I am drafting Wills for an elderly married couple whose son gave them £200,000 to buy their property five years ago.
This was a loan by son to parents but there is no written loan agreement in place. Nor is there any declaration of trust regarding the property.
They have each opened two accounts where money they have put aside for their son is held. They are drip feeding that to their son as he lives abroad and having it all in the one go would cause him a problem.
I’m concerned about the lack of formal documentation. The Wills are drafted to ensure that their son gets his money back (a legacy to the son of the bank accounts and a larger share in the property) but I’m concerned about what might happen between now and their deaths.
What if one or both needed care then surely those accounts would be at risk. If the property proceeds are also needed to fund care this would mean son might not get the full amount back.
What would you advise the clients? Is it too late to draft a declaration of trust regarding the property? The son is single, employed and very close to his parents (low risk). Should they look at getting a properly drafted loan agreement in place as well or instead of the declaration of trust.
Without these documents am I right in thinking a local authority would probably try to argue that there was no loan and would treat it all as belonging to my clients?
Probably not the answer you were looking for but if they are planning to “repay” him via a legacy and greater share of the property, it doesn’t sound like a loan. Rather it sounds like a gift and they want to return his gift in priority to the other children.
I agree. Draw up a formal deed of interest free loan repayable on demand and treat and record in the deed the payments made as part repayments.
Future payments should be recorded as further repayments and the Wils need not refer to the loan or additional gifts as the loan will need to be repaid out of the estate.
Probably sensible also to secure the loan under a simple legal charge to ensure it is not overlooked and will avoid issues with care fees so far as the outstanding loan is concerned.
I agree with Simon, and as a general point, I was taught to avoid legacies of bank accounts as you never know what may happen and the accounts might not still be in existence at the date of death.
I understand your point, but please allow me to clarify at this time that I have no interest, beneficial or otherwise in Deedoftrust.co.uk nor do I receive any funds for referring people. The only reason I mentioned them is there very cost effective and helpful.
Whilst not wishing to extend the discussion, I note that the deedoftrust website appears to be an execution only service. Whilst it does include links to HMRC and provide general comment, the disclaimers make it clear that it does not provide case specific advice. Also, it appears to be “unregulated”.
Whilst it may be useful to be aware of this service, I suggest it might only be used if the user is fully supported with legal and tax advice elsewhere (although such advisers might need to review whatever was produced by deedoftrust to make sure it did what was intended).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Adding to Paul’s valid comment and not in any way suggesting that Deed of Trust Co would break the law it is my understanding that in accordance with Part 3 ( sections 16 to 23 ) and Schedule 3 of the Legal Services Act 2007 you cannot charge for preparing a deed ( or carry out other prescribed reserved legal activities ) unless you are an authorised or exempt person and indeed it is a criminal offence to do so.