Advice: Family loan after death

cymruchris

I know this is a forum - and I might just get an indication - and to get the absolute answer I might need to speak to a solicitor - but would welcome some thoughts before I do so, as to whether it's worth doing so. It's a bit of a long one - but wanted to put in as much detail as I think is necessary to get a handle on the question.

There's a situation that I'm aware of where a married couple had originally wanted to leave half of their estate (house and whatever else was left) equally between their two children. The house in the will had been written in as what I believe I called Tenants in common, so that if one partner died, half of the property value would go to the children in equal shares in the form of a charge on the house deeds. (I'm sure there's a more technical way of saying it than that). 

Child 1 has never asked for money, never borrowed money, and always made their own way in life.

Child 2 always boasts they have lots of money, well-paid jobs and a flashy house - yet are always on the take for money from the parents, whether it's a few hundred here for an emergency or a thousand there to help pay the council tax, it all adds up. There were two occasions however when substantial amounts were borrowed. In late 2015 this child borrowed £25k for a new vehicle, and began making payments back of £650 a month. This carried on for 5 months - when they borrowed a further £25k for another new vehicle. On doing so, all payments stopped. The parents had paid for the vehicles directly (and didn't pass the money through the child) and have the vehicle receipts/invoices, which have the child's husbands name on them a the 'purchaser' but the parents made the payment. In terms of the 'loan' there was noting in writing, the usual family way, but evidence of regular payments exist through the bank account history.

In 2019 a family disagreement over further borrowing came to a head when the parents said 'that's it - there's no more money'. Child 2 went off with a huff and a puff and didn't speak to the parents after that. One of the parents stated that their wish was that Child 2 was written out of the will, but the other parent talked them out of it. The health of this one parent declined over the coming months, and they passed away suddenly. 

As a result, all of the estate in their name was passed to the surviving parent, however a charge was put in place on the property to respect the original will, splitting half the property into equal shares for both children.

Since the parent's passing, Child 2 came back briefly, but when the money-tap was still off, didn't really show any interest in the care of the remaining parent. When the remaining parent wanted to instigate a POA - they chose Child 1 to be nominated for finance - excluding Child 2, and for health had included both Child 1 and Child 2. When Child 2 found out, they instantly took legal advice without speaking to the parent, but didn't get anywhere. The POA's are now in place without Child 2 on either. 

The surviving parent has now re-written their will to ensure Child 2 is no longer included as a beneficiary to any remaining estate on their passing, however Child 2 as per the terms of the original will has a 25% interest in the family property.

So here come's the question (if you haven't guessed it already) when the surviving parent passes away, can that loan of £50k for two vehicles be 'repaid into the estate' on the basis of the fact the invoices are present, a limited payment history has been shown, and the surviving parent has put a supplementary letter in with their will to explain that this money was a loan, acknowledging that a number of repayments were made, but that the full value was never repaid. It may be that the simple answer is 'no chance' - it may be that the answer is 'speak to a solicitor' - or it may be something that someone has experienced something similar - and wouldn't mind sharing their experience. I'd welcome a few thoughts if you'd be kind enough to share them.

Malthusian

I'm assuming English/Welsh law applies - Scottish is different.

It sounds like there is a high chance the loans to Child 2 will be unenforceable when the 2nd parent passes away, assuming they live past c. 2022. After six years of no payments being made and no attempts to enforce the debt, it may be statute-barred (disclaimer: I'm not an expert on this and not 100% clear on when the clock starts ticking for an informal debt). That means the debt still exists, but can't be enforced in court. If Child 2 was to get an inheritance the loan could be netted against it, but they aren't.

Child 2 could try bringing a claim under the Inheritance (Provision for Family and Dependents Act) on the grounds they hadn't been made reasonable provision in the Will. But they're getting a quarter of the house and the parents had stopped maintaining them years ago, so that seems like a long shot.

If the debt is enforceable when the parent dies, then if Child 1 is now the sole beneficiary it is essentially up to them whether they want to try enforcing what will become their debt against Child 2 or not. If there were multiple beneficiaries the executors would have a thornier problem.

If Child 2 is borrowing money from parents to pay their council tax then, high-earning job or not, it sounds distinctly like they have no money. Do they own their house or is it rented? Whether the debt is legally enforceable or not is of academic interest if they have no money.

Keep_pedalling

Frankly, to avoid leaving a major headache behind them the surviving parent should simply write it off as a gift. They have already disinherited that child from their estate which should more than compensate for the loans. 

gettingtheresometime

I have no idea to the answer to the question but wouldn't it be a prudent idea for the surviving parent to write a letter, to be kept with the will,  stating that as child 2 was helped financially considerably during their parent's lifetimes, then the surviving parent feels that child 2 has effectively had an 'advance' on their inheritance hence the terms of the will?
Also this may also be an idea scenario for an independent person to be made executor.

