Please help settle a family argument

[Forester1]

This is quite long -

We recently purchased a property with a large unrenovated annex. The plan (made prior to purchase and in agreement with the PILs) is for the PILs to pay to convert the annex and they then move in for the rest of their lives (we are expecting 20+ years). They will sell their current home and dh and bil will get a significant share of the proceeds.

So the question is what is a fair financial arrangement so that neither brother loses out.

To add some figures : the cost of conversion is expected to be £150k, the immediate uplift in value after conversion £200k, we spent £150k more than we otherwise would to get a property with this annex. No further contribution is expected from the pils.

And to add some restrictions : we don't want either PILs or bil to own a share of the property and we don't want any family row at time of inheritance so either any true up needs to be made now or the position needs to be crystal clear in any will. Also we will not be able to sell up for the duration.

Any suggestions / thoughts gratefully received.

Thanks

Interesting situation you're in there, Forester!

Would it be workable for you and your DH to fund the refurbishment, PILs give both sons equal amounts following the sale of their property and they then pay you market rent for the annexe?

TBH I think you are a bit crazy as there are so many opportunities for something to go wrong...

However - how much money will the Parents have once they sell their current home.

Problem with wills is that they can be contested! I would suggest that the parents gift the money as the time of moving in with you guys tbh. Definitely need experienced solicitor involved - can the parents be given a life interest in your property - so they never own it but have the right to remain in it?

I can definitely see both sides here.

Looked at from your PIL's perspective, if they are selling their own home, they need to have some kind of surety about the place they are moving to (beyond goodwill, which should never be relied upon if an alternative exists, even in the happiest of families). They can't just be glorified house guests for 20 years, hoping that you won't decide to downsize when your children are grown, or ship them off to a nursing home so you can sublet the annex. (Incidentally you do need to have a conversation with them about the practicalities of caring for them when they become very elderly, it is incredibly difficult and much better discussed whilst still a remote possibility. You don't want to end up feeling obliged to care for them when they really should be in a nursing home because they paid for the renovations to the annex).

So from their perspective, the simplest way to achieve this is to co-own the property with you. Perhaps a 25:75 split in your favour, depending on the value of the annex vs the main house. Or could the annex become its own property?

However, I'd imagine they're also wanting to avoid inheritance tax? Could the house be held in some kind of trust?

From your perspective you don't want the complication of co-ownership or any kind of messiness around inheritance. Effectively PIL will be giving you 150K more than the BIL, so the simplest way to split it would be for BIL to get 150K more from the proceeds of the sale, if funds permit that?

Good point, Tribpot - I mis-read the OP and thought the PIL weren't making any contribution to the purchase or refurb when I made my post. I agree that BIL should get £150k more than OP's DH when the sale of PIL's property goes through. My suggestion about PILs paying rent was to avoid complications of shared ownership. (Thank goodness it's not my problem - my head is hurting from thinking of all the possible solutions!!)

Right okay

So PIL are giving you £150k, you are investing it in your property. The fact it increases the value of your home is pretty irrelevant because £50k when you are having to service a mortgage which is £150k more than you needed to accommodate them having an annexe.... Perhaps they should be also paying some nominal rent to compensate your mortgage payments (assuming there is a mortgage)

They get a living interest in your property so you have to continue to house them or buy them out at X percentage share of the value of their home - so their investment is protected but they don't own a share of the house IYSWIM

They give BIL £150k, he can invest that in a property too, or not - his choice. The PIL don't get any benefit from giving him that money hence the extra £50k added to the value of your home is sort of irrelevant????

I would get some expert legal advice as it could impact inheritance or capital gains tax in the future. You can also get advice on how wills could be drafted to make any provision clear.

Also I know you said that you can't now move but you should think about what if...... There could be circumstances when this situation doesn't work e.g divorce, long term illness that impacts your ability to earn and so afford the mortgage, I agree with tripbot about security for your PIL.

Deprivation of assets may be an issue if your parents need to have extra care or go into a care home. You may think you can cope with their additional needs, but you may be wrong.

I think your parents would be mad to do this. They will have lost a large proportion of their assets and any autonomy in their own lives.

Are you married op? What if you split up and the family home has to be sold? Yes, I think your parents need to reconsider this now.

Oh and your thread title suggests that this is already causing strife. Is that so?

Yes, I wondered about that too. I wouldn't even attempt this if it's already causing problems.

You really do need to think through all the scenarios, however unlikely they currently seem. Death, divorce, illness, even a decision to relocate to another country. You might think it's not worth working through all the implications of these because they won't happen but no-one knows what the future will bring.

Thanks for the posts. And yes it's making my head hurt as well!

To clarify there's no dispute with the PILs. While we can't plan for every eventuality we have considered what would happen if we are forced to sell eg because of divorce (not in writing but the PILs would get back the money they put in - and this with the significant amount of cash they are retaining would allow them to buy a small property) and death (we will rewrite our wills - with legal advice - to protect their interests. In relation to care their is no expectation on either side that them moving in with us will mean that at some stage they won't need residential care - and this is the key reason they are holding back money. We would hope however that it delays that need.

It's interesting that some of you think that bil should be given the same amount that PILs contribute to our property as this is the view of bil and its this that we strongly disagree with! We would think that that is fair if PILs weren't moving in. But we don't think that it recognises that we've partially funded the property that they will be living in (so incurring mortgage interest costs, among other costs) and that we don't have any use of that part of the property for a very long time. Our original thought was that by paying for the conversion the PILs would in effect be covering our costs and therefore we'd be all square. Bil doesn't agree!

