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Conditional Inheritance

including wills and probate
Maylix
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Conditional Inheritance

#247019

Postby Maylix » August 26th, 2019, 10:18 am

Imagine there's four adult siblings with one parent (mother)still alive.
Elder brother needs £20K to get out of a hole and asks younger sister for a short term (4 months) loan under a promissory note. Sister is not keen but is swayed by the mother who says 'If he doesn't pay you back I'll see you get it out of his inheritance when my estate gets shared out between the four of you', so she loans him the money.
She also tells the mother not to mention her assurances to the brother as the brother will just use that as an excuse not to pay her back, and she will have to wait, maybe several years before getting her money.
Assuming that the mothers estate will probably be worth £400K, and the intention under her current will is an equal 4-way split between the siblings, my question is: can the mothers will be changed to reduce the inheritance to the brother and increase to the sister if the loan hasn't been repaid by that time.
And assuming it can, does anyone see any (legal) problems with the brother not knowing about this arrangement until the will comes to be executed?

TIA
Maylix

JohnB
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Re: Conditional Inheritance

#247020

Postby JohnB » August 26th, 2019, 10:25 am

If the sister is honourable, I'd have the will changed to give her a £20k first charge before the 4-way split, without justification, and let her pass on the money to the brother, rather than try to write the complicated situation into the will text. Perhaps with an informal document explaining the situation. Discussing this with the other 2 siblings depends on their character.

I presume there is a reason why the mother can't pay the £20k now, as that would be the simplest solution, as the estate is under IHT thresholds. The niggling issue of inflation rating the £20k is probably best ignored.

(This assumes the sister is in good health and unlikely to die with 7 years herself)

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Re: Conditional Inheritance

#247026

Postby Stonge » August 26th, 2019, 10:41 am

If the sister lends the money to her brother, he will never pay it back and will come back for more later.

She should 'just say no'.

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Re: Conditional Inheritance

#247030

Postby Dod101 » August 26th, 2019, 10:58 am

Maylix wrote:Imagine there's four adult siblings with one parent (mother)still alive.
Elder brother needs £20K to get out of a hole and asks younger sister for a short term (4 months) loan under a promissory note. Sister is not keen but is swayed by the mother who says 'If he doesn't pay you back I'll see you get it out of his inheritance when my estate gets shared out between the four of you', so she loans him the money.
She also tells the mother not to mention her assurances to the brother as the brother will just use that as an excuse not to pay her back, and she will have to wait, maybe several years before getting her money.
Assuming that the mothers estate will probably be worth £400K, and the intention under her current will is an equal 4-way split between the siblings, my question is: can the mothers will be changed to reduce the inheritance to the brother and increase to the sister if the loan hasn't been repaid by that time.
And assuming it can, does anyone see any (legal) problems with the brother not knowing about this arrangement until the will comes to be executed?


If you are talking about a Deed of Variation post the death of the mother in the event that the £20,000 has not been repaid, my understanding is that this would require the agreement of all the beneficiaries. How likely is that? Otherwise is it not easier for the mother to give the £20,000 and just reduce the legacy?

Dod

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Re: Conditional Inheritance

#247037

Postby Maylix » August 26th, 2019, 11:37 am

Thanks for the input so far. To answer a few questions:

1. Not talking about a deed of variation, as that would as you say, require all beneficiaries agreement which probably would not be forthcoming. No, something in the will itself along the lines of ' ..my estate to be divided equally amongst my surviving children, unless a loan exists ......'

2. The mother does not have the £20K to loan to the son. Besides, she has already loaned the son £20K with the expectation that he wont pay it back so she will have to have her estate reclaim it after her passing (i.e. it will come out of his inheritance), but that is relatively straight forward as it a loan between her and her son so will get accounted for when her estate is administered.

3. The arrangement re. the will is just supposed to be a backstop, in case the brother does not repay the sister.

4. Yes, the brother probably will not pay back the sister and might come back for more.

Maylix

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Re: Conditional Inheritance

#247042

Postby PinkDalek » August 26th, 2019, 11:49 am

A Deed of Variation would only require the agreement of any impacted beneficiaries. Problem being, the son would, in effect, be impacted!

Option 1 looks best, if the loan is to be made, but I’d wait for someone with legal knowledge to comment further. Especially as I’ve no idea if someone’s Will can bind others regarding their own arrangements.

