legal advice - re will and estate

[sparkyhx]

NOT SURE IF THIS IS IN THE RIGHT PLACE

My step dad has died leaving everything to myself and sister in the will.

Myself and my sister are joint executors as well as beneficiaries.

Some years ago my step dad set up an interest free loan for my sister some for 60k so she could buy a house. There is a charge on the house in my step dads name. The 'loan agreement' does not say what happens in the event of his death only that it remains interest free while she keeps up payments.

She has been making regular payments every month for the past 8 years or so.

There is nothing in the will about this either.


My assumption is that the outstanding loan amount forms part of the estate and as such technically part of the 50/50 split. Is this true? or does the debt to him die with him?

I'm not going to go into detail, but basically there is minimal amount of other assets, I have no intention of making my sister pay the outstanding balance of the loan (assuming the loan does form part of the estate).

However as a consequence, I am proposing the remainder of the assets go to the grand kids (2x mine and 2x my sisters) and me. With my sister benefiting from not paying off the loan anymore. this position obviously predicates on the outstanding loan amount being part of the estate - if its not, then obviously I/we have to split the remaining (very little) assets between myself and my sister.


So to summarise
- does the loan die with my step dad or is it part of his assets?
- assuming above I don't think its unreasonable for me to request the remainder of the estate based on
- she doesn't have to pay back the loan saving £xxx per month
- the outstanding balance on the loan is 4x what is left in the remainder of the estate
- I am in effect funding her kids getting some of the estate

Any advice? - i've tried a search on google but only find a definitive answer based in US (outstanding loan is part of the estate), I can't seem to find anything relating to UK law.


sorry about the long post

Cheers

[James P]

The balance outstanding on the loan is an asset of the estate. The balance can be part of her shRe of the inheritance so you don't necessarily have to disturb her property - effectively she has already had part of her share.

[flemke]

The outstanding loan is an asset of the estate, the same as a gilt (loan to the UK Treasury) would be an asset of the estate.

Similarly, if the deceased had owed money at the time of his death, whether that be a mortgage, credit card debt or personal borrowing from his child, the estate would be obliged to make good that debt before anyone could inherit what might be left.

If the size of the loan is 80% of the total estate, and the estate were to be split 50-50 between you and your sister, then - for example - your sister could take her 50% of the estate by extinguishing 62.5% of the outstanding loan, whilst you would be owed the remaining 37.5% of the loan plus you would receive the other remaining 20% of the estate. That way your dad's wishes for a 50-50 split would be fulfilled, whilst your sister's mortgage payments would fall to less than half of what they had been.

If you wanted to be more generous than that, you might agree to charge your sister no interest on the loan, which would be less extreme than giving all the principal to her but would still be a gesture of brotherly love.

[Jonsv8]

As others have said re the loan. One would hope she'd also be reasonable about it.

If the will leaves you and your sister 50% each then that's how it needs to be split (taking into account the loan as mentioned). If you decide to give 'part of the estate' to children/others, it's actually you (or you and sister) that is gifting and its not inheritance directly from the estate even if it feels like it to you.. Rules on personal gifts and survival will therefore apply. It's a lovely idea though, just technically different and only really matters if the sums are large. (At least that's how it was explained to me a few years back)

[R0G]

I am not a legal expert but common sense would be to convert all the estate into cash

What ever is left on the loan forms part of the 50% for the other party

[TooMany2cvs]

R0G said:

I am not a legal expert but common sense would be to convert all the estate into cash

What ever is left on the loan forms part of the 50% for the other party

Lots of good advice above.

But, at the end of the day, the only people to whom this has the slightest importance are your sister and you. So... Be adult about it, and decide what to do between yourselves.

[sparkyhx]

Thanks for the replies. So the loan is part of the estate.

I'm in a difficult position.

My sister is NOT in a position to reply the loan. She can barely afford the payments as it is/was. There is NO WAY I am going to get her to pay it back to the estate and then split 50/50. Therefore financially she will be £200 a month better off simply due to not paying it back.

