Repaying a loan to estate at inheritance.

[TBFrank]

Anybody experienced a situation where somebody is 'loaned' an advance on an inheritence to be repaid at the time when the inheritance is due (when both parents die). In the scenario I'm aware of, the father loaned the son a substantial sum to buy a house, clearly setting out that it was a loan which was to be taken into account in settling the estate when both parents die. That was 10 years ago and the father recently passed away, survived by his wife. The loan will be more than covered by the son's half share of the estate when his mother passes, but he seems to disagree that it should be honoured, he suggested that it be torn up, and expects that he should get half of the estate when his mother passes. That will be to the disadvantage his sister (the daughter) who is also the executor of the estate. She would contend that, say the estate is 400k and the loan 100k, then with repayment the estate is 500k meaning that each is due 250k, but of course the son needs to fund the 100k repayment leaving him with 150k, and her 250k.

To add some colour, the son already lost most of the first house his father bought for him via a disasterous marraige & dissolution - and the 'loan' was in part to protect ownership of the 2nd house, but also to be fair and equitable to the sister, who did not get a similar 2nd injection of cash.

The will itself does not reference the loan. The loan agreement was typed up on plain paper, and signed by parents, the son, and a witness - and there is noone (so far) disputing that it was drawn up and signed in good faith.

Does it sound like it will have legal standing when the estate is to be settled in due course?

 

[Jim Stafford]

It really gets down to what the mother does with her will. To avoid unnecessary legal costs, she should amend her will to make it 100% certain as to how the loan should be treated.

The Succession Act sets out specific provisions for dealing with such "Advancements". Instead of leaving it to the lawyers to argue over the interpretation it is simply better to clarify the will itself.

n the meantime the executor of the father's will needs advice as to whether the "loan" should be listed in the Inland Revenue affidavit.

Jim Stafford

 

[TBFrank]

It really gets down to what the mother does with her will. To avoid unnecessary legal costs, she should amend her will to make it 100% certain as to how the loan should be treated.

The Succession Act sets out specific provisions for dealing with such "Advancements". Instead of leaving it to the lawyers to argue over the interpretation it is simply better to clarify the will itself.

n the meantime the executor of the father's will needs advice as to whether the "loan" should be listed in the Inland Revenue affidavit.

Jim Stafford

Thanks. That makes sense although there's a complication... the mother has advanced dementia and is not communicating. The daughter has power of attorney for her- she has effectively looked after both her parents on her own and was entrusted with all of this, but maybe nobody foresaw any contention with effecting the loan repayment ...