Sisters loan from dad and impact his estate

[blanketedbydust]

Hi,

We are in the process of working through my late Father's finances and estate.

It has come to light that our dad lent my sister £20k, £17K of which was still outstanding at the point of his death. There was no written agreement, however sister has confirmed that this was the agreement.

I feel that my sister's share of dad's estate should be reduced by the value of the debt and the money that she owed has effectively reduced his estate by 17K. My partner disagrees and thinks that it's nothing to do with us

Surely morally she should accept that her share of any inheritance must be reduced that that amount? AIBU?

Lots of creative ideas - however there is a basis of law which an executor has to follow...

• they must follow the will - so the estate should be split according to the will (e.g. 50% each)
• they can not vary the will unless a variation is made (c.f. below) which would need the sister's agreement
• any debts / credits on the estate should be accounted for and settled - that is the executor's job - so if there is a loan (and the sister appears to be acknowledging that) then it is the executor's job to call in that loan and add it to the value of the estate - effectively as suggested by some above the sister can just be paid out less to avoid having to find the cash to pay in - but the value of the loan would count towards IHT limits (though it would appear they are not relevant here).

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variations:
https://www.gov.uk/alter-a-will-after-a-death
"You can change a person’s will after their death, as long as any beneficiaries left worse off by the changes agree."
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A discussion is needed with the sister to explain that this is the law and not a choice. The issue will be if she then denies that it is a loan and claims it was a gift - without paperwork it might be tricky to establish the position accurately - though the evidence of the sister having made repayments would lend weight to it being a loan.

Ultimately the OP has to decide whether to fall out over it or not, but the law is on their side to consider the outstanding loan amount a part of the estate...

I would have a conversation with the sister along the lines of:
Sister - this is the legal position - as executor I have to include that in the estate - which means that you will effectively have to pay back £8.5k.
You will therefore get £xxx - if I don't do this then we are both in breach of the law, it would be best if we did it properly as otherwise lawyer and court fees could eat up much more than that amount...
Will you be okay financially when you get that payment - you won't have to find £17k cash, we can simply adjust the figures in the accounts...

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To the poster who posted the very helpful overview of gifts above - there is also an additional category that anyone can gift as much as they like to anyone as long as they can demonstrate that it comes out of excess income... lots of caveats around how you prove that - e.g. you can't take capital and not use income and then claim the income as excess - but if you are wealthy and e.g. have an income of £100k p/a but live off £30k - you could gift that remaining £70k without issue... (7 year tapered IHT rules still apply).

I don't think you understand executorship.

You are responsible for distributing the estate as per the will. You don’t get to chose who gets given what percentage.
Unless there is a deed of variation, then you cannot change anything. Even Intestate is quite strict on the distribution of assets.

Now I KNOW that you don't understand the duties of executorship.

These are the roles of the executor of a will:

• making sure the property owned by the person who's died is secured as soon as possible after the death
• collecting all assets and money due to the estate of the person who's died (including property)
• paying any outstanding taxes and debts (out of the estate)
• distributing the estate to the people who are entitled to it under the terms of the will
• arranging the funeral – whether or not the will contains specific instructions to do so.

What part is wrong according to you?

The OPs not been back for a good few days but I'd want the sister to pay (or offset) the debt. OP, have you got it in writing anywhere that your sister agrees it was a debt.

Strangely enough, I know (and knew) all that when I processed two family estates years ago. There are other matters you’ve missed though. Best do a bit more googling?

Exactly what are you hoping for with this know-all approach? A medal?

Your bullet 2 covers precisely the issue that you seem to be challenging ad nauseam, derailing the thread of course…