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Re: Conditional Inheritance

#247065

Postby genou » August 26th, 2019, 1:48 pm

Maylix wrote:
2. The mother does not have the £20K to loan to the son. Besides, she has already loaned the son £20K with the expectation that he wont pay it back so she will have to have her estate reclaim it after her passing (i.e. it will come out of his inheritance), but that is relatively straight forward as it a loan between her and her son so will get accounted for when her estate is administered.


Maylix

Sister lends 20K to mother, who lends it to son. Son then owes the estate 40k ( which will come out of his share ) and sister has a 20k claim on the estate prior to any legacies.

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Re: Conditional Inheritance

#247089

Postby Lootman » August 26th, 2019, 3:37 pm

Back in the TMF days I asked a similar question. I wanted a conditional clause in my Will although in that case it was not because of an inter-sibling loan but rather because I was giving a large gift to one son to help him buy a house and wanted that to come out of his future inheritance if I should die before having made a similar gift to the other son.

As best I recall it is possible to draft such a clause, although I don't know what the precise wording should be - Wills do not seem to ever be written in plain English, perhaps for very good reasons, or perhaps to assure income for lawyers. Don't know which.

At the time I thought of another way to achieve this. Basically you bequeath specific accounts to specific children. Then you can vary their prospective inheritances simply by moving money between those accounts, without any need to change the Will. So child A gets the contents of account A, child B gets the contents of account B, and so on.

Such an arrangement would allow for dynamic changing of the amounts each beneficiary will receive, allowing the Will maker to respond quickly to any change in circumstances. Or change in favour :D

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Re: Conditional Inheritance

#247100

Postby stewamax » August 26th, 2019, 4:16 pm

Lootman wrote:Basically you bequeath specific accounts to specific children. Then you can vary their prospective inheritances simply by moving money between those accounts, without any need to change the Will. So child A gets the contents of account A, child B gets the contents of account B, and so on. Such an arrangement would allow for dynamic changing of the amounts each beneficiary will receive, allowing the Will maker to respond quickly to any change in circumstances. Or change in favour

Very interesting and (apparently) straightforward idea, assuming that both allowances and inheritance tax can be spread in some unarguable way over several accounts.

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Re: Conditional Inheritance

#247122

Postby JohnB » August 26th, 2019, 5:13 pm

Difficult to manage if most of the estate is tied up with house equity. Also harder to run 4 different accounts and lock those account details into a Will. And all this to stop a Black Sheep getting blacker.

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Re: Conditional Inheritance

#247128

Postby Maylix » August 26th, 2019, 5:36 pm

genou wrote:
Maylix wrote:
2. The mother does not have the £20K to loan to the son. Besides, she has already loaned the son £20K with the expectation that he wont pay it back so she will have to have her estate reclaim it after her passing (i.e. it will come out of his inheritance), but that is relatively straight forward as it a loan between her and her son so will get accounted for when her estate is administered.


Maylix

Sister lends 20K to mother, who lends it to son. Son then owes the estate 40k ( which will come out of his share ) and sister has a 20k claim on the estate prior to any legacies.


Yes, that will work, but in the long term only. Ideally the brother should pay the loan back in a few months, as he has promised. Arranging it like you suggest would give him no incentive to pay back at all, leaving it to the estate to sort out at some indeterminate time in the future. That's why the sister doesn't want the brother to know about the mother's backstop.
Regards
Maylix

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Re: Conditional Inheritance

#247153

Postby Chrysalis » August 26th, 2019, 9:56 pm

People in this family need to stop enabling the brother. I appreciate the sister has already lent the money, under duress from her mother, but it really has to stop.
I predict a big falling out in the family after the mother dies. Therefore you need the simplest most bombproof solution, which I think is the first one suggested - ie the sister gets an outright £20k first, which she can give back to the brother in the unlikely event that he’s paid her back. The mother can always leave a side letter with the will explaining her actions.

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Re: Conditional Inheritance

#247161

Postby vrdiver » August 26th, 2019, 11:21 pm

Jabd2001 wrote:People in this family need to stop enabling the brother. I appreciate the sister has already lent the money, under duress from her mother, but it really has to stop.
I predict a big falling out in the family after the mother dies. Therefore you need the simplest most bombproof solution, which I think is the first one suggested - ie the sister gets an outright £20k first, which she can give back to the brother in the unlikely event that he’s paid he r back. The mother can always leave a side letter with the will explaining her actions.