But I still feel guilty saying I want to take the remaining Liquid assets, cos at the end of the day I don't need it as much as her.

The back story to this is that his assets originally came from my mums estate. He's pretty much pissed £100k up against a wall in a pub, and paid off credit card bill of my sister over the past 8 years. So I feel that at the end of the day I should see something from mum, and that my sister has already seen far more than her 'fair share'...................but I still doesn't stop me feeling guilty.

Ho hum, I suppose at the end of the day cancelling the debt is being more than generous.

[TooMany2cvs]

sparkyhx said:

So the loan is part of the estate.

Of course. Otherwise, everybody whose estate was large enough to attract IHT would say "Oh, and I'm lending you everything" on their deathbed.

sparkyhx said:

I'm in a difficult position.

My sister is NOT in a position to reply the loan. She can barely afford the payments as it is/was. There is NO WAY I am going to get her to pay it back to the estate and then split 50/50.

She doesn't have to ACTUALLY pay it back. It's all on paper.

£190k (random number) in cash/assets + £60k loan = £250k total / 2 = £125k each. Her share is - 60k outstanding loan, so she gets £65k cash/assets, you get £125k.

sparkyhx said:

But I still feel guilty saying I want to take the remaining Liquid assets, cos at the end of the day I don't need it as much as her.

Like I said. You two are the ONLY people involved here. Be adult about it amongst yourselves.

[sugerbear]

- You get your sister to re-mortgage over a longer term (assuming that the loan will be halved) so she can afford the repayments
- You agree to wipe the loan on condition that you take a legal charge over a % of the property that represents the value of the loan/asset to you which when the property is sold will revert to you.

[sparkyhx]

sugerbear said:

- You get your sister to re-mortgage over a longer term (assuming that the loan will be halved) so she can afford the repayments
- You agree to wipe the loan on condition that you take a legal charge over a % of the property that represents the value of the loan/asset to you which when the property is sold will revert to you.

she can't afford to buy out now really.

e.g. she still owes 40k - rest of estate is 10k - so in theory she should repay 40k and then get back 25k. so she would be 15k further in debt than she is now.

good point about the charge for a later date - hadn't thought of that.
I had thought about her paying the existing loan to me until she has paid the £15k difference, but I couldn't do that and take the cash as well, I'd sooner write it off.

[Cyberprog]

Essentially the 50/50 split your father wanted comes after the estate is settled.

So as others have said, if the estate is worth 200k including the remainder of the 60k loan, then you would each get 100k a piece. Her 100k would nominally be made up of the remainder of the 60k loan, the rest would be paid to her.

You've not told us what the estate is actually worth - so assuming it's worthless and it's only asset is that loan, then you would need to look at the outstanding balance and write off 50% of it, with the remaining 50% being your share of the estate. You may wish to offer her a loan, on similar terms, but with a lower and more manageable repayment with a similar charge on the property, or you could require her to obtain a mortgage to pay back the sum you are owed to the estate. The choice is yours.

If you can give more info as to what the estate is worth, we can give you a better idea. There may be IHT to pay on the proceeds of the estate also if you've got a decent sum in there.

[Jonsv8]

sparkyhx said:

she can't afford to buy out now really.

e.g. she still owes 40k - rest of estate is 10k - so in theory she should repay 40k and then get back 25k. so she would be 15k further in debt than she is now.

good point about the charge for a later date - hadn't thought of that.
I had thought about her paying the existing loan to me until she has paid the £15k difference, but I couldn't do that and take the cash as well, I'd sooner write it off.

I think your choice of words is interesting, I'd say she was 25k better off than she is now not 15k in further debt. If her debt was scrubbed and you took the 10k you've effectively gifted 15k which I think would be more than generous of you.

I don't think we can help much more as the decision is yours really.

[walm]

sparkyhx said:

e.g. she still owes 40k - rest of estate is 10k - so in theory she should repay 40k and then get back 25k. so she would be 15k further in debt than she is now.

