Husband & Wife own their house as tenants in common in equal shares. H has died and his Will gives W a life interest in his half of the house. There is a mortgage secured on the house. The Will Trust includes the following clause “my Trustees shall allow my said Wife to occupy the same for so long as she shall wish to do so upon such terms and conditions as in their absolute discretion my Trustees shall think fit to require as to the payment of taxes and other outgoings in respect thereof and as to the insurance and repair thereof”
The query is, if H pays the mortgage off with his own money will this be accounted for in the distribution of the sale proceeds when the house is sold?
If “H has died” how can he pay off the mortgage?
Apologies - it should have read “The query is, if W pays the mortgage off with her own money will this be accounted for in the distribution of the sale proceeds when the house is sold?”
W may pay the mortgage off by monthly payments in the usual way or possibly in a lump sum.
Is W’s interest in the house given “mortgage free?
If so, then liability for the mortgage (both capital and interest) is on residue. In which case, I don’t consider it will affect the shares as held at the date of H’s death.
If the property is given subject to the mortgage (i.e. is not given free of the mortgage), the mortgage debt, but not the post-death interest due, would be a capital item and, to the extent it was paid by W, I suggest should be treated as a loan, repayable when the property is sold, with the beneficial interests remaining 50/50. The post-death interest will be a personal liability of W.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you, Paul.
Regards,
I mainly agree with Paul, however I would qualify that I see it that the deceased’s interest in the property as at the date of death is the equity that he has in the property. I think if either the estate or the W repays the mortgage after his death, arguably it would increase their respective beneficial interest in the property. I would be interested to see what others’ interpretations are of this as it has come up in practice in the past and seems a bit of a grey area depending on drafting. I usually specifically discuss this with clients and have in the past known clients write a policy of life assurance in trust to deal with it.
At the end of the day, I would probably recommend that before W commits to making any mortgage payments she and the executors/trustees sign a declaration of trust or other agreement confirming how they intend the beneficial interest to be handled so that there is no ambiguity going forward.