Family loans and Power of Attorney question 31 August 2021 at 11:10AM in Marriage, relationships & families 8 replies 312 views

Sea_Shell

Consider this scenario...

Elderly grandparent lends £10,000 to their adult grandchild.   Repayment terms are agreed in writing (interest free).   
During the term of the loan, parent loses capacity and their adult child (eg mum of said GC) has to invoke the already registered PoA.

Grandchild then loses their job and can no longer make the agreed repayments.

What is the PoA to do?, or allowed to do?

It may be that the GP would have decided to write off the loan, in the circumstances, but that would not be "in their best interests" so could an attorney actually make that decision?
Would the attorney be expected to pursue the outstanding loan, against the GC?   Or should they just "do nothing" and leave the loan as outstanding, potentially as a debt to the estate?  (no IHT considerations needed)
What if another grandchild (or other family member) also needed to borrow money, could the attorney grant a loan, as this is what they "know" the GP would have done?

My gut is telling me that the "do nothing" approach would be best, but am I wrong?

Would it really come down the dynamics within the family and if there was any potential for dispute?

TBagpuss

They can't write off the debt as , as you say, that would not be in grandparent's best interests. 

Equally, I don't think that they should make a new loan to another grandchild as again, that's not in the best interest of the grandparent.
 
I think they could reasonably agree a short suspension of repayments, perhaps 1-3 months, to give the grandchild time to find a new job and re-start repayments, as that doesn't result in any loss to the grandparent (other than what minimal amount of interest they would have received if they put the repayment into an interest bearing account or investment) 

Of course, if they are in a position to do so, the parent could make repayments on their child's behalf for a few months, which would mean there was not conflict with the duties as an Attorney 

gettingtheresometime

I think in a way it depends whether the Attorney has siblings and what the terms of the grandparent's will states.

The reason I say that is that if the Attorney has siblings and the estate is divided amongst the siblings, then to write off the loan is, in effect, deciding to reduce unilaterally their inheritance. Conversely if the Attorney is an only child and the main beneficiary then to write off the loan is deciding to effectively gift the money to their child.

Of course if the GC is also a beneficiary under the will, then the outstanding debt could be offset by the amount to be inherited - eg if there's £7K left to repaid at the time of death but the GC is set to receive £5K, then could the GC just repay £2K to effectively settle the debt to the estate?

As for further loans, I personally wouldn't as this just seems to be mudding the waters and just increasing the risk of family disputes

Malthusian

One of the duties of the attorney, in addition to the overriding duty to act in the donor's interests, is to manage their finances in the way that the donor would have (within the constraints of acting in the donor's interests).

If the donor did not need the repayments to meet their needs then the most obvious course of action is to suspend the loan. The donor was after all generous enough to lend them this money interest-free and unsecured in the first place, so the scenario suggests that the donor would have done the same. 

Trying to enforce repayment may well not be in the donor's interests at all if it would be throwing good money after bad.

If they do need the money then the attorney will have to pursue it as best they can and should probably take legal advice. Both to assist with pursuing the loan, and to cover themselves.

As TBagpuss said it is unlikely that it would be appropriate for the attorney to lend further money to another grandchild. That would be the case whether money had been lent to the first grandchild or not. Unless, possibly, if the donor had asked their attorneys to in the power of attorney, and there was no material possibility of the money being required for the donor's needs.

"She lent money to grandchild A therefore she would have wanted to lend money to grandchild B" is not enough to justify a loan on the basis of "it's what she would have done" should anyone query it. For all anyone knows Granny liked A more than B. Being fair to the donor's grandchildren is not one of an attorney's duties. If Granny had specified in the lasting power of attorney that she wanted B to be able to borrow £10,000 if B wants it, that would be different.

Malthusian

I think in a way it depends whether the Attorney has siblings and what the terms of the grandparent's will states.

The contents of the Will are irrelevant to the Attorney as only the donor's interests matter.

The Attorney would have to have very good reasons to write off the loan, not because it reduces anyone's inheritance (not the Attorney's problem) but because it reduces the donor's own assets. As you say it's effectively a gift to the grandchild and attorneys generally cannot make gifts (without clear evidence that it's what the donor would have done and that it doesn't affect their own needs).

Suspending the loan is a different matter; if a grandchild owes me £10,000 interest-free and I allow them to suspend repayments, I haven't given anything away as they still owe me £10,000.

Sea_Shell

Thanks for all the replies so far.

Does the answer change if an element of interest IS being charged (and documented)?

74jax

With the losing of capacity, is care now needed?  Does the Grandparent contribute to care if so?  

Sea_Shell

74jax said:

With the losing of capacity, is care now needed?  Does the Grandparent contribute to care if so?  

Would be a self funder, if it was required.

Keep_pedalling

Sea_Shell said:

Thanks for all the replies so far.

Does the answer change if an element of interest IS being charged (and documented)?

Not really, the only difference would be that the bad debt would get bigger over time.