Loan to parents question.
Discussion
My parents are both in their 80’s. They were thinking of downsizing to a little flat to release equity in their home but there is nothing in their village and the thought of all the upheaval is simply too much for them they’ve realised. So they are staying in their 3 bed detached.
Staying will mean having maintenance done by others as it’s now too much for my dad. So to make things financially easier for them I’m thinking of loaning then some money, £50-100k, which will be repaid eventually through their will.
The question I have is twofold;
1. Is having their will reflect this all they need to do? Their estate will be effectively split evenly between my sister and I with a small amount going to grandkids so is it enough for the will to state the return of this loan and then split the rest according to the % of the will.
2. The money was part of an amount that I was going to invest for the next 10 years. Would it therefore be correct/right to include a fair rate of interest, and what should that be? Or should it be interest free? I have no idea what’s right!
I was thinking originally of just purchasing a stake in their house as a way to do this but think I’d be penanlised with additional SDLT unless it goes in my partners name. But is the loan idea the simplest solution?
Many thanks, Gary.
Staying will mean having maintenance done by others as it’s now too much for my dad. So to make things financially easier for them I’m thinking of loaning then some money, £50-100k, which will be repaid eventually through their will.
The question I have is twofold;
1. Is having their will reflect this all they need to do? Their estate will be effectively split evenly between my sister and I with a small amount going to grandkids so is it enough for the will to state the return of this loan and then split the rest according to the % of the will.
2. The money was part of an amount that I was going to invest for the next 10 years. Would it therefore be correct/right to include a fair rate of interest, and what should that be? Or should it be interest free? I have no idea what’s right!
I was thinking originally of just purchasing a stake in their house as a way to do this but think I’d be penanlised with additional SDLT unless it goes in my partners name. But is the loan idea the simplest solution?
Many thanks, Gary.
usual IANAL
so far as I am aware all debts come out of the estate before its divided (and if it matters before IHT is calculated)
Therefore in principle only a loan agreement signed by all parties is needed. Though you may wish to reflect it in the will to avoid any room for argument with other interested parties.
Ref interest, if its in the loan agreement then should be fine so long as its not seen as an IHT dodge. However if you charge it you have made a return on investment and therefore risk getting taxed on it. That may or not matter to you
so far as I am aware all debts come out of the estate before its divided (and if it matters before IHT is calculated)
Therefore in principle only a loan agreement signed by all parties is needed. Though you may wish to reflect it in the will to avoid any room for argument with other interested parties.
Ref interest, if its in the loan agreement then should be fine so long as its not seen as an IHT dodge. However if you charge it you have made a return on investment and therefore risk getting taxed on it. That may or not matter to you
Just wondering if you could do it a slightly different way, rather than loaning a block of money could you consider just paying the additional costs on a monthly basis and building up a ‘debt’ that way?
I’m thinking that you could then invest the bulk of your money as you currently intended while also removing some of the dementia risk as well as possibly not scuppering them from being able to claim State assistance due to having too much money. It might also make it a little easier to not charge interest or at least charge a lower amount.
And obviously, even though it is your money there is probably a sensible need to explain it all and have it fully approved by your fellow siblings and their spouses as that is where any long term issues could arise. I would certainly want them to participate, even if it is just a normal percentage as otherwise when the time comes to sort out the inheritance there is that all too common risk that they forget earlier agreements and the amounts not coming to them are a shock. If they have been involved in even just 10% of the monthly bills you’ve been paying then they are going to be continuously fully aware of the amounts building up and equally incentivised to have their 10% plus interest returned.
I’ve no real understanding of the IHT implications or whether not charging an interest rate might put you at risk of being classed as ‘gifting’ the money but I think that paying the bills as they come due or are needed and making sure your siblings are fully engaged in the process is possibly better than doing a lump sum, upfront and on your own.
I’m thinking that you could then invest the bulk of your money as you currently intended while also removing some of the dementia risk as well as possibly not scuppering them from being able to claim State assistance due to having too much money. It might also make it a little easier to not charge interest or at least charge a lower amount.
And obviously, even though it is your money there is probably a sensible need to explain it all and have it fully approved by your fellow siblings and their spouses as that is where any long term issues could arise. I would certainly want them to participate, even if it is just a normal percentage as otherwise when the time comes to sort out the inheritance there is that all too common risk that they forget earlier agreements and the amounts not coming to them are a shock. If they have been involved in even just 10% of the monthly bills you’ve been paying then they are going to be continuously fully aware of the amounts building up and equally incentivised to have their 10% plus interest returned.
I’ve no real understanding of the IHT implications or whether not charging an interest rate might put you at risk of being classed as ‘gifting’ the money but I think that paying the bills as they come due or are needed and making sure your siblings are fully engaged in the process is possibly better than doing a lump sum, upfront and on your own.
. I will certainly look into that as it may work out best for all of us.
