Negotiating Estate Debts with High Street Bank

7thwave

My dad passed away last year and left some debts in his estate:

• a loan of £20k with a high street bank and
• £2k on a credit card which is with a subsidiary company of the same bank.

The cash he had when he died just about covered the funeral director's invoice for a standard funeral, and he had no other belongings of any significant financial value. He was tenants in common with his wife (my mother) for the house in which they both lived, which we is valued around £350k, and his will puts his 50% share of the property into a discretionary trust - the 4 trustees of which are to be myself, my two siblings and my mother, and we are also all executors of my dad's will.
My mother very much wants to remain in the house for the time-being and so we do not wish to sell, but nor do we have the cash between ourselves to pay off the debts, particularly given the current economic conditions.
The bank which holds the debts has so far been very patient, but I have not yet discussed with them the fact that although my dad's estate is solvent, the only asset that can cover the debt is the house.
I have had some advice from a solicitor advising that we would need to either collapse the trust or set up a debt scheme to allow my mother to remain in the property, but before we can start to look at doing any of that, we need to settle the debts on the estate.
A grant of probate has now been issued for my dad's estate and I'm really hoping that someone on here might be able to recommend how best we can go about negotiating and settling the debts with the bank?
Many thanks for your help.

Linton

Just a suggestion.....

you take the initiative and develop a realistic proposal that accepts that the debt must be fully repaid and put that to the bank.  In the overall scheme of things £22K is not a lot of money and it should not be impossible to do something without having to sell the house. You have said you, together,  dont have the money. Perhaps you could suggest a repayment schedule that you could meet.  Perhaps a small mortgage or some other form of loan may be possible again being paid off over time.

xylophone

The bank takes a first charge against the house ( regarding the money to be repaid in the light of a mortgage) and your mother/the Trustees repay (with interest of course) over a period?

7thwave

Thanks for these replies - they are helpful. Do you think it's worth trying, as an opening proposal, after explaining our situation pretty much as i have above, and noting the current state of the economy, that we ask the bank to wait for full repayment of the debts until we're at a point where my mother has moved out and we've sold up? We won't be able to stipulate a date for when they get their money back, but we have never been in a situation like this. It would be helpful to know if starting negotiations with a proposal like that would likely undermine any later proposal we put to them. A couple of us are very worried about keeping our jobs in the coming recession and committing to any repayment schedule right now is an additional stress that we can be doing without right now. Any experience you can share will be very helpful, thank you again.

xylophone

that we ask the bank to wait for full repayment of the debts until we're at a point where my mother has moved out and we've sold up? We won't be able to stipulate a date for when they get their money back, 

I'd be surprised if the bank accepted this proposal.

Dox

7thwave said:

Thanks for these replies - they are helpful. Do you think it's worth trying, as an opening proposal, after explaining our situation pretty much as i have above, and noting the current state of the economy, that we ask the bank to wait for full repayment of the debts until we're at a point where my mother has moved out and we've sold up? We won't be able to stipulate a date for when they get their money back, but we have never been in a situation like this. It would be helpful to know if starting negotiations with a proposal like that would likely undermine any later proposal we put to them. A couple of us are very worried about keeping our jobs in the coming recession and committing to any repayment schedule right now is an additional stress that we can be doing without right now. Any experience you can share will be very helpful, thank you again.

There's no harm in asking, but you need to do so in a businesslike fashion - i.e. keep all the emotion out of it, which isn't going to be easy. Offering the bank a charge over the property should give them reassurance they'll get their cash eventually. Be very careful not to say anything along the lines of 'we can't afford to pay anything', not least because if the bank turns round and insists you do, you'll have to backtrack - a sign of weakness they may then exploit by increasing their demands.

Linton

7thwave said:

Thanks for these replies - they are helpful. Do you think it's worth trying, as an opening proposal, after explaining our situation pretty much as i have above, and noting the current state of the economy, that we ask the bank to wait for full repayment of the debts until we're at a point where my mother has moved out and we've sold up? We won't be able to stipulate a date for when they get their money back, but we have never been in a situation like this. It would be helpful to know if starting negotiations with a proposal like that would likely undermine any later proposal we put to them. A couple of us are very worried about keeping our jobs in the coming recession and committing to any repayment schedule right now is an additional stress that we can be doing without right now. Any experience you can share will be very helpful, thank you again.

