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MIL helping with deposit in return for monthly income - does this work?(39 Posts)
Honestly don't know the legalities of this, but hoping someone can advise!
Bit of background
We want to move house in the Summer, back to our home town. We reckon we can just about scrape together a 15% deposit on a £500,000 house (expensive area - but we have to move there for various reasons).
MIL lives in the same area. Has a track record of appalling money management. Blew around £500k in the 10 years following her divorce from FIL. MIL is a very lovely woman, kind and generous, but utterly awful with money. We helped MIL sell the family home, sort her money, pay off her debts and buy an apartment, leaving her with quite a lump sum of money in the bank.
We made it clear to MIL (when sorting her money) that she needed to lock the lump sum away from herself, as she cannot control her spending. She agrees with this, but is a very fretful woman and is intimidated by the annuity options available. As a result she's faffing quite a lot about actually sorting this out.
The other day I had a bit of a lightbulb moment. We want to move, and MIL needs an income that she can't touch. Although an annuity is a good option, once she dies the money is gone.
At the moment, my husband and I are looking at monthly repayments on a £425k mortgage of roughly £2000 a month (which we can afford).
So - what if MIL put £150k (for example) into our deposit? We'd then have approximately £225k to put down, reducing our monthly payments to roughly £1400. We could then pay MIL what the annuity would pay (from online calculators it looks like £400-500 per month). She'd have a steady income and also be helping out her son, daughter-in-law and granddaughter (whom she absolutely adores).
Plus, when she dies, that money would still be sitting there, gaining value. We could work out her will so that the money is deducted from DH's share of the inheritance (he has a brother and a sister). So she'd be leaving a larger inheritance for her children - which is another thing she frets about!
So - what could be potential issues here?
Need to make it clear, we love MIL dearly and relations are very good. I know she would love to help her children out with anything (her over-generosity is part of her problem), but we absolutely would not push her into anything she wasn't comfortable with. I also appreciate I might sound mercenary talking about her death - can't find another way of wording it.
Issues I've thought of are:
- I recall when buying our current house (FIL gave some money), FIL had to fill out a form confirming the money was a gift, not a loan. Presumably MIL would have to do this as well otherwise the bank wouldn't lend. Therefore MIL doesn't have any legal rights to the money once it's ours. We could in theory stop paying her and she couldn't do anything about it.
- Assuming MIL declares the money a gift, are we allowed to pay MIL an income each month? Would it have to be declared in any way?
Any help/suggestions/experience massively appreciated.
Also to clarify, MIL will have a full state pension on top of this, so an income of around £900 a month. She has no mortgage or debt.
What if one or both of you lose your jobs? You divorce? You fall out with her? She wants her money back? You would need a watertight contract to protect both yourself and, more so, her. There are so many variables it probably is a non starter.
Thanks for your thoughts Tigger.
I thought of the jobs scenario, but wouldn't that also be true if we lost our jobs and owed money to a bank? I can't explain in a lot of detail due to outing myself, but DH's profession is in high demand and is going to be for a long time, so long-term unemployment is unlikely.
Falling out with her - unlikely, but anything's possible I guess!
She wants her money back - unlikely, but worse-case scenario we would sell the house or remortgage
I've no problem with a contract, but wouldn't this impact on the "the money is a gift" scenario?
Would you accept her name being on the deeds/only her son (your husband) owning the home and cutting you out of the asset?
I appreciate you are looking for a solution for your MIL, but you need to consult a proper FA and a solicitor to explore the legalities of this. Your MIL also should seek FA and solicitor of her own accord.
This sounds very complicated and what happens if (for example) she needs care and requires the lump sum back in order to pay for that?
Plus, when she dies, that money would still be sitting there, gaining value. but it might gain value in her lifetime. Her annuity could go up (or down!) but you are not going to be making her any money.
Mardy - that's an idea, I'm not sure to be honest. I'm reluctant to give her any legal link to us (that sounds awful doesn't it), due to her money-management. I worry that if she owned anything she could use it as leverage for loans etc.
TheCrow - part of the plan would be that the rest of her lump sum (approximately another £150k) be invested in something else as a fallback. Plus her apartment is worth around £400k (SIL still lives at home so she doesn't need something this big).
I agree, it's complicated. I just don't know how complicated it would need to be! If her annuity went up (I admit I don't know a lot about them) wouldn't it still be wiped out when she dies?
What if one of you dies or you have an incapacitating illness?
DH has life insurance which would pay off the entire sum. If I died I'm pretty certain MIL would move in with DH (can't say he'd be impressed but needs must). I have some life insurance as well which wouldn't pay off the mortgage but would help.
Also just to add if this helps with info, both my parents and FIL aren't short of money or house space - so if the absolute, absolute worst worst happened no-one would be out on the street!
OP I think it's a good idea.
My parents helped us with our mortgage deposit but had to declare to the bank they have no interest in the house and the money is a gift. People on here told me I was grabby etc for accepting money from them, but it worked for our situation.
We drew up a gentleman's agreement between my parents, DH and I stating that the document overrides any previous declaration and that we WILL pay my DPs back at XXX per year. My siblings were all ok with this and if something happened to either parent there is still enough money to help them. It's not legally binding but we just wanted to lay down an agreement for any eventuality - divorce, illness, death, so it was unemotional if ever that time came.
