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

Happy to hear alternative suggestions - that's the reason for the post!

Part of the logic for them funding the conversion rather than us (which we could do though it would be a stretch) is that they could then design and spec it to meet their needs. If we paid for it there could be a conflict between what they want and what we think is necessary. Going down this route they would pay their own living costs but no rent. Also if they paid us rent I don't know if we would have to declare it for tax.

We have considered deprivation of assets but they are both fit and healthy so it's not foreseeable at the moment that they would end up in care - and hopefully they would have enough money to pay if they did.

I work with people in care, I currently work with a husband and wife who are both paying £900 a week for their fees so it could be very expensive.

If there's family strife now....I am another one who would not go down this route at all.

Going forward, I would say that it's obviously too complicated and it's not worth a strain in family relationships so maybe, it's best for everyone concerned not to proceed.

I guarantee you that this will focus people's priorities.

Are you sure that you would want to eventually be your PIL's carers in the future when they need it?

Thanks for the link Tommyclutter - I hadn't seen this.

I can see that we will need legal advice but I think we need a clear plan before we speak to them.

I hadn't thought about the option on PILs renting their home - but I don't think they would want the hassle. Also from bils point of view it would mean even more money leaving the estate in mortgage interest (though does keep asset growth).

Thanks for the suggestion yourroyalnotness and its how weve viewed it as well but market rent would be more than £150k in less than 15 years so bil wouldn't get anything extra and would say that we were profiteering by charging a market rent (albeit upfront).

I know some people have said that we shouldn't be doing this but PILs really want to live here and we want them to come so we need to find someway to make this work.

What do your PILs think/ want to do? Its their money after all, not BIL's.

I really think you would be better off paying for the conversion yourself and giving them the option of renting it.

It's much clearly but then.

Perhaps you could borrow money of PIL at a better interest rate than your current mortgage and they would gain by getting a better return on it but that would not be anything linked to living in the annexe or designing it.

The issue with that suggestion RandomMess is that it disadvantages bil more than our original proposal as 1. By charging a market rent we would be profiteering from the arrangement 2. It is highly likely that PILs would end up paying more in rent than if they paid for the conversion. 3. The early inheritance would be smaller as the PILs would need to hold back more money.

And in answer to Happy the PILs just want to keep everyone happy and are expecting the brothers to reach an agreement.

Well the PILs don't just want to keep everyone happy. They also want a completely customised renovation without any of the hassles of home ownership. I'm not saying I think they are unreasonable to want this, but it's not accurate to regard them as disinterested (in the proper sense of the word) bystanders.

There are other ways they could achieve this - buying into a new build retirement community, for example. But this will soak up more of their money, which they would rather go to their children.

Is there any option to split the deeds of the house to make the annex a separate property?

I'm concerned that you're saying things like 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 .. - you don't want to put it in writing because to do so would make it clear the money was not a gift but effectively an investment. This is the kind of thing that could bite you on the bum later. What if FIL dies first and MIL remarries and her new DH doesn't want to live in his predecessor's house? There are all sorts of scenarios where (a) that money could need be unlocked or (b) the conversion is no longer appropriate to their needs but you're stuck with it.

I can see BIL disputing anything you ever do with this conversion, e.g. PIL don't need it (let's say they've gone on a year-long cruise around the world) so you rent it out for a year. BIL says "my inheritance partly paid for that conversion, so I want half the rent". You need a very clear demarcation of funding, which I still think would best be achieved by giving him the 150K now, whereas you choose to invest your 150K in the conversion of the annex.

My only other suggestion is that they pay a small rent in addition to some/all of the conversion costs - perhaps the interest on the £150k extra you have spent buying a property suitable for them to have the annexe?

I can't believe this wasn't discussed before you went ahead and bought the property

I'd have said that you've ended up £50k 'up' overall, that's 200k equity rise minus the 150k extra you've spent to start with. PIL are paying for their own accommodation to be sorted, so that money isn't part of any inheritance anyway- it would come under 'personal spending' imo, gone never to be recalled.

You've had 50k. Brother gets 50k. Except he gets his now, while you are looking at waiting 20 years plus and hoping house prices continue to rise at a rate that will ensure you have the equivalent of 50k in 2036.