The problem with that is that the £20k in favour of the sister impacts each of the other three siblings (loss of £5k each) and not just the one brother who actually owes the money, should he still owe it when the will becomes relevant.

For the will to repay the sister from the brother's share, she would need to receive £20k from his share, not from the entire pot, so an estate of £400k, split four ways would go £100k to the two uninvolved siblings, £80k to the brother and £120k to the sister who made the loan. (Somewhat different from the £115k to the sister and £95k to each of the other three).

Unfortunately, it is easy for the brother to feel like he's £40k out of pocket if he compares his inheritance with that of his sister's. Worse, since he already owes his mother's estate £20k, he will only get £60k whereas his two siblings will receive their £100k and the sister who lent him £20k gets £120k, so probably not very happy (and a good reason to get it absolutely watertight as to what the mother actually wants to happen).

The OP has not explained the background as to why he is in a financial "hole", so it's difficult to say whether the current loan will be the end of it or if more requests are to be expected, but he is rapidly consuming his inheritance and may not have yet realised.

To the question of how to recover the sister's debt via the will, perhaps this is where a solicitor would be a good investment in order to get it right, rather than have a dispute over a £60k disparity in distribution* if there is ambiguity in the wording. I'd suggest writing down (maybe with a flowchart and examples numbers) of what you want the will to achieve, then discussing with the solicitor how to make it so.)

VRD

*(£100k each, except brother owes £20k to mother, so I'm assuming the estate is actually £380k, not £400k, but is split £100k each, then brother's share reduced by £20k to repay his loan to mother, then by another £20k to repay his second loan to sister, so he gets £100-20-20=£60k, the two other siblings get £100k and lending sister gets £100k+£20k repayment=£120k, i.e. he gets £60k she gets £120k and he is aggrieved because he didn't understand the maths...)

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Re: Conditional Inheritance

#247174

Postby Chrysalis » August 27th, 2019, 7:44 am

@vrdiver you’re absolutely right of course, but I think this just proves the point. The real issue here is the brother expecting to be bailed out. This is leading to complicated inheritance issues which will add to the family’s grief, rather than solve it. The brother is of course going to resent whatever happens, since he hasn’t yet grasped the concept of standing on his own two feet. None of these contortions trying to restore fairness through a will are actually facing the real issue. Frankly, this behaviour is likely to continue until the brother has used up not only his inheritance but everyone else’s too. And what about the mother’s needs - she may need the value of her home to pay for care. It certainly shouldn’t be relied on by any of her children.

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Re: Conditional Inheritance

#247191

Postby dspp » August 27th, 2019, 9:24 am

vrdiver wrote:
Jabd2001 wrote:People in this family need to stop enabling the brother. I appreciate the sister has already lent the money, under duress from her mother, but it really has to stop.
I predict a big falling out in the family after the mother dies. Therefore you need the simplest most bombproof solution, which I think is the first one suggested - ie the sister gets an outright £20k first, which she can give back to the brother in the unlikely event that he’s paid he r back. The mother can always leave a side letter with the will explaining her actions.

The problem with that is that the £20k in favour of the sister impacts each of the other three siblings (loss of £5k each) and not just the one brother who actually owes the money, should he still owe it when the will becomes relevant.

For the will to repay the sister from the brother's share, she would need to receive £20k from his share, not from the entire pot, so an estate of £400k, split four ways would go £100k to the two uninvolved siblings, £80k to the brother and £120k to the sister who made the loan. (Somewhat different from the £115k to the sister and £95k to each of the other three).

Unfortunately, it is easy for the brother to feel like he's £40k out of pocket if he compares his inheritance with that of his sister's. Worse, since he already owes his mother's estate £20k, he will only get £60k whereas his two siblings will receive their £100k and the sister who lent him £20k gets £120k, so probably not very happy (and a good reason to get it absolutely watertight as to what the mother actually wants to happen).

The OP has not explained the background as to why he is in a financial "hole", so it's difficult to say whether the current loan will be the end of it or if more requests are to be expected, but he is rapidly consuming his inheritance and may not have yet realised.

To the question of how to recover the sister's debt via the will, perhaps this is where a solicitor would be a good investment in order to get it right, rather than have a dispute over a £60k disparity in distribution* if there is ambiguity in the wording. I'd suggest writing down (maybe with a flowchart and examples numbers) of what you want the will to achieve, then discussing with the solicitor how to make it so.)