Just going through an identical situation with my parents-in-law. We've decided to go for a lump sum with 0% interest as this has complete clarity, the flow of money is very traceable (micropayments building up a debt will need a lot more evidencing to HMRC), and there is no taxable benefit to us.
We're having a loan agreement drawn up by a solicitor to make sure there's no issues down the line (with other family beneficiaries as well as HMRC).
This kind of stuff can get very emotive with beneficiaries on the second death so it's important to have it out in the open and crystal clear.
We're having a loan agreement drawn up by a solicitor to make sure there's no issues down the line (with other family beneficiaries as well as HMRC).
This kind of stuff can get very emotive with beneficiaries on the second death so it's important to have it out in the open and crystal clear.
PhilboSE said:
Just going through an identical situation with my parents-in-law. We've decided to go for a lump sum with 0% interest as this has complete clarity, the flow of money is very traceable (micropayments building up a debt will need a lot more evidencing to HMRC), and there is no taxable benefit to us.
We're having a loan agreement drawn up by a solicitor to make sure there's no issues down the line (with other family beneficiaries as well as HMRC).
This kind of stuff can get very emotive with beneficiaries on the second death so it's important to have it out in the open and crystal clear.
I recall a few years back, a work colleague who loaned £250k to his in-laws so that they could stay in the family home that his wife and her sister would, in due course, inherit. He was slightly miffed when within a year the in-laws had bought a new car, gone on a lifetime cruise and then gifted £100k to the other daughter to make up for the fact that her husband didn’t earn as much as their other son in law. We're having a loan agreement drawn up by a solicitor to make sure there's no issues down the line (with other family beneficiaries as well as HMRC).
This kind of stuff can get very emotive with beneficiaries on the second death so it's important to have it out in the open and crystal clear.
It wouldn’t surprise me if he were to tell me that his in-laws had gone for an equity release deal since then either.
It’s worth remembering that it’s not always the young who are feckless.
DonkeyApple said:
PhilboSE said:
Just going through an identical situation with my parents-in-law. We've decided to go for a lump sum with 0% interest as this has complete clarity, the flow of money is very traceable (micropayments building up a debt will need a lot more evidencing to HMRC), and there is no taxable benefit to us.
We're having a loan agreement drawn up by a solicitor to make sure there's no issues down the line (with other family beneficiaries as well as HMRC).
This kind of stuff can get very emotive with beneficiaries on the second death so it's important to have it out in the open and crystal clear.
I recall a few years back, a work colleague who loaned £250k to his in-laws so that they could stay in the family home that his wife and her sister would, in due course, inherit. He was slightly miffed when within a year the in-laws had bought a new car, gone on a lifetime cruise and then gifted £100k to the other daughter to make up for the fact that her husband didn’t earn as much as their other son in law. We're having a loan agreement drawn up by a solicitor to make sure there's no issues down the line (with other family beneficiaries as well as HMRC).
This kind of stuff can get very emotive with beneficiaries on the second death so it's important to have it out in the open and crystal clear.
It wouldn’t surprise me if he were to tell me that his in-laws had gone for an equity release deal since then either.
It’s worth remembering that it’s not always the young who are feckless.
I've suffered the same fate when I've helped out friends before, just not on that scale, which is staggering.
- the borrower proudly showing off some grand purchase whilst still owing money.
- the borrower announcing that they've decided to lend some money (i.e. my money) to a friend.
Never again!
garyhun said:
Obviously I need to look into this but I assume the debt would be repaid first as it does not form part of there estate?
The repayment of the loan will be dependent on the terms. If you want to ensure you get the money back if the estate is liquidated for care home fees, you could ask them to put a charge on the house so that if it sold you get first dibs.As you can see, what starts out as a pretty simple idea can become pretty complicated very quickly.
Regarding IHT, if the amount in question is a loan, with a defined end date, IHT will never be an issue for you.
I like Donkey's idea, lend the money as and when needed. That way, you can control the situation better. And, to restate what has been said, get the arrangement documented. It doesn't need a solicitor to do it, just write it in plain English, trying to anticipate what may happen in the future.
uknick said:
garyhun said:
Obviously I need to look into this but I assume the debt would be repaid first as it does not form part of there estate?
The repayment of the loan will be dependent on the terms. If you want to ensure you get the money back if the estate is liquidated for care home fees, you could ask them to put a charge on the house so that if it sold you get first dibs.As you can see, what starts out as a pretty simple idea can become pretty complicated very quickly.
Regarding IHT, if the amount in question is a loan, with a defined end date, IHT will never be an issue for you.
I like Donkey's idea, lend the money as and when needed. That way, you can control the situation better. And, to restate what has been said, get the arrangement documented. It doesn't need a solicitor to do it, just write it in plain English, trying to anticipate what may happen in the future.
Deesee said:
Buy a bigger house, pref with an annexe move them in, Pay sister out.
