also find that very few mortgage providers will be willing to lend for this sort of family set-up.

Ergates

Yorkshireman99 wrote: »

Sounds like the whole objective is to defraud FIL's creditors and could be seen as conspiracy. You certainly need professional legal advice.

No, the entire purpose is to enable the in-laws to be able to move near to us.

If the creditors can reclaim the portion of the home my FIL owned, then that is fair. What I don't want to happen is for the portion that *we* own (i.e. have the mortgage for) being considered as part of *his* estate.

I'll do what I'm legally required to do regarding his estate and his debts. I am, however, *not* willing to end up paying them back myself.

Ergates

Keep_pedalling wrote: »

If you want a quite life without complications you really should not be contemplating this.

Lets just say - this wasn't my idea.

Keep_pedalling wrote: »

You will also find that very few mortgage providers will be willing to lend for this sort of family set-up.

If that's the case then that's the case and we'll have to work something else out.

getmore4less

Gift with reservation or preowned assets catch most IHT loopholes.

Unless their "share" is a lot IHT may not be an issue anyway.


You are also going to have an issue as many lenders won't touch you.

Ergates

getmore4less wrote: »

Gift with reservation or preowned assets catch most IHT loopholes.

Unless their "share" is a lot IHT may not be an issue anyway.


You are also going to have an issue as many lenders won't touch you.

Won't even come close to IHT

Ergates

I'll clarify my questions - I didn't put them very well in the first post:

1) Normally, if a husband and wife are joint tenants, then his share would pass to her automatically on his death and wouldn't be considered part of his estate (and thus is safe from his creditors). However, could this still be the case if they're only part owners of the house?

2) Is it possible that, via some gift with reservation type thing, the could be considered to own the *whole* house (because they live there) despite only having contributed the deposit (say 35%). Worst case scenario, could his estate be considered to own 50% of the property even though his portion of the deposit was only 17.5%?

I'm not concerned about what the lenders will or won't do at the moment - that's for another day.

getmore4less

Ergates wrote: »

I'll clarify my questions - I didn't put them very well in the first post:

1) Normally, if a husband and wife are joint tenants, then his share would pass to her automatically on his death and wouldn't be considered part of his estate (and thus is safe from his creditors). However, could this still be the case if they're only part owners of the house?

2) Is it possible that, via some gift with reservation type thing, the could be considered to own the *whole* house (because they live there) despite only having contributed the deposit (say 35%). Worst case scenario, could his estate be considered to own 50% of the property even though his portion of the deposit was only 17.5%?

I'm not concerned about what the lenders will or won't do at the moment - that's for another day.

1. Even with joint tenants creditors can go after a share of any assets.

Flugelhorn

Ergates wrote: »

I'll clarify my questions - I didn't put them very well in the first post:

1) Normally, if a husband and wife are joint tenants, then his share would pass to her automatically on his death and wouldn't be considered part of his estate (and thus is safe from his creditors). However, could this still be the case if they're only part owners of the house?



I'm not concerned about what the lenders will or won't do at the moment - that's for another day.

In your first post you said the house would be in the name of you and your partner, so presumably your FIL would not be an owner of the house at all?? If he was named then that would be even more complicated with the mortgage lenders

Yorkshireman99

Ergates wrote: »

No, the entire purpose is to enable the in-laws to be able to move near to us.

If the creditors can reclaim the portion of the home my FIL owned, then that is fair. What I don't want to happen is for the portion that *we* own (i.e. have the mortgage for) being considered as part of *his* estate.

I'll do what I'm legally required to do regarding his estate and his debts. I am, however, *not* willing to end up paying them back myself.

That may be what your FIL says but it really does not sound credible given what you have said about his financial circumstances. I can only emphasise that it could, not certain, but certainly a possibility, that it could be seen as conspiracy to defraud as similar schmes have in the past.These have usually involved husband and wife swapping assets.