I thought Mum didnt want to move out.  If you were going to sell the house anyway, perhaps as soon as Covid-19 is over, then it may well be a reasonable thing to ask.  But if Mum is going to stay there for the rest of her life why would the bank be prepared to wait possibly decades for their money back? Selling off a £350K house purely because of a £22K debt seems stupid to me.  The costs of selling and buying somewhere else would surely be more than the debt.

Try and see things from the bank's point of view - come up with a proposal that you would accept if you were owed the debt.

7thwave

My first post said she doesn't want to move *for the time being*; what I was referring to in my second post is that there will inevitably come a time when she just won't be able to continue to live in the property - this could be anything from months to several years away, I think.

My dad had been a loyal customer of the bank his entire life, and they have made a lot of money out of him over the decades. The bank took the decision to give him an unsecured loan knowing he was elderly, and so I must admit I'm struggling to feel much sympathy for them. If plan A (essentially a charge on the house only) isn't acceptable to the bank, then me trying to persuade all of the other executors to volunteer/propose a repayment schedule to the bank - even an interest free one - will be a difficult sell for me to make to them right now. One of the other executors definitely has their own significant money problems, and which my dad had been trying to help them with. I've also had a number of difficult conversations with them recently about the fact that we do need to settle dad's debts. They were also aware that dad had taken out this loan but I was in the dark about it and only found out after he'd passed away.

We are expecting to need to pay a solicitor within the next year to do some work on the discretionary trust - either collapse it or keep it and set up a debt scheme, and also my mum may want some advice on updating her will as it was written many years ago when the IHT threshold was much lower than it is now. Perhaps we engage the solicitor earlier and get them to negotiate a settlement with the bank on our behalf?At least then whatever we end up having to agree with the bank won't all be my fault, though we'll also have had to pay more in solicitors fees... Basically I feel stuck right right now and don't know what the fairest way is to do get us out of this mess, and we as a family are close to falling out badly over this. The reality check I'm getting from you here is helpful. Again, any further insights from you all will be appreciated gratefully. Thanks again.

vitaweat

You are effectively asking the bank for a loan which is fine: that's how they make money after all.

When a bank makes a loan they want to know three things:

1. How and when will you repay the loan?
2. How is the interest to be calculated (fixed vs floating rate for example)
3. What is the default risk?

1 will be covered by your mother's income or possibly someone else's.
2 should be relatively easy to negotiate
3 is a combination of whether your mum can reasonably make the proposed payments out of her income and her credit history.

The alternative would be to get a "Lifetime Mortgage".  This is a mortgage where you use a chunk of the equity in your home to get a mortgage.  These have nil repayments and are settled on the sale of the home.  They tend to be expensive as the interest compounds and you really want to go over the small print with a very fine tooth comb (don't have a mortgage advisor "explain" it to you) but it does look like a good solution for your mum's problem.

Keep_pedalling

In your shoes I would be very worried about your mother’s long term financial security. It appears she owns half a house and has approximately zero savings. It would have been far better for her to inherit everything so that she could downsize and have some cash to live a more comfortable old age.

What was the reason for going down the discretionary trust route? It is not a very tax efficient way of doing things. 

7thwave

My parents had mirror wills which were written a long time ago when my siblings and I were still children - they were worried about us having to pay IHT if something were to happen to them and never thought that they might need revising to keep up to date with changes in the law.
I'm very worried about my mum, too. Her state pension + spousal pension which she is getting from my dad's pension scheme means she is doing ok, but she is getting increasingly frail and we haven't planned for how we might have to pay for residential care should she need it - just googled average care home fees, and her current income would come no where near to covering that cost.
Downsizing would be sensible, but she is very attached to the house. Although it's not what brought me initially to this forum, any sources of good advice on this that you can direct me to would be very much appreciated.