Loan to parents - covering myself
Discussion
Hello chaps,
A bit of advice please... I've offered the parents a bridging loan to help them move house (for various reasons they can't sell their old house on the same day as they buy the new one). I'm lucky to be in a position where I can help them, after years of them helping me.
The only risk is what happens if they both get hit by a bus before the old house is sold. Is there a way I can protect my money from the (inheritance) tax man and other beneficiaries of their will?
Thanks, Rob.
A bit of advice please... I've offered the parents a bridging loan to help them move house (for various reasons they can't sell their old house on the same day as they buy the new one). I'm lucky to be in a position where I can help them, after years of them helping me.
The only risk is what happens if they both get hit by a bus before the old house is sold. Is there a way I can protect my money from the (inheritance) tax man and other beneficiaries of their will?
Thanks, Rob.
But be a little bit careful with your loan, which I am sure you have been. In the circumstances you are protecting against (the untimely demise of the parents), are there comfortably enough assets in the estate to cover the liabilities?
You wouldn't want to be arguing that your loan got repaid in front of a mortgage or a bill from HMRC for example.
Bert
You wouldn't want to be arguing that your loan got repaid in front of a mortgage or a bill from HMRC for example.
Bert
I had exactly this. I lent my mother ( a lot ) of money for a property rebuild.
I had simple documentation to cover me in case she died in the middle of it.
She did.
When competing the iht forms I enclosed a covering letter saying the large loans were an obvious source of enquiry. This is what happened and the loan agreement are attached.
They raised no enquiries.
I had simple documentation to cover me in case she died in the middle of it.
She did.
When competing the iht forms I enclosed a covering letter saying the large loans were an obvious source of enquiry. This is what happened and the loan agreement are attached.
They raised no enquiries.
The simplest way of documenting it is by way of a promissory note, which is a bit like a cheque. The following is an example:
PROMISSORY NOTE
Date 27 March 2021
We [Dad's full name] and [Mum's full name] both of [address] hereby acknowledge receipt of the sum of [£amount of loan] from [your name and address] and we jointly and severally promise to pay to [your name] the sum of [£amount of loan] on demand.
SIGNED by the said [Dad's name] in the presence of
SIGNED by the said [Mum's name] in the presence of
It just needs completing, then it should be signed by them in the presence of an independent witness who should countersign and print their name and address under each signature.
This draft makes the sum repayable on demand, which I think is usually better, but you can insert a specific date if you prefer.
PROMISSORY NOTE
Date 27 March 2021
We [Dad's full name] and [Mum's full name] both of [address] hereby acknowledge receipt of the sum of [£amount of loan] from [your name and address] and we jointly and severally promise to pay to [your name] the sum of [£amount of loan] on demand.
SIGNED by the said [Dad's name] in the presence of
SIGNED by the said [Mum's name] in the presence of
It just needs completing, then it should be signed by them in the presence of an independent witness who should countersign and print their name and address under each signature.
This draft makes the sum repayable on demand, which I think is usually better, but you can insert a specific date if you prefer.
An additional thought: In English law, if a contract is to be enforceable the parties must intend to create legal relations. Such an intent will easily be inferred in a business setting. When close relations make an agreement, it may be assumed that they did not intend to create legal relations. For example, if I ask my brother to lend me a tenner, and he does, ordinarily he won't be able to sue me if I don't repay then tenner.
The existence of a document of a formal kind may by itself be enough to show that in fact the parties did intend to create legal relations, but those who like a belt and braces approach could add words to make such intent express.
As noted above, you will not be a secured creditor, absent agreeing some form of security, but you may be prepared to take that risk. If you got into the reams of agreeing security, and particularly if your parents are elderly, you might also want to suggest that they take legal advice before agreeing anything and record that they did so The reason for that would be to meet any argument by another creditor of their estate that your agreement with your parents was procured by undue influence.
Perhaps ninety nine times out of a hundred you could do the whole thing on an informal basis without any documents, but there's still that one time in a hundred things go wrong.
The existence of a document of a formal kind may by itself be enough to show that in fact the parties did intend to create legal relations, but those who like a belt and braces approach could add words to make such intent express.
As noted above, you will not be a secured creditor, absent agreeing some form of security, but you may be prepared to take that risk. If you got into the reams of agreeing security, and particularly if your parents are elderly, you might also want to suggest that they take legal advice before agreeing anything and record that they did so The reason for that would be to meet any argument by another creditor of their estate that your agreement with your parents was procured by undue influence.
Perhaps ninety nine times out of a hundred you could do the whole thing on an informal basis without any documents, but there's still that one time in a hundred things go wrong.
Breadvan72 said:
An additional thought: In English law, if a contract is to be enforceable the parties must intend to create legal relations. Such an intent will easily be inferred in a business setting. When close relations make an agreement, it may be assumed that they did not intend to create legal relations. For example, if I ask my brother to lend me a tenner, and he does, ordinarily he won't be able to sue me if I don't repay then tenner.
The existence of a document of a formal kind may by itself be enough to show that in fact the parties did intend to create legal relations, but those who like a belt and braces approach could add words to make such intent express.
As noted above, you will not be a secured creditor, absent agreeing some form of security, but you may be prepared to take that risk. If you got into the reams of agreeing security, and particularly if your parents are elderly, you might also want to suggest that they take legal advice before agreeing anything and record that they did so The reason for that would be to meet any argument by another creditor of their estate that your agreement with your parents was procured by undue influence.
Perhaps ninety nine times out of a hundred you could do the whole thing on an informal basis without any documents, but there's still that one time in a hundred things go wrong.
Any reason why a sentence cannot be added to the promissory note: "We obtained independent legal advice before entering into this agreement"?The existence of a document of a formal kind may by itself be enough to show that in fact the parties did intend to create legal relations, but those who like a belt and braces approach could add words to make such intent express.
As noted above, you will not be a secured creditor, absent agreeing some form of security, but you may be prepared to take that risk. If you got into the reams of agreeing security, and particularly if your parents are elderly, you might also want to suggest that they take legal advice before agreeing anything and record that they did so The reason for that would be to meet any argument by another creditor of their estate that your agreement with your parents was procured by undue influence.
Perhaps ninety nine times out of a hundred you could do the whole thing on an informal basis without any documents, but there's still that one time in a hundred things go wrong.
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