Inheritance & capital gains: Wills & Trusts

WorkingFamilyMan

I am looking for some guidance and advice on how best to leave any property or valuable to your loved ones.

How can a house with mortgage be passed on to children in the most tax efficient way? Are there different types of "Trusts"? Or, is a Will the only poor man's way (i.e. without limited companies etc.)?

Are solicitors or accountants best for advice? Are the options wider only for the better off who have no loans/mortgages but just assets?

Linton

A house with a mortgage cannot be passed on to the children. The mortgage as a debt of the deceased must be paid-off before the assets can be distributed. So either the money comes from the estate or someone else gets a mortgage in their own names. If neither is possible the house would need to be sold.

Trusts may possibly be appropriate once the mortgage has been paid but that very much depends on the circumstances.

The appropriate person for advice would be a solicitor.

Keep_pedalling

Trusts are not a a magic bullet to avoid tax and can actually have the opposite effect than intended.

Best to start with the basics

What is your current marital status?

Do you own any property other than your own home?

What if your current net worth? 

Savvy_Sue

Linton said:

A house with a mortgage cannot be passed on to the children. The mortgage as a debt of the deceased must be paid-off before the assets can be distributed. So either the money comes from the estate or someone else gets a mortgage in their own names. If neither is possible the house would need to be sold.

An alternative is to have life insurance on the mortgagees, which will pay off the mortgage on death. Unless there's some other plan to cover mortgage payments, it seems eminently sensible...

Linton said:

The appropriate person for advice would be a solicitor.

Agreed.

WorkingFamilyMan

Linton said:

A house with a mortgage cannot be passed on to the children. The mortgage as a debt of the deceased must be paid-off before the assets can be distributed. So either the money comes from the estate or someone else gets a mortgage in their own names. If neither is possible the house would need to be sold.

Trusts may possibly be appropriate once the mortgage has been paid but that very much depends on the circumstances.

The appropriate person for advice would be a solicitor.

Thank you. How does "someone else get" their own mortgage? Will this involve stamp duty etc.? Could they then change the title deeds to their own name if the Will names them as a beneficiary?

WorkingFamilyMan

Savvy_Sue said:

Linton said:

A house with a mortgage cannot be passed on to the children. The mortgage as a debt of the deceased must be paid-off before the assets can be distributed. So either the money comes from the estate or someone else gets a mortgage in their own names. If neither is possible the house would need to be sold.

An alternative is to have life insurance on the mortgagees, which will pay off the mortgage on death. Unless there's some other plan to cover mortgage payments, it seems eminently sensible...

Linton said:

The appropriate person for advice would be a solicitor.

Agreed.

Yes there is insurance in place to cover the mortgage

WorkingFamilyMan

Keep_pedalling said:

Trusts are not a a magic bullet to avoid tax and can actually have the opposite effect than intended.

Best to start with the basics

What is your current marital status?

Do you own any property other than your own home?

What if your current net worth? 

Married

Yes residence and a B2L both on mortgage (life insurance in place and will cover the mortgage of the home)

Net worth probably at the top end of six figures

Keep_pedalling

WorkingFamilyMan said:

Linton said:

A house with a mortgage cannot be passed on to the children. The mortgage as a debt of the deceased must be paid-off before the assets can be distributed. So either the money comes from the estate or someone else gets a mortgage in their own names. If neither is possible the house would need to be sold.

Trusts may possibly be appropriate once the mortgage has been paid but that very much depends on the circumstances.

The appropriate person for advice would be a solicitor.

Thank you. How does "someone else get" their own mortgage? Will this involve stamp duty etc.? Could they then change the title deeds to their own name if the Will names them as a beneficiary?

This makes little sense, What are you trying to achieve here?

Linton

WorkingFamilyMan said:

Linton said:

A house with a mortgage cannot be passed on to the children. The mortgage as a debt of the deceased must be paid-off before the assets can be distributed. So either the money comes from the estate or someone else gets a mortgage in their own names. If neither is possible the house would need to be sold.

Trusts may possibly be appropriate once the mortgage has been paid but that very much depends on the circumstances.

The appropriate person for advice would be a solicitor.

Thank you. How does "someone else get" their own mortgage? Will this involve stamp duty etc.? Could they then change the title deeds to their own name if the Will names them as a beneficiary?

I was thinking more generally, though did not express the thought clearly..  If someone somehow could pay off the mortgage, even the children themselves,  the house would not need to be sold by the estate.

WorkingFamilyMan

Keep_pedalling said:

WorkingFamilyMan said:

Linton said:

A house with a mortgage cannot be passed on to the children. The mortgage as a debt of the deceased must be paid-off before the assets can be distributed. So either the money comes from the estate or someone else gets a mortgage in their own names. If neither is possible the house would need to be sold.

Trusts may possibly be appropriate once the mortgage has been paid but that very much depends on the circumstances.

The appropriate person for advice would be a solicitor.

Thank you. How does "someone else get" their own mortgage? Will this involve stamp duty etc.? Could they then change the title deeds to their own name if the Will names them as a beneficiary?

This makes little sense, What are you trying to achieve here?

I am sorry about my ignorance on these things.

So I understand the scenario where life insurance will cover the remaining mortgage. Loved ones can benefit it via a Will rather than leave it to law to sort it out.

But what about a house with a mortgage (without insurance) - can a potential beneficiary take a new mortgage and "inherit" the house (will they be subject to stamp duty etc,)? Can the house be left in the Will?

I hope the above makes sense?

Keep_pedalling

WorkingFamilyMan said:

Keep_pedalling said:

WorkingFamilyMan said:

Linton said:

A house with a mortgage cannot be passed on to the children. The mortgage as a debt of the deceased must be paid-off before the assets can be distributed. So either the money comes from the estate or someone else gets a mortgage in their own names. If neither is possible the house would need to be sold.

Trusts may possibly be appropriate once the mortgage has been paid but that very much depends on the circumstances.

The appropriate person for advice would be a solicitor.

Thank you. How does "someone else get" their own mortgage? Will this involve stamp duty etc.? Could they then change the title deeds to their own name if the Will names them as a beneficiary?

This makes little sense, What are you trying to achieve here?

I am sorry about my ignorance on these things.

So I understand the scenario where life insurance will cover the remaining mortgage. Loved ones can benefit it via a Will rather than leave it to law to sort it out.

But what about a house with a mortgage (without insurance) - can a potential beneficiary take a new mortgage and "inherit" the house (will they be subject to stamp duty etc,)? Can the house be left in the Will?

I hope the above makes sense?

If you die with a mortgage on your property your beneficiary will have the choice of selling it, paying off the mortgage and keeping the remaining cash, or they could pay off the mortgage with cash or a mortgage of their own. If we are talking about a sole beneficiary there would be no stamp duty as they are not purchasing a house they would be paying of debt owed by the estate. 

If there are more beneficiaries and one wanted to buy the others out stamp duty could apply.