Interesting IHT/loan question...

Yes, but you would have to value that asset. The value of a debt that is presumably irrecoverable is ...?

A court of construction might take the view that the old girl intended that B gets the first 100k, and the balance is split 50/50 (including the valueless debt by A). Does that achieve what you would prefer?

Yes that is what money is for. Why else would he have borrowed it?

So it's not a loan then, it's a gift.

The natural interpretation of "she is OK with this" is that at the point at which she decides that she is indeed OK with it, she has turned the loan into a gift. She may well even have suspected (and accepted) from the outset that it would never be repaid.

That she did this may be used as evidence, albeit not cast iron, to support the above interpretation.

Well, no, not if she has decided it was a gift. Nor even if son A has unilaterally decided it was a gift and stops acknowledging that it was a loan for long enough (six years, I think), because thereafter debts are no longer enforcible, and so the estate would have to write it off.

It's too late now, but to forestall this problem, the best way to have written the will would have been to mention the loan and to provide that a sum equivalent to any part of the loan which A has *not* repaid should go to B, and the remainder of the estate should be split 50-50.

Quite. But A and B cannot decide to turn the old loan into a gift, since whether it was a loan or a gift (and if a gift, then when it was made) is a question of fact, and is not in their power to decide. Only the old girl can decide that. But what A and B *could* do, however, is agree to "remember" that the old girl *did* decide that, and so when drawing up the estate's inventory, exclude that old gift. If one of them is the executor (or both jointly) with no-one else to convince, and if there are no other heirs, it should all be simple.

Senile? That's a bit of an understatement, given that you said she has died. If she hasn't, then if "10 years later she dies" is not to be taken as a statement of fact, I suppose it must be a statement of intent. Planning a spot of euthanasia, are we? :-)

The will can't be changed before she dies, but it can be changed after she dies, provided all the heirs agree. Look up "deed of variation".

You say that "to allow for this" (the defaulted loan) she leaves B 100 grand extra. But you also say that the will doesn't explain the extra

The most likely explanation is that she wrote off the loan, so that it became a gift. Is there any evidence that the loan is *still* outstanding?

Bear in mind that if the loan is regarded as a gift more than 7 years before death, it is exempt from IHT - but if it is repaid into the estate it may well be liable for IHT, so the brothers may only get 30 grand each from it rather than 50.

I don't understand your last sentence - she's *DEAD* isn't she, not just senile?! In any event, the will *can* be changed by means of a Deed of Variation within 2 years of the death, as long as it's agreed by all beneficiaries.

Provided the brothers agree that A has already had 100 grand and should receive 100 grand less than B from the will, then all they need to do is make sure that the loan agreement doesn't still exist, and to destroy it if it does.

..and that she releases A from the outstanding debt.

Robert

.. except that the taxman is probably due 40% of the outstanding loan.

Robert

I know for a fact that when she made the Will (I am "B" BTW) she put that clause in because she was not expecting any repayments on the loan to "A", nor did she want any repayments. Of course I cannot prove it because she is now gaga.

None I know about. The transactions go back about 5-10 years now. Actually I don't even know exactly when the money was paid out.

She is senile but will obviously be dead at some stage, so will never be able to confirm her intentions.

I understand that i.e. it is in "A"'s interest to make sure there is no evidence around of the loan, but doesn't that amount to perjury, filing a false tax return, etc? What sort of paperwork does one have to fill in when a parent dies? Both beneficiaries are also executors.

The other thing is that somebody (HMRC?) might ask why the 100 grand offset in the Will? One answer might be that nobody knows. Another answer is that it is there to compensate "B" for a GIFT to "A". But the solicitor who drew up the will may well have something in his files, containing the original instructions as to why the offset was asked for, with the word "LOAN" in it.

There was no loan agreement as such. "A" was just short of money and the old girl helped him out.

I am asking because I can see a potential for "A" going absolutely berserk if this doesn't work out, challenge the Will, etc.

