Wills and repayment after death of loans to children

dontwanttodie

Our son has a documented loan from us which he is paying over 35 years by STO. We will both be dead before it is repaid, and all our 3 children will inherit equally. The outstanding loan amount will be the major part of the inheritance and our son wants to continue with the instalments as agreed but also have any cash inheritance he is due. Is the loan then owned by all 3 children allowing our son to repay the instalments to himself as well as to his sisters? Would that be considered fair or would it be more correct for him to theoretically the amount of the loan by his share of it and the continue, over a reduced number of years, to repay the half the original instalment amounts to each sister?

Emmia

dontwanttodie said:

Our son has a documented loan from us which he is paying over 35 years by STO. We will both be dead before it is repaid, and all our 3 children will inherit equally. The outstanding loan amount will be the major part of the inheritance and our son wants to continue with the instalments as agreed but also have any cash inheritance he is due. Is the loan then owned by all 3 children allowing our son to repay the instalments to himself as well as to his sisters? Would that be considered fair or would it be more correct for him to theoretically the amount of the loan by his share of it and the continue, over a reduced number of years, to repay the half the original instalment amounts to each sister?

Surely it would be easier to reduce your son's inheritance to account for the fact he's essentially received it early in the form of a loan?

He could stop repaying his siblings after you're gone, and if I was one of the siblings I'd see it as unfair, if he got 1/3 on the understanding he'd carry on the payments - you're essentially asking his siblings to receive part of any inheritance in dribs and drabs.

FlorayG

Unless the siblings are VERY close that's never going to work. Is the amount of the loan more than 1/3 the value of the estate? If so then you divide the available estate by three, give 2/3 to siblings, reduce the loan amount owed by the 1/3 value, give 1/2 of that 1/3 to each of the other two siblings (because if you hadn't loaned it, it would be available for them). Then the loanee has to pay back the rest by an arrangement decided between you

DE_612183

The "loan" will be owned by the estate - I would assume that the executors would need to make the decision, but unless the loan passes to the other two and they agree to it I don't see how this can work.

As others have said - surely he just pays off the loan out of his share of the inheritance - could you supply "rough" figures - it may be more helpful - a 35 year loan sounds like a lot of money - do you have any other assets?

Keep_pedalling

That is simply not on. Is the lone in excess of 1/3 of your net worth? I would be making sure this is well documented in your wills and I would not appoint him as one of your executors. I would also not make him one of your attorneys as far as LPAs go.

dontwanttodie

DE_612183 said:

The "loan" will be owned by the estate - I would assume that the executors would need to make the decision, but unless the loan passes to the other two and they agree to it I don't see how this can work.

As others have said - surely he just pays off the loan out of his share of the inheritance - could you supply "rough" figures - it may be more helpful - a 35 year loan sounds like a lot of money - do you have any other assets?

Unfortunately, unless we win the lottery, the loan amounts to more than we have in other assets. From my calculations there will be a certain amount in savings as liquid assets which can be divided into 3 but the larger amount is in the loan.
When we originally made the loan there was an understanding between everybody that when we died the the loan would continue to be paid by the same instalment amount until the end of the term but my personal understanding was that the instalments would be divided between the other 2 siblings. However as we are about to set up our POAs and update our wills I had a discussion with our son who had assumed he would be dividing the loan repayments into 3 thus paying a lower amount to the siblings.

I haven't asked the siblings as yet but I think they would have made the same assumption as me.

It's really all about fairness and I don't want to cause a rift between the children.

We are not thinking of dying just yet but we are of that age!

The remainder of the loan at the moment is just under £400,000.

FlorayG

Oh I understand now
so for simplicity imagine the loan is £300k still owing when you die
When you die, if he can pay back the entire amount to the estate the estate is then divided in three and he gets £100k as his 1/3 share
So his argument is that when you die, he only owes his siblings £200k and he gets nothing from the estate. I think I agree with that if there's no interest to be added

DE_612183

I think he is correct in his thinking.

If the loan had not been made your estate would be £400,000 ( for example ) divided three ways is £133,333 - so his debt is 266,666 not 400,000.

If the term remains the same then the monthly amount is less.

However I would suspect the best way to do this is get him to carry on making the payments - although half to each sibling but over a shorter period of time.

I'd also still get whatever his share is of the liquid assets paid against the outstanding loan - again in order to reduce the timescale of the loan.

I presume if the loan still has over 30 years left - if the worst happened now he'd still be looking at repaying for another 20 years even with the reduction.

Another point to make is that the debt will be passed to the siblings - they need to make note of this in their will - otherwise an executor may come asking him for the outstanding balance to be paid into her estate - and perhaps anyone else further down the chain.

Keep_pedalling

OK, let’s image rear both of you get run over by a bus tomorrow and that you have £200k in assets making your total estate value £600k, so each sibling should get £200k. Each of the non debt children get £100k each and the other owes each of them £100k and gets no cash. That to me is the only fair way to do it and your wills should reflect that. 

Is this loan secured? If it was given to him to buy a property you should have a charge registered against it to protect the loan in case he goes bankrupt or gets divorced.

Do you own a home? If not your estate may have an IHT liability if you are unable to use the residential NRBs.

dontwanttodie

FlorayG said:

Unless the siblings are VERY close that's never going to work. Is the amount of the loan more than 1/3 the value of the estate? If so then you divide the available estate by three, give 2/3 to siblings, reduce the loan amount owed by the 1/3 value, give 1/2 of that 1/3 to each of the other two siblings (because if you hadn't loaned it, it would be available for them). Then the loanee has to pay back the rest by an arrangement decided between you

That's pretty close to what I was planning with possibly the liquid assets being paid out to all 3 and the do as you say. The loan is more than 1/2 the value of the estate but it was made at a time when it was convenient for us too.
The children are quite close but but no-one is perfect.

Keep_pedalling

dontwanttodie said:

FlorayG said:

Unless the siblings are VERY close that's never going to work. Is the amount of the loan more than 1/3 the value of the estate? If so then you divide the available estate by three, give 2/3 to siblings, reduce the loan amount owed by the 1/3 value, give 1/2 of that 1/3 to each of the other two siblings (because if you hadn't loaned it, it would be available for them). Then the loanee has to pay back the rest by an arrangement decided between you

That's pretty close to what I was planning with possibly the liquid assets being paid out to all 3 and the do as you say. The loan is more than 1/2 the value of the estate but it was made at a time when it was convenient for us too.
The children are quite close but no-one is perfect.

You have already treated one far more favourably than the others, there is no way you should compound this by increasing the debts owed to his siblings.