If we lived closer we would, but we are almost 4 hours apart by car. I've asked my parents to come and live near/with me BUT they have such a wonderful network of friends in their village that my mum never wants to leave. My dad had a stroke about 8 months ago and he had so many offers of help to take him to hospital appointments, help them with shopping etc. that I became very aware of why they do not want to leave. Based on that, the next best thing I can do for them is to make sure they do not need to worry about their finances,garyhun said:
Deesee said:
Buy a bigger house, pref with an annexe move them in, Pay sister out.
If we lived closer we would, but we are almost 4 hours apart by car. I've asked my parents to come and live near/with me BUT they have such a wonderful network of friends in their village that my mum never wants to leave. My dad had a stroke about 8 months ago and he had so many offers of help to take him to hospital appointments, help them with shopping etc. that I became very aware of why they do not want to leave. Based on that, the next best thing I can do for them is to make sure they do not need to worry about their finances,Seriously hope all works out, my father in law (82), is 1000 miles away and won’t move, so I understand.
Andy 308GTB said:
Wow.
I've suffered the same fate when I've helped out friends before, just not on that scale, which is staggering.
- the borrower proudly showing off some grand purchase whilst still owing money.
- the borrower announcing that they've decided to lend some money (i.e. my money) to a friend.
Never again!
I've learnt my lesson too!I've suffered the same fate when I've helped out friends before, just not on that scale, which is staggering.
- the borrower proudly showing off some grand purchase whilst still owing money.
- the borrower announcing that they've decided to lend some money (i.e. my money) to a friend.
Never again!
An old university friend needed £2000 to set himself up with a deposit to rent a flat in an area where there was more work for someone with his skillset and education. Of course, he'd get a good job and pay it back in no time at all.
Wrote the cheque, met up at the pub and gave it to him. The first thing he did was buy a round of drinks and ended up hammered a couple of hours later. I drove him home.
He didn't end up with a flat (he moved back in with his parents), but he did end up with a nice new PC and a few nights on the piss
I haven't heard anything from him for a couple of years now. Never again!
The new job ended up being unloading and loading trucks at a garden centre for £5.50 an hour (or whatever minimum wage was then)
Sorry to derail the thread OP.
PhilboSE said:
We've decided to go for a lump sum with 0% interest as this has complete clarity, the flow of money is very traceable (micropayments building up a debt will need a lot more evidencing to HMRC)
To get round this somewhat could you not get them to open a new joint account which is solely use for depositing funds for maintenance etc? That way the total amount loaned is very clear, and the reference can be what the monies were for (decorate bed 1, new kitchen...). If you then got them to provide copies/photos of the receipts and saved them to a google drive it wouldn't be too much hassle. The above being said, for the micropayment method you would probably want a solicitor to draw up the paper work to agree terms - i.e. notice to draw down, max per year, use and repayment terms etc. That could also reference the bank account deposits as being the ultimate determiner of the balance of the debt.
spence1886 said:
PhilboSE said:
We've decided to go for a lump sum with 0% interest as this has complete clarity, the flow of money is very traceable (micropayments building up a debt will need a lot more evidencing to HMRC)
To get round this somewhat could you not get them to open a new joint account which is solely use for depositing funds for maintenance etc? That way the total amount loaned is very clear, and the reference can be what the monies were for (decorate bed 1, new kitchen...). If you then got them to provide copies/photos of the receipts and saved them to a google drive it wouldn't be too much hassle. The above being said, for the micropayment method you would probably want a solicitor to draw up the paper work to agree terms - i.e. notice to draw down, max per year, use and repayment terms etc. That could also reference the bank account deposits as being the ultimate determiner of the balance of the debt.
I have done this with grandparents, basically a chunk of money & a couple of £k anytime they needed. We spoke to solicitor stating this was instead of equity release & they said it was a very good idea. I have 1st call on their house as security (which would prevent equity release if he took a fancy to it). Its written in to our agreement as “base + 1.5” to protect the value of my capital but not exploit the situation I’m eyes of other family members. Solicitors recommendation for making it formal was in the event they went into care & assets were looked at. Cost was around £500 for both sides, which was also put on the initial loan value. (& yes pretty soon after he got the cash they splashed out on new armchairs!)
Edit, writing into the will to get repaid might not be the best idea depending on their future care needs, scenarios we had to think about
If one becomes ill & needs to be in care the other may need to sell Assets to fund that, eroding what is left for distribution. My grandparents are thankfully still living at home Aged 92 & think my agreement has been in place 12 years
Edit, writing into the will to get repaid might not be the best idea depending on their future care needs, scenarios we had to think about
If one becomes ill & needs to be in care the other may need to sell Assets to fund that, eroding what is left for distribution. My grandparents are thankfully still living at home Aged 92 & think my agreement has been in place 12 years
Edited by AndyAudi on Tuesday 12th March 16:08
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