Inheritance share and granny flats

sandwichbag

Hi there, your advice is appreciated... bear with me.
My parents are planning on selling the family home and building a rather large extension/granny flat onto one of my sibling's property/land. They have come with a bit of a financial proposal and have asked us how we feel about this and our opinions. I am not quite sure what to think and would appreciate your thoughts.

There are 4 siblings (including myself) and my folks are planning on loaning sibling #1 € 180.000 (+ interest), they want this loan paying back within 15 years (they don't live in the UK, but I do, hence the euro's). 

This money is to be used to build an extension for my parents to live in. My parents are enabling my sibling to repay this loan by paying rent to live in this extension. The rent will cover nearly 90% of the actual monthly repayment cost (interest on the loan is tax-deductible over there).
This sibling will not be caring for my parents as such (they will be buying in care separately when this is needed) but will keep an eye on them, drive them to appointments etc.

Any future inheritance will still be split between all four siblings. If they happen to pass away before the loan is repaid, this will be deducted from their share. But my parents are only 63 and 70 and very fit. 

When I asked them whether they will continue to pay rent once the loan has been paid off, they mentioned they weren't quite sure/decided on that.

What are your thoughts, feelings or advice about this?

Thanks for reading

PS: This is a bit of a simplified version, the actual setup is a bit more complicated. 

Socajam

People change and I am sure if you do a search you will find all kinds of family drama on here.
Whilst everyone may be on the same page now, this really need to be thought out and legally written to prevent family drama

gettingtheresometime

Tbh it sounds a nightmare waiting to happen.

What is the advantage of your parents lending the money to your sibling only to pay the sibling  rent to enable the sibling to pay back the money the parents lend them? Surely that's the parents repaying their own loan?

Also what happens if there are so many appointments that the sibling refuses to take them ? Or wants to sell the property? Or divorces?

if they're fit & healthy why think of such a daft idea?

Spendless

I read this early on and thought that was why I was struggling to get my head around this, but from what you've put.
Your parents are loaning your sibling E180, 000 plus interest on the loan to build a granny flat.
The way it will be paid back, is your parents then pay rent to your sibling for most of this loan, that your sibling then gives them back as repayment.
This sounds so odd, that I can only think you've not worded or explained it well. Otherwise this is just a shuffle of money and your parents aren't getting repaid at all because the way you've explained it the initial E180,000 isn't being paid.

74jax

sandwichbag said:

My parents are planning on selling the family home and building a rather large extension/granny flat onto one of my sibling's property/land. 
 my folks are planning on loaning sibling #1 € 180.000 (+ interest), they want this loan paying back within 15 years. 
My parents are enabling my sibling to repay this loan by paying rent to live in this extension. The rent will cover nearly 90% of the actual monthly repayment cost 
Any future inheritance will still be split between all four siblings. 

I don't understand the finance of this. Who owns the extension. When they die does the extension get split between 4, like the family home would have? Or is it 180k worth of extention to your sibling? 
Why are they lending your sibling 180k.why not just build it /pay it themselves?
 I don't understand the rent either? Why don't they live there rent free? They bought it? Why are they paying rent on top of paying for it? If they have loaned it to your sibling and the extention is in your siblings name, Surely they live rent free AND your sibling PAYS THEM? 

AnotherJoe

Yep, none of that makes sense to me financially either. They seem to be paying twice. 

Neither does the whole arrangement because all they are doing is moving closer, there's no advantage to this granny flat for the parents as care is being bought in just free taxi service?

. They could instead just spend what would relatively speaking be a trivial amount on taxis To get to appointments with none of the faff involved in the granny flat / loan business, besides which is sibling always going to be around to take them places? So they will have to use taxis sometimes anyway.  And then they could pay for care as well.  So I'm mystified what this does.  Except get sibling one a bigger house. 

BrassicWoman

Sibling takes on majority care and has life disrupted. Has to be available, can't move house. loss of privacy, etc.
Sibling ends up with a bigger house
All seems fair, no need for any adjustments to inheritances. The loan seems daft, though. Give parents a liferent to protect their interests and be done with it.

swingaloo

No wonder you don't know how to feel. There are so many problems looming here. 
Your parents are going to be paying rent to live in a building they have paid for.
Your sibling isn't actually paying anything back from the loan as payment back to parents is the parents own money.
So when parents do eventually die the estate is split 4 ways but the sibling with the house has already had 180.000.  
Major re think on this one I think or laods of problems and resentment in the future.

theoretica

On the other side of the discussion:

• Parents lend sibling money and sibling repays over time - generous of the parents, but doesn't seem like a huge family issue. Will they have enough to offer similar loans to the other children?
• Parents sell home and move into rented - their choice.
• Sibling borrowed money to build an extension and rent it out - also seems not to concern rest of family.
  

The questions to me seem to be whether the other children are disadvantaged by not having the opportunity to borrow 180k too.  Also, the big one, whether the tax advantages on loans and interest extend to private family loans. And, as mentioned above, the issue of relationship breakdowns and ensuring the loan is formalised and repaid in such circumstances.

onwards&upwards

So so so much can go wrong with this. 

Plus, it might seem straightforward when the parents are just in late middle age as they are now, it might not be so simple in 20 years time! 

Mojisola

sandwichbag said:

My parents are planning on selling the family home and building a rather large extension/granny flat onto one of my sibling's property/land.

they want this loan paying back within 15 years
This sibling will not be caring for my parents as such (they will be buying in care separately when this is needed) but will keep an eye on them, drive them to appointments etc.

With such a long timeframe, your sibling can't guarantee that they won't want to move house.  What's the plan if that happens?

What happens if your sibling dies before your parents?  Will their partner continue to look after your parents?  What if the partner gets a new partner?  Will your parents be happy to carry on living in the extension then?

Before entering any weird arrangement like this, it's wise to go through as many 'what ifs' as you can think of and try to future-proof the plan.

If it was my parents, I'd be advising against the whole scheme.