Quick question about loans to family and inheritance, if I may

Yes, I’ve booked an appointment with the solicitor responsible for the will, but to help me prepare……..

If large loans/gifts are made to children/step children or grandchildren less than 7 years before death, does the debt transfer automatically to the surviving parent or is half of the value added to the deceaseds estate (I understand the difference between the two and the IHT implications)?

My Dad’s wife has convinced him to make large ‘joint’ loans to her kids/grandkids. They are not beneficiaries in his will (and are sponging, materialistic, lazy moral vacuums). When he dies, those amounts outstanding will be added to his estate and will effectively cost his own children, as he is clear that anything beyond IHT threshold will go to cancer and other charities (having lost my mum and other loved ones to C)

Can a clause be added to a will to say “all loans/gifts to X, Y are owed to my wife upon my death”.

They’re not really loans are they, they’re ‘gifts’.

Let’s accept they are loans, for the purpose of the question

I would suggest expending your energy dissuading him from this course of action.

as with doomanic, it sounds like she is trying to squirrel cash away to her kids.

Surely they can only be loans if a legal agreement, signed by both parties with a re-payment plan is in place.

Anything else is a waste of time, and as soon as this money is given it’s gone for good.

You’d need to check with solicitor but I seem to remember something about being able to make loans that are expunged on death so have no affect on IHT?

https://www.bdo.co.uk/en-gb/insights/tax/private-client/making-a-family-loan-watch-out-for-the-tax-issues

Probably what your solicitor will tell you as well.

Surely they can only be loans if a legal agreement, signed by both parties with a re-payment plan is in place.

Anything else is a waste of time, and as soon as this money is given it’s gone for good.

I hope so, as I loaned my dad 20k, so he could avoid selling some Norwich union shares during a dip which he was using to pay off a mortgage.

It’s in a joint signed letter that his estate box holds and is in my own papers saying that it’ll be repaid latest from his estate and his will says any loans made to him by his children are to be repaid from the estate before any further division is made. Surely we didn’t need a solicitor for that, and the executors (me and my sister), who are aware of the loans and provisions, can honour that without concern?

Sounds like the OP’s situation is far more likely to be argued….

Doominac- too late, already done?

Dickyboy – he won’t live the 7 years required.

TiRed – thanks, I’d read that and similar, but doesn’t answer whether half the loan stays owing to the estate, or all becomes owed to his wife.

The amount would be owed to the estate,  and as a result subject to consideration in probate.

Highly doubtful you would get away with trying to avoid paying tax on it

Not trying to avoid tax, as everything above the threshold is going to charity. I’m trying to avoid debts going unpaid (by undeserving spongers), reducing the inheritance going to my siblings. It’s a matter of fairness. Dad’s will benefits his own children, and also his wife to a level that she can take care of her own. This skews that very unfairly.

if he add the below line

“all loans/gifts to X, Y are owed to my wife upon my death”.

and loans, say £50k to step kid.

he dies, and the step kid owes the wife £50k. He has effectively gifted the wife £50k, which I think might be ok for IHT purposes, but has still reduced the inheritance available to you by £50k.

What are you actually trying to achieve?

My Dad’s wife has convinced him to make large ‘joint’ loans to her kids/grandkids.

I think he needs proper legal advice.  It might be possible for the debt to be treated like property, boats, bank accounts? etc where the asset is held jointly, and on the death of either Mr or Mrs Smith passes to the other outside of the estate – this needs to be done right – if each own 50% of the asset that becomes part of the estate but if each own 100% jointly then it is not.  That said HMRC are usually pretty clever at spotting loophole exploitation (and big charity lawyers don’t like their share in wills being diluted either!) so I’d have thought they might question if the funds were really joint.

If he loaned the money and is aware that he may pass before the debt is repaid is that not then his choice? Has his wife tricked him or is he comfortable with his decision?

Or do you feel he does not have the mental capacity to understand what has happened (and i in no way mean this as an insult)

5lab – He’s basically set the will up to share everything up to IHT threshold between his 6 kids. His wife gets house, car etc plus a figure equal to the total sum his kids get. She can then sort her own kids out. The rest, he really wants to go to charity. She is already well looked after with annuity and ISA (though she’s probably emptied this to her scroungers kids).

He has effectively gifted the wife £50k, which I think might be ok for IHT purposes

this is what I’m hoping

but has still reduced the inheritance available to you by £50k

Would have gone to charity, not us. If his wife wishes to disregard his wishes about charitable giving, that would be up to her. For context, she has cancer and is having chemo and her kids, to my knowledge, haven’t been in touch for weeks and have offered no help to look after a dependent, immobile 90 yr old (my Dad). We’re only to happy to look after him and luckily are near enough to share his care.

What are you actually trying to achieve?

As executor, I’m trying to achieve what his will wishes – for the loans/gifts/scrounging not to reduce his kids inheritance or his charity giving.

“all loans/gifts to X, Y are owed to my wife upon my death”.

But his wife will surely then just change her will and give it back to them at a future point or write them off. He’s wanting the money to go back to his dad’s side of the family.

Reading between the the damage has been done and the money given without any agreements in place. It’s hard to back-track on something that’s already done.

Ask him to make similar loans to ALL kids/grandkids, so everyone gets the same?

But his wife will surely then just change her will and give it back to them at a future point or write them off.

As I said, that’s up to her and her conscience.

Reading between the the damage has been done and the money given without any agreements in place. It’s hard to back-track on something that’s already done.

If all the loans/gifts are all to her family and the result is clearly against his will instructions, I’d say there’s a fair case. I’ll certainly be blocking any future leaching.

Thanks all.

Unless you have Financial Power of Attorney you can’t do anything but kick up a fuss.

Executor rights only kick in after death.

If he’s already doled out the cash it’s a problem, as above a proper loan agreement should have been written up, so that any outstanding/remaining payments on the loan upon death can be called in by the estate.