TBagpuss

YEs, assuming that they have capacity, it would be appropriate for the surviving parents to do a side letter to be held with their will, explicitly explaining that they made the decision not to leave anything to Child 1 on the basis that child 1 had received loans of £50,000 (of which less than £5,000 was ever repaid) and also received multiple smaller loans and gifts nd that it is the parents view that, taking into account the 1/4 share in the house which they received under the first parent's will,  they have already received  a reasonable share of the estate.

I assume that they made their will using a solicitor? The child may seek to allege undue influence by child 2 who inherits, so having clear records that the will was made without pressure, and that the parent had advice without child 2 being present, is important. 

cymruchris

Thanks for your replies everyone - it was along the lines of what I thought - but good to get an outside view. The letter of supplementary information has been written that includes reference to the loan, and the fact it wasn't repaid, and that's being stored with the will by the solicitor. It was drawn up by them, and during the current pandemic was also witnessed by them. The solicitor has been made executor based on the information that's been provided. 

naedanger

cymruchris said:

Thanks for your replies everyone - it was along the lines of what I thought - but good to get an outside view. The letter of supplementary information has been written that includes reference to the loan, and the fact it wasn't repaid, and that's being stored with the will by the solicitor. It was drawn up by them, and during the current pandemic was also witnessed by them. The solicitor has been made executor based on the information that's been provided. 

I wonder what the solicitor is planning to do with this information about the loan when the time comes. 

Mojisola

naedanger said:

cymruchris said:

The letter of supplementary information has been written that includes reference to the loan, and the fact it wasn't repaid, and that's being stored with the will by the solicitor. It was drawn up by them, and during the current pandemic was also witnessed by them.

I wonder what the solicitor is planning to do with this information about the loan when the time comes. 

My parents had a letter kept with their wills, explaining why their estates weren't equally divided between their children.

The solicitor suggested they wrote the letter in case any of us challenged the distribution - it would give them a voice from the grave and reduce the chance of a challenge succeeding.

naedanger

Mojisola said:

naedanger said:

cymruchris said:

The letter of supplementary information has been written that includes reference to the loan, and the fact it wasn't repaid, and that's being stored with the will by the solicitor. It was drawn up by them, and during the current pandemic was also witnessed by them.

I wonder what the solicitor is planning to do with this information about the loan when the time comes. 

My parents had a letter kept with their wills, explaining why their estates weren't equally divided between their children.

The solicitor suggested they wrote the letter in case any of us challenged the distribution - it would give them a voice from the grave and reduce the chance of a challenge succeeding.

Yes, that's what I thought would be a good reason for the letter.

My slight concern was that the solicitor might feel some obligation to ensure they took reasonable steps to recover this potential asset of the estate. However I suspect that isn't actually the case given that enforcement of the debt will likely be time barred.

Also, mainly out of interest, I wonder if the executor would have any obligation to disclose the contents of the letter to the beneficiaries. 

Mojisola

naedanger said:

Also, mainly out of interest, I wonder if the executor would have any obligation to disclose the contents of the letter to the beneficiaries. 

Not unless the will was challenged and it was needed.

That's why solicitors suggest a separate letter - in previous times, these things were often written into the will which becomes public.  Very interesting for genealogists to have it laid out just what family arguments had occurred and just who was on good terms with the deceased and who wasn't but it's not nice to have that spread around while the affected people are still alive.

naedanger

Mojisola said:

naedanger said:

Also, mainly out of interest, I wonder if the executor would have any obligation to disclose the contents of the letter to the beneficiaries. 

Not unless the will was challenged and it was needed.

That's why solicitors suggest a separate letter - in previous times, these things were often written into the will which becomes public.  Very interesting for genealogists to have it laid out just what family arguments had occurred and just who was on good terms with the deceased and who wasn't but it's not nice to have that spread around while the affected people are still alive.

Thanks for the response.
I knew that the advantage of a side letter was that it meant its contents didn't get published for all to see. But presumably the executor has to see such a letter for it to serve its purpose i.e. the executor needs to know what the letter says so he/she is able to use as evidence should the will be challenged. However I can see why, in some circumstances, the executor might wish to keep the contents in confidence should the will not be challenged. So I am glad to hear that there is no obligation for the executor to disclose the contents, at least if they believe it would not be in the beneficiaries interests to do so.