I'd speak to the siblings and get their buy-in, but longterm if your family is like mine, they'd rather you were in a good house rather than the money be frittered away.
It is her money to spend, but it sounds like she is awful at money management so not as though you're preventing her from holidays or cruises, rather that she isn't actually enjoying her money as she'd wish as she is disorganised.
So you want her money to help you but you don't want her to have any legal protection? Just protection for yourselves with the statement that it's a gift? You're starting to sound very
Yes, her money helping us would be nice. We're not going to force her into anything, hence why I'm asking for advice on this forum.
We helped her out (both with money, advice, time and love) at a very stressful time in our lives, when her financial troubles were entirely of her own making. We could have walked away and left the bank to deal with her and repossess her house, but we didn't because we love her. We could have demanded access to all of her accounts then and there, and drained her money if we wanted. We have not asked for a penny from her, ever, whereas other people have repeatedly taken advantage of her (that's another story).
There is absolutely no scenario in which we would abandon MIL, or keep her money from her should she want it back, even if we fell out with her. I am not that kind of person. Yes, you don't know that that's true, as you don't know me. But it's not really your problem is it? I'm just asking for advice. Keep your judgmental comments to yourself.
You come across as feeling entitled to it because you've helped her and she's given things to other people. And the fact you don't want her to have legal protection is very telling. Whatever advice you get on here I guess you'll be going all out to get the money. I hope someone advises her honestly regarding this.
Oh calm down. How exactly am I acting entitled to it? One word from her - "no" would be enough to shut this whole thing down. It's just an idea I've had, as she's very anxious about investing her money. It's a long story but essentially she doesn't trust banks, companies at all.
I mentioned the 'us helping her' and 'other people have taken advantage' part as a way of illustrating that we care about her, not as a reason why we should have the money.
I'm more than happy for her to have legal protection if the legal protection doesn't void the point of the money in the first place. My response regarding legal links was to a PP's suggestion of her name being on the deeds.
If you are wanting to help her out so much then why doesn't she just put one of you in conctrol of her finances and have one account that has a monthly amount transferred to it.
All the house stuff sounds overly complicated and to many ifs and buts.
Personally I think the best way of you helping MIL is to seek the advice of an FA, an a solicitor, and if you can't give your MIL proper legal protection then I don't think this is a good solution.
I know this sounds like a win-win result but unless you have all the proper paperwork your MIL could be left £150K out of pocket. It's a huge sum to gift and lose complete control over. And £900 a month is comfortable but not a huge amount, she still has food, heating, holidays etc.
Exasperated If only it were that simple . As I'm clearly the evil DIL I might just coerce her into signing all her money over and then send her off to Dignitas.
Thanks to those who gave helpful responses, I've appreciated the different viewpoints and possible issues. We'll speak to a solicitor/FA and see if this is viable without becoming overly complicated or leaving MIL without protection.
bangbang interesting to see that it can be done on trust! How long ago did you buy the house?
Does the bank/mortgage company need to know that the money is coming from MIL? Our PILS gave us £10k towards our deposit for first flat but the bank knew nothing about it, PILS just gave a cheque to DH and then it came from our accounts. Similarly we have recently lent money to a friend towards his deposit and the bank knew nothing.
If the bank didn't need to know, then couldn't you just pay back the money to MIL over time as a loan?
Would you be giving mil a % interest in the property in return? You need to tell your solicitor and bank. Tbh I'm not sure there is any advantage to mil, it seems rather one sided just so you get a house you can't really afford.
FWIW I don't think you are evil DIL at all - I read her not having a link to the house as her not being able to "lose" or use her money in the house by running up debts against it - ie the whole point of having this money tucked away becomes moot if she can run a debt up of the same amount. You need to look at a way of giving her protection in law but also protecting her against spending all her money if that is what she has asked you to try to achieve.
I think she could possibly register a charge on the property which would give her some link to the house, but limited. Worth exploring, I don't know the ins and outs...
Boss we only bought last year. We just kept it between ourselves and are transparent with my siblings that we'll be paying my parents back - we're doing if annually over five years, with a break this year.
If you are all in favour, I'd go for it - there are lots of variables but historically lots of people keep their money within the family.
I think in order for this to be viewed as a loan rather than a gift by Inland Revenue, you would need to pay interest, however minimal on said loan from MIl.
This would help you and help her earn a little on her money as well.
However don't forget you'd have to declare this extra loan to your mortgage lender who may refuse you the mortgage if there is a second charge on the property from day 1.
I think your biggest stumbling block is your mortgage lender as they are unlikely to accept this scenario.
"Does the bank/mortgage company need to know that the money is coming from MIL?"
If it was just a gift from a parent, then yes they need to know, but no it won't make any difference.
But if it is a commitment to a regular outgoing, then yes. Because it means it functions as an additional privately arranged loan.
So the mortgage you are offered may be adjusted because of this additional financial undertaking.
Get proper financial advice.
Because I'm assuming you would not go ahead if the cost/availability of a mortgage for you was negatively affected by the additional obligation.
It could be complicated and you & she need to be advised independently. The problem with doing it on trust is that relationships can change drastically as a result of mental illness or dementia (as has happened in our family) so any agreement needs to be proof against unpredictable pitfalls.
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