Loan money to my Mum

[ilikemethewayiam]

I am in the process of moving my Mum nearer to where I live as I am retired and better placed to look after her. Both my sister and brother are still working and don’t have the time. There is not much of a margin left over for her to do up the bungalow after the sale and purchase. We would like to lend her some money to make improvements to help her as she ages. However we need to ensure that this is ring-fenced so that it’s not part of her estate when she passes and therefore classed as inheritance which would be split 3 ways. Can anyone advise the best way to do this please?

Speak to a solicitor.

By instructing a solicitor.

Find one here: solicitors.lawsociety.org.uk

I think you need to ring fence the money in a trust which forms part of your parents’ will. You might need to consider how this should work but you would be the beneficiary. It must be legally watertight and not open to challenge. Your parents should inform your siblings of the arrangements. You might wish to consider interest you have lost by giving the loan.

Sorry. I see it’s just your mum.

You need a written loan agreement - with clear triggers for repayment eg in installments or after the borrower's death. You can draw one up yourselves so long as you are confident that it will satisfy HMRC (regarding inheritance tax) or instruct a solicitor or accountant if you aren't confident.

I really would not DIY if it’s a will and the loan money is in her estate. It’s not likely to be repaid whilst she is living or presumably she would pay for what she needs now. So ring fencing within her will is important. Other beneficiaries should be told if there are any.

You could buy the house together as tenants in common. Say the house costs £200k and she needs £20k to improve it, she pays £180k, ie 90% and you pay the remaining 20%. When the house is eventually sold, you receive back the 20% and 90% goes into her estate. The solicitor dealing with the sale can arrange this.

The problem with this would be if she needs to go into a care home then the money could all go in care fees.

Unless you ring fence it. That’s what the trust would do. It should keel
it out of mums estate because it’s not her money. Ditto for care home fees. It’s effectively a debt that must be repaid. So that’s why the will is important and estate planning. There is a risk with doing this and depends on how big the loan is. It’s a shame mum cannot downsize with money to spare.

You could do joint ownership of house but that has complications too! She doesn’t have full control of her own house.

Put a charge on the house. Won't be able to be sold without you being repaid be that whilst she's still alive or after she passes. Will class as a liability when her estate is sorted out.

That’s our aim. We are selling her 3 bed house near London and buying a bungalow a few doors from us in Devon so I can be on hand to look after her. There was a time there would have been a big difference between the 2 areas but since covid the prices went up substantially down here. We live in a very desirable area where prices are higher than average for down here. An elderly man lived in it for many years so it’s in a run down state. With rising prices it will cost more to do the work now. Similarly since Dad passed away her current house has fallen into disrepair. We have had to knock the price down to reflect this. I am keeping fingers crossed that the survey, which takes place tomorrow doesn’t throw up anything that might cause the buyers to pull out or try to knock us down in price. As it stands there should be a small profit but probably nowhere near enough. We are hoping she won’t need to borrow much but what little we do lend her would need to be ring fenced somehow. Much of the money we will lend her is what my husband built up before we met and married. He is a lovely generous man and has willingly offered to lend it to her on the proviso that everyone understands it is a debt owed to him/us and not part of her estate. We need to get that legalised.

Many thanks for the all the advice and suggestions. If we do lend her the money it’s clear that we need good legal advice. The takeaway is that we should definitely speak to a solicitor. We will do that.

I understand completely. I’m sure you will get helpful legal advice.