VRD

*(£100k each, except brother owes £20k to mother, so I'm assuming the estate is actually £380k, not £400k, but is split £100k each, then brother's share reduced by £20k to repay his loan to mother, then by another £20k to repay his second loan to sister, so he gets £100-20-20=£60k, the two other siblings get £100k and lending sister gets £100k+£20k repayment=£120k, i.e. he gets £60k she gets £120k and he is aggrieved because he didn't understand the maths...)


Good point, however to simplify the will could be:

Firstly from my assets I leave:
1) I leave £40k to sister A,
2) I leave £20k to sister B, and £20k to sister C,
3) I leave £0k to brother D;
Secondly any remaining assets shall be distributed equally amongst all four, save that brother D's share shall be reduced for any unpaid loan.

- dspp

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Re: Conditional Inheritance

#247196

Postby PinkDalek » August 27th, 2019, 9:58 am

Unless I'm misunderstanding, which is probable.

dspp wrote:Good point, however to simplify the will could be:

Firstly from my assets I leave:
1) I leave £40k to sister A,
2) I leave £20k to sister B, and £20k to sister C,
3) I leave £0k to brother D;


In that situation the Brother would still owe £20k to Sister A.

Secondly any remaining assets shall be distributed equally amongst all four, save that brother D's share shall be reduced for any unpaid loan.


Not only will the Brother have received £40k less than might have been anticipated, he will still owe the earlier £20k to the Mothers' Estate.

There is also the situation where further loans may be forthcoming. That's why the OP was looking to bundle up all existing and potential future loans from Mother and/or Sister A in the Will, without being specific as to the amounts involved, if that is possible.

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Re: Conditional Inheritance

#247197

Postby dspp » August 27th, 2019, 10:12 am

PinkDalek wrote:Unless I'm misunderstanding, which is probable.

dspp wrote:Good point, however to simplify the will could be:

Firstly from my assets I leave:
1) I leave £40k to sister A,
2) I leave £20k to sister B, and £20k to sister C,
3) I leave £0k to brother D;


In that situation the Brother would still owe £20k to Sister A.

Secondly any remaining assets shall be distributed equally amongst all four, save that brother D's share shall be reduced for any unpaid loan.


Not only will the Brother have received £40k less than might have been anticipated, he will still owe the earlier £20k to the Mothers' Estate.

There is also the situation where further loans may be forthcoming. That's why the OP was looking to bundle up all existing and potential future loans from Mother and/or Sister A in the Will, without being specific as to the amounts involved, if that is possible.


In that case if I were the mother I would leave nil to the son, and then allow the daughters to make a deed of variation to sort things out as they see fit.

regards, dspp

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Re: Conditional Inheritance

#247207

Postby scrumpyjack » August 27th, 2019, 10:58 am

If the Will leaves the residue equally to the children, I can't see why it needs to be changed. The important thing is that the loan is properly documented so that it is a clear legal asset of the estate ( an amount due from the son). This asset would then have to be recovered by the executor by way of offset against the amount due to the son from his share of the residue.

If the loan is not properly documented, the executor may well find that the son disputes the loan and says it was a gift.

If it is documented then no problem.

Unfortunately if the son has not already signed a document acknowledging that it was a loan, he probably will refuse to sign such a document now.

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Re: Conditional Inheritance

#247208

Postby jfgw » August 27th, 2019, 11:02 am

Is the situation being over-complicated?

How about, "all debts between beneficiaries shall be settled out of their inheritances prior to distribution"?

This would have to be worded so as to account for different eventualities, and any loans and repayments would have to be made such that their existence could not be successfully disputed.

IANAL so do not know how feasible this would be.

Julian F. G. W.

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Re: Conditional Inheritance

#247229

Postby Watis » August 27th, 2019, 12:09 pm

Lootman wrote:
As best I recall it is possible to draft such a clause, although I don't know what the precise wording should be - Wills do not seem to ever be written in plain English, perhaps for very good reasons, or perhaps to assure income for lawyers. Don't know which.


IANAL.

But I believe that the reason wills are written in the manner that they are is because they use phrases that have been proved over the years - centuries even - to survive any future legal challenge, just as they have done in the past.

Watis


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