In effect you are getting 150k inheritance now,, your bil should get this when parents are gone before any other assets or cash divided. In wills it should be stated that the annex cost (150k) should go to your bil if he survives you both. And the same if the house sells due to divorce.

Don't under-estimate the commitment that you will need to give when your PIL become older. My Mum has lived with us for many years - we bought the property, paid for the conversion (although she paid for certain parts of the fit-out), and pays us a set amount of rent. This has never increased, but fortunately we can afford to partially support her. Now she is elderly and frail, we have the responsibility of making her meals, dealing with her drugs etc., and attending numerous hospital appointments.

Of course, we had the benefit in the early years of an in-house babysitter and lots of lovely meals ready for when we got home from work. It's swings and roundabouts.

I think your BIL is being unreasonable, but probably because he doesn't realise/hasn't thought through the longterm implications. It's not a step to take lightly.

I would agree if they were converting the annex and then we were free to rent to a third party but to me it doesn't seem fair for both brothers to get £150k but we are the only ones with the obligation to provide them with a home for the rest of the lives.

Watching closely as I've considered the possibility of something similar for PIL when necessary.

FWIW I don't agree that things should always be equally split between siblings. When DGM died DM got a far larger share as she'd been the one caring for her over the years. Her brothers both lived abroad and turned up once or twice a year. Depending on your BIL's situation you might end up doing most of the caring so the finances should reflect it. My other DGM left everything to the one son who had done everything for her and nothing to the other living abroad. And neither will caused any contention.

"Our original thought was that by paying for the conversion the PILs would in effect be covering our costs and therefore we'd be all square. Bil doesn't agree!"

But you then have full ownership of the asset. They are paying costs to increase your asset.

If they stayed in their current house BIL could, presumably, expect a share of their assets when they die. He can't expect a share of your house.

I think there is something to rectify here.

Interesting as bil does live abroad and there's no expectation that he will ever move back to UK so care will fall fully to us. Unfortunately that doesn't seem to make any difference to him ( or to pils) and he doesn't want us to make any money out of the arrangement. And we are not even trying to make any money - we just don't see why we should subsidise the PILs.

I agree it is complicated Wuffleflump but PILs don't want to either stay in their current house or downsize to a smaller house. From their point of view there's various benefits to moving in with us (eg closer to grandchildren) but a key one is they get the benefit of designing a property to meet their needs and to live on a site with a large garden (they also get there own dedicated area) without the worry of how to maintain it going forward. And while the cost of conversion is a cost leaving the estate if you like both brothers benefit by getting a significant chunk of money now rather than in 20+ years.

So what would be fair?

How old are the parents? One of your main issues here is deprivation of assets. Have you looked that up op?

If your parents sell their home and give away a large proportion of the cash then they may be treated as still owning those assets if it came time for them to enter a care home. The government doesn't like you giving assets away to avoid paying for care.

You may well be the loveliest relative in the history of the world, but your pil would be leaving themselves very vulnerable.

Are you expecting the pil to pay £150,000 to improve your home, add value and yet have no protection?

By the way £150,000 sounds like a huge amount to convert and annex.

There are so many holes in this plan that I would seriously reconsider if I were you.

Will they be covering their own living costs and or paying rent while living with you?
Or is the 150k a one off to cover everything?

Our original thought was that by paying for the conversion the PILs would in effect be covering our costs and therefore we'd be all square. Bil doesn't agree!

I don't agree either. You have an increasing asset and an immediate profit. If all the remaining funds are used to pay for residential care at any time, BIL gets nothing and you get a larger house.

I assume you didn't share any of this with your conveyancer or mortgage company at the time of purchase?

Guardian article might be worth a read. They might be liable for tax equivalent to current rental prices.

So many posters have thrown up different things that could go wrong.

I take it they haven't already sold, and obviously you could afford your house as you wouldn't have been able to purchase. Go and get proper knowledgable legal advice first, before you even think about what's a fair financial arrangement between brothers.

Have you thought about remortgaging PIL's house to cover the cost of refurbishing the Annexe? You could then rent out their current house, use the income to pay off the mortgage, and potentially some to you as rent if needed.

That way, they still own their house, in case they need it in the future, and it provides an income in the meantime.

When they die, the house is sold and the money distributed according to their will.

Can you estimate how much rent you'd get for the annexe on the open market say over 15yrs.

Then take the 150 less the rent and the BIL gets that amount?

Effectively your PIL are paying rent up front in a lump sum by investing in the annex

I think that your proposition is unfair to your BIL as your PILs are funding an improvement to the asset that you own.

I would be very scrupulous about this and have the annex valued by valuers before the work is done, after the work is done and once PIL have died.

At the time of their death any rise in value from the unrnnovated value should be put into the pot to be shared by DH and BIL, along with the £150k contribution that your PIL made. That will put DH and BIL back on the same footing as if PIL had never paid to have the work done. To be fair to your family, you could add an amount to your share to reflect the rental loss that you incurred from PIL staying there. Again a valuer can put some numbers on that for you!

Alternatively, the £150k is given to you as a gift and the same amount given to BIL. When PILs die then an amount reflecting the rent foregone over the period until their death could be added to your DH's share of assets.