Loan to estate from Executor's wife

A STEP member has posed the following question:

We are acting for an estate, where one of our consultants within the firm is the Executor.

The Estate requires a loan to meet its IHT charge. The estate is having difficulty in obtaining a loan from the bank, therefore the Executor’s wife is considering making a loan to the estate. A commercial rate of interest will be charged on the loan. The Executor’s wife has no involvement within the firm, she is not an employee nor a director and has never worked for the firm.

In your opinion, would there be any ethical reason why the executor’s wife should not loan the money to the estate?

Emily Deane

This sounds like a recipe for disaster. I wouldn’t consider it. At the very least you’ll end up with clients who have in the back of their mind that something fishy was going on.

Julian Cohen, Solicitor

Like Julian, to me this just feels “wrong” and a recipe for disaster.

If no bank is willing to loan the intending personal representative monies to pay the IHT on the grant application, this suggests there may be unusual features in the estate (or is it just a case the wrong bank has been approached).

If there is a widespread refusal to grant an IHT loan, then I understand HMRC has discretion to defer payment until after the grant has been issued. It may be preferable to go down that route.

Even if IHT is payable on the world-wide estate, and the estate within the UK is less than the expected IHT liability, I believe it might be possible to use the deferred payment arrangement. However, it will be fact specific.

Paul Saunders