This was discussed prior to purchase and bil was originally ok with it. Once he'd considered it some more and objected we were on the verge of exchangevand both us and the PILs made the decision to proceed. (This is a very unique property so unlikely a similar opportunity would have come up). It's also fair to say that we did think we would be able to settle this.

Tribpot if we do fund the conversion how should the fact that we are providing a a property for PILs to live be dealt with?

How were you planning to account for the fact you're providing a property anyway? Were you going to charge them a percentage of utilities, insurance and whatnot? We're talking about capital costs. They are getting a lifetime interest (albeit an unwritten one) in your asset.

I want to treat this as a pure maths question but x is how long your pil live and y is how much care they require. Unfortunately you can only work it out after they have both died.

Is there no alternative?

I`ve worked it out.

You can take 150k from PIL, and BIL must take the same.

Then you both start paying them back, first year 15k each, so they get 30k. take out what they cost for bills or care. After 10 years you would be the same.

Assuming you paid for the conversion and rented it on a free market, what would the income be? Assuming (as I'm not a mathematician!) £1,000 pcm, the first 150 months would be free as your PIL had supported the investment. Thereafter, they would need to start paying rent 'formally'.

I think your BIL is being totally unreasonable, as he is not prepared to either invest or alter his lifestyle to give his parents a home and some comfort in their latter years.

Use some calculations based upon an alternative - ie. your PIL sold and then rented somewhere suitable, and see how the costings compare.

We hadn't thought of that - though we know that bil would want to money into property so wouldn't have money available to pay back each year.

I've also thought about the comments saying that the arrangement is unfair to bil as pil are paying money to an asset that we own. I think you could argue that the statement could be extended along the lines of "in order to have a place to live for the rest of their lives".

There have been further discussions on this today and a current suggestion is for the property to be valued beforehand after conversion and are costs to be estimated ( eg mortgage interest. ) and the difference split between the brothers with bil receiving cash for his share ( if the uplift exceeds costs).

I'd be interested in views on this. And also on what / how our costs should be calculated.

Thanks again.

Thanks ajandjjsmum. The trouble is that if we hadn't have found this property they would have bought a smaller standalone property (not rented) near us but when they saw what they could have here they decided that they wanted to join us here (for a number of reasons but they also wouldn't be able to buy the type of property that meets their needs so well) and that's why we proceeded with the purchase. It would also have meant that there wouldn't have been much money left for an early inheritance. ( they currently live in a cheaper area than around here).

I have to say that your BIL does seem very grabby in all of this...

Having anyone live with you for a long time invokes compromises etc. I include my DC in this - one moved to live with her Dad and then came back, there is definitely a "cost" to have more family members to consider that is difficult to measure financially even if they have their own annexe.

I agree - we are taking a risk that this arrangement is all going to work out so me and DH are very disappointed that the conversation with bil is all focussed around any financial gain that we may (or may not!) get. And what makes it the more annoying is that if bil and his family had stayed in UK PILs wouldn't even be moving to be near us as bil did live near them.

But we've still got to reach some sort of agreement........

But if it doesn't work out then your house has been improved at someone else's expense! You said in your OP that the house would immediately increase in value by 50K over the cost of the renovations the immediate uplift in value after conversion £200k and that 50k will increase over the years as the house price rises.

Yes we do benefit from an uplift (though not one we can realise for a long time ) but it's how this balances with our increased costs.

In the original proposal we said that should for example the PILs die within a few years (fairly unlikely given both their family histories) then it is clear we would have benefitted and we would have made a payment to bil as at that stage we would be able to rent out that part of the property and therefore cover our costs.

.

Seriously I think forget anyone inheriting anything now and get the PILs to pay rent for the annexe...

When BIL kicks off about that perhaps he'll be more amenable to realise he's being a prick and grabby about £££££

It is fine for everybody else but you Forester1.

By agreeing to this you are tying your capital up with you PIL for the rest of their lives. If you and your DH split up, your share of any equity is postponed until the last of them die. It will get harder to enforce any form of release/downsizing as they get older. Your DH will remain in situ most likely. It may not affect your DH because of the family dynamics but you will be the worst affected (if a split were to happen of course).

en.wikipedia.org/wiki/Proprietary_estoppel

My advice is only if you are happy to enter into that potential situation should you agree to this at all. Shit happens.