I don't think the total estate will reach the IHT threshold, with or without the "missing" 100 grand in it.

In that case, that's not an issue. You didn't say how big the residue to be split 50/50 was.

I don't see how it's perjury. Seemingly you're both agreed that it became a gift, cancelling the loan. If there *is* still any paperwork relating to the loan, it should have been amended or destroyed when the loan became a gift. If it wasn't, do it now!

You'll have to apply for probate, which includes filling in a detailed financial form for HMRC. There are questions on that about "Lifetime Gifts". You include it as one of those if made less than 7 years before death - otherwise ignore it.

When was the will made. By default, that is the date when the loan became a gift if there's no other evidence. Was that more than 7 years ago?

They won't ask. Besides which, you don't have to use the same solicitor

- or *any* solicitor - if you don't want to. The executors can do everything necessary yourselves.

Sorry, I assumed it would (with figures like 100 grand being banded about it was clearly not a small estate). Even so, the executors still have to tell HMRC about the estate even if the total falls within the nil band.

Robert

Less than 7 years ago. Whether the old girl will survive the date by 7 years, who knows?

That's very interesting. Not heard of that one before.

What are the rules for what appears to be an automatic conversion of a loan to a gift?

The will doesn't mention the reason for the offset (unfortunately).

The only evidence of the 100 grand being a gift rather than a loan is "A" claiming that the old girl did not want any repayments when they were offered. Plus obviously the fact that no repayments were made, or apparently sought.

I don't quite understand your problem. You've said that you are "B". Are you in dispute with "A" as to whether it was a gift, or are you happy to accept that it was and that the offset in your favour in the will is adequate to redress the fairness? If the latter, and if there are no other beneficiaries and no other executors, then you need convince no-one else that it was a gift. You simply agree that it was, and that's the end of it.

If there were someone with an interest in establishing that it was a loan, then they would need evidence is support of their claim. Unless and until that happens, you don't need evidence to the contrary.

Is the right answer, coupled with the fact that the loan/gift is well outside the 7 year cut-off period. It simply does not exist for IHT calculations.

However, and have I got this right, if somebody wanted to really piss off "A" and they had proof it was a LOAN, they could turn up at any later time, possibly long after the old girl died, and pull this out.

And they could also piss off "B" if it was "B" who signed the papers going back to the revenue on the old girl's death, IF they could show that "B" knew about the LOAN.

I am talking about a situation where "A" and "B" fell out one day.

And do what with it? All they could do is show it to a wronged party who could then use it against one or both of you. As there is no wronged party, it couldn't used against anybody.

But the revenue would not care since even if it had been a loan, and even if it had been recoverable by the estate (which it wouldn't have been because if a loan has gone unacknowledged for 6 years it becomes unenforcible), the estate would still have been under threshold.

Didn't you say A and B were joint executors? Both their signatures would be on everything, so there is no way they could sue each other because they'd be jointly to blame.

Not sure there are any - although others have suggested that a loan becomes unenforceable after 6 years.

As far as the date goes, A and B are agreed that the will was biased in order to offset the loan. So, by the time the will was written, the loan had been converted into a gift. But, without any documentation to this effect, you don't know whether that happened a day before the will - or several years before. So the only safe assumption (which was what I meant by "default") is that it happened at the same time as the will was written.

Unless there's a lot you're not telling us, I can't see a problem.

Even then I can't see who would care. If the loan was still owed to the estate, and the deceased intended B to get 100 grand more than A for some reason not connected with the loan, A would owe B 50 grand. But A and B are already agreed that that is not the case.

I suppose the Revenue might have an interest if the extra 100 grand brought the estate over the IHT limit, but you've already said it wouldn't.

So why are you worried? What haven't you told us?

If you were A rather than B, I suppose you might worry that, if you fell out, B would demand his 50 grand - but you're not, and you know B wouldn't do that, don't you?