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Ronald Raygun: A properly drafted will...

The story thus far:

Mary has died leaving Al in a house which they co-owned 50:50. Al has had to give up work to look after Mary and with Mary's death their income has dried up. Al cannot afford to live in such a big house, she cannot afford a loan with which to buy out her sisters, Mary's estate has no money with which to buy Al out.

She looks again at Mary's will.

"this clause shall have effect so as to give [Al] the option of buying my interest in the Property at the Price [90% of its value]

"WITHIN six weeks of my death my Trustees shall give notice to [Al] of the of the option granted by this clause and take the steps necessary to have the Price determined and within four weeks of that determination being communicated to them shall give notice to [Al]

"WHEN the Beneficiary has notice both of the option and of the Price she may within ten weeks give notice to my Trustees of her wish to exercise the option?

In Dec 2004 the house is valued, in Jan 2005 it is offered to Al, it sells in early March with the garden is full of daffodils, and on completion day in May/June Al exercises her right to buy her sisters out.

Could that work?

Reply to
Troy Steadman
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Weren't Bern and Cand going to move in with Al?

Unless you have omitted for brevity a further paragraph from the will allowing an additional period (another 10 weeks?) from "giving notice of her wish to exercise the option" to actually exercising it, I would have thought the exercising would be taken to be synonymous with the giving of notice. That being the case, Al cannot exercise her option as late as May/June but has to do so by late March.

Can you clarify what you mean by "it sells in March"? Who sells what to whom? Surely the trustee's half cannot be sold to anyone but Al unless either the option period has expired without her exercising her option, or she has formally declined to exercise it.

I think I can see where this is leading. Al wants to sell the whole house to a 3rd party open market buyer before she actually owns it all. When the buyer coughs up the selling price, the trustees will get 45% of valuation, and Al will get what's left, which may be more or less than 55% of January valuation depending on how much more or less than valuation the buyer agrees to pay. The trustees then distribute the cash to Bern & Cand.

So long as they're all agreed, that's fine.

Al is at a disadvantage if she can't afford to sit tight in her half of the house. Her option is worth 5% of valuation but only if she can raise 45% by March or agree a joint selling deal with her sisters and the trustees. But sisters may be at a similar disadvantage. They probably don't want or can't afford to buy Al out.

Unless they all put their heads together and sell with unanimity, each half of the house is worth less than half the whole, because of the hassle involved in forcing the other side to play ball, or because of the difficulty in finding a buyer for only half a house.

Reply to
Ronald Raygun

The gobbledegook becomes unreadable but the phrase "reasonable time" jumps out.

Sells on the open market to a 3rd party as you inferred below. Presumably this will deter many buyers, hence the 10% discount in the real-life sale and the IHT calc.

I think they will be. "Cand gets her £100K inheritance the day the house sells in May", versus "Cand never gets her inheritance because the house never sells" is a no-brainer even for her.

Absolutely. It has all come together nicely, the house was a untensil in which to store Mary safely all those years and it has performed admirably.

Al, Bern and Cand liquidate everything, Al goes off to rent and plays the housing market for a year or two, Bern and Cand get more inheritance than they ever could have dreamed of.

Fantastic. Thanks for your help Ronald.

Reply to
Troy Steadman

Are you sure about this IHT discount? Surely the option, if taken, is itself a bequest worth 10% of half the house. Therefore I'd expect the IHT bill to be the same whether or not it's exercised.

What if it had been an option to purchase the other half at 100% discount? Would seem to be too easy a way to avoid IHT.

Reply to
Ronald Raygun

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