100% wrong.
She is 25k better off (as she has to be - she gets £50k/2 at the very least).

You appear to be suggesting that you take £10k in cash and write-off the £40k (so she stops making payments).
Effectively you are giving her £15k.

She is £25k better off but the loan hasn't disappeared - a smaller part of the total has transferred to her owing YOU.

It's not clear exactly what you meant about her making payments on the loan (since it is interest free it obviously has no interest payment needed).
Perhaps you mean that she is paying off the loan at a rate of c.£2,500 a year?? (£60k-£40k = £20k paid off over 8 years = £2.5k per annum).

Since she isn't in a great position to refi - just either reduce her payments pro-rata...
So she has 16 years left on the loan (16x2.5=40) and so needs to pay just c.£1k per annum TO YOU to cover the £15k she owes you (instead of your step dad).
Or insist that she continue to pay £2.5k per annum but point out that she will be done paying in 6 years not 16.

Both of those are entirely fair, you both get the £25k you are due - eventually.
You are missing out on some interest but that's it.
However, you seem to want her to feel better off following your step-dad's passing, which is gallant.

So, more generous is the charge on the property idea.
Insist that she gives you £15k when she sells but and again forgive her any interest.

[sparkyhx]

cheers everyone. the amounts are closer to the example I gave, so half the estate doesn't pay off the remaining loan, she would be left having to get another laon/remortgage albeit less the fact she is no longer paying the original amount.

my own generosity at the end of the day is down to me. I now know I can force the issue of 50/50 or I can write off the debt and take the liquid assets. And then there are the points in between the two extremes and also the various 50/50 options - remortgage, personal loan, charge on sale etc.

But at least I have cleared up whether writing off the loan is 'generous' or what would have happened anyway.

Edited by sparkyhx on Tuesday 21st April 14:19

[Devil2575]

walm said:

sparkyhx said:

e.g. she still owes 40k - rest of estate is 10k - so in theory she should repay 40k and then get back 25k. so she would be 15k further in debt than she is now.

100% wrong.
She is 25k better off (as she has to be - she gets £50k/2 at the very least).

You appear to be suggesting that you take £10k in cash and write-off the £40k (so she stops making payments).
Effectively you are giving her £15k.

She is £25k better off but the loan hasn't disappeared - a smaller part of the total has transferred to her owing YOU.

It's not clear exactly what you meant about her making payments on the loan (since it is interest free it obviously has no interest payment needed).
Perhaps you mean that she is paying off the loan at a rate of c.£2,500 a year?? (£60k-£40k = £20k paid off over 8 years = £2.5k per annum).

Since she isn't in a great position to refi - just either reduce her payments pro-rata...
So she has 16 years left on the loan (16x2.5=40) and so needs to pay just c.£1k per annum TO YOU to cover the £15k she owes you (instead of your step dad).
Or insist that she continue to pay £2.5k per annum but point out that she will be done paying in 6 years not 16.

Both of those are entirely fair, you both get the £25k you are due - eventually.
You are missing out on some interest but that's it.
However, you seem to want her to feel better off following your step-dad's passing, which is gallant.

So, more generous is the charge on the property idea.
Insist that she gives you £15k when she sells but and again forgive her any interest.

I think it interesting to see how some people view money and inheritance.

I'd simply write it off. Had the father survived to see the debt repayed in full how much of that cash would then be present in the estate? Given the rest of the estate is only worth £10k I suspect it wouldn't have been worth any more.

I think it's actually quite disturbing that people are suggesting that the OP now has a stake in is sisters house.

[walm]

Devil2575 said:

I think it's actually quite disturbing that people are suggesting that the OP now has a stake in is sisters house.

So you would just give your sister £15k?

What the step dad would have done with the repayments if he had remained alive isn't really relevant is it?
Presumably he was happy to take them for the next 16 years. i.e. he did actually want the money back.

[Devil2575]

walm said:

Devil2575 said:

I think it's actually quite disturbing that people are suggesting that the OP now has a stake in is sisters house.

So you would just give your sister £15k?

What the step dad would have done with the repayments if he had remained alive isn't really relevant is it?
Presumably he was happy to take them for the next 16 years. i.e. he did actually want the money back.

I don't think of it as giving her 15k.

I wouldn't see the money that she still owed her father as part of his estate. I'm sure in a purely legal sense it is and if this was a business situation I would be looking to recover the money but it isn't, it's family.

[walm]

Devil2575 said:

I don't think of it as giving her 15k.

I wouldn't see the money that she still owed her father as part of his estate.

Just because you don't think of it like that, it doesn't change the facts.
The OP would be £15k worse off than he should be and his sister better off.

What if the estate was £25k in cash and a £25k debt???
Should the OP write off the debt and then give her a cheque for £15k and keep just £10k for himself?

What if the step dad actually OWED the OP £30k but had £80k in cash.
Should the OP just forget about it???

You seem to be assuming that the step dad would have burned through the money.
That is very possibly rubbish.
You have no idea whether his net asset value of £50k was going up or down.
And either way it's irrelevant.
The step dad wanted the estate split 50:50 and the debt is an asset of the estate.
If he wanted the debt written off then he could have easily stipulated that.

Now admittedly perhaps the step dad didn't really understand that the debt was part of the estate and really just expected £5k to go to each of his kids.
That is only something the OP can tell.

[Devil2575]

walm said:

Just because you don't think of it like that, it doesn't change the facts.
The OP would be £15k worse off than he should be and his sister better off.

What if the estate was £25k in cash and a £25k debt???
Should the OP write off the debt and then give her a cheque for £15k and keep just £10k for himself?

What if the step dad actually OWED the OP £30k but had £80k in cash.
Should the OP just forget about it???

You seem to be assuming that the step dad would have burned through the money.
That is very possibly rubbish.
You have no idea whether his net asset value of £50k was going up or down.
And either way it's irrelevant.
The step dad wanted the estate split 50:50 and the debt is an asset of the estate.
If he wanted the debt written off then he could have easily stipulated that.

Now admittedly perhaps the step dad didn't really understand that the debt was part of the estate and really just expected £5k to go to each of his kids.
That is only something the OP can tell.

Somethings in life are more important than money.

[sparkyhx]

walm said:

Devil2575 said:

Now admittedly perhaps the step dad didn't really understand that the debt was part of the estate and really just expected £5k to go to each of his kids.
That is only something the OP can tell.

I strongly suspect this, cos at various times he has said a number of things about his will which have subsequently proved to be completely wrong. It is the worst will I have come across. It's on one page and states me and sister beneficiaries thats it. At various time he has said, grand kids get x,y, my wife was executor at one stage (not) - his will said the debt dies with him (not), the will says where he wants to be buried (he's from Isle of Man) nothing, nada, zip, diddly squat. He'd had Cancer for the past 6 years the will pre dates that so he's had plenty of time. I have found a solicitors letter warning him the mess he is leaving with the will and the loan. He had a loan agreement drawn up - nothing about his death.

he's basically left a bit of a mess.

Whilst I'm sympathetic to the 'debt dies with me' statement he has allegedly said, I am faced with getting £5k out of my mums estate of £180k. Which was the house he never paid for.

My sister got the loan, about 10k of credit card bills paid for her (spending money she didn't have on Handbags and Pandora charms) taken on holiday and other stuff.

The rest (circa £200,000 including he pension & loan replayments) has been gone thru in 8 years. his fixed monthly outgoings were £350 per month(rent, bills). He was spending 21k a year on food, clothing, annual trips to IOM for the TT, and beer (mainly beer - no fecking wonder the landlady was upset when he died). TBH if he had lived another year he would have had nothing left except his pension.

I don't want to sound bitter, but this is also driving some of my feelings. Thats why I wanted the basic facts at first, re the loan, not muddied with all the other emotional crap.

I'm trying to work out whether my feelings are taking over from facts.



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