How best to help sister in law with inheritance

[Littleredhen39]

Looking for some good advice. Sorry will be long.

My mother- in-law recently passed away leaving an estate worth approximately £330k to be shared between my DH and his older half DS.

Back story is that older sister struggled with DH's father as a step father and left home at 16 with no qualifications. My DH went to private school and has a very successful career. This has produced no resentment from SIL and we are all very close though do struggle with her life choices. SIL has really had a hippy nomadic lifestyle, picking up low paid jobs here and there, flitting between some lovely and not so lovely men. No children just dogs.

She is now in her early 60's and has been with a lovely partner for 17 years - though not convinced how happy she is with him. They live in a camper van and live off her partner's pension and savings and my late MIL was giving her £300 a month to contribute to living. SIL is notoriously crap with money and has spent money impulsively on boats, dogs etc. She has never had a desire to own a house and stay put and really has no plans for the future insisting she'll not live long.

Anyway my DH wants to give his half of his inheritance to her as he always feels guilty that his Dad may have contributed to her poor life choices - true to an extent.

We have a house and two children approaching university age. SIL is willing to take advice from DH on what to do with her half of the money and he is not sure how best to give her his half.

Would it be best to purchase an annuity, or some other investment that will pay out money as a regular income?Would this impact on benefits - she does not claim any now? I thought clubbing the full inheritance together and buying a house that could be rented out and living off the income, as I thought the house could then be left to our kids when she passed away, but DH feels that will be too much to cope with.

Suggestions please.

If your SIL is historically not good with money I don't think that your DH giving her even more is going to be helpful to be honest.

The capital your SiL is inheriting in her own name will already push her over the capital limits in the benefit system.
Would be inclined to wait till she has spent this and then resume supplementing her income at the same level as your MiL had done with your DH's half.
Soon she will be state pension age which will change her financial position.

I’d get DH (who sounds very thoughtful) to put the money into a separate bank account in his name. That way, he can use the money to help his sister if and when she needs it, but is in complete control of the money.

It also means that if your situation changes (and things can happen that you just don’t plan for), the money can be used by you, or your children.

I’m not sure a big chunk of money would enhance her life or solve her problems
if anything it add a new set of challenges for her
buy a rental giving her the income and leaving it to your kids does sound a viable option

I agree to an extent so he's looking at ways to give her a regular income rather than a lump sum. Something he can administer.

MIL used to give her regular money as well as lump sums for big bills etc. Only ever asked DH for money once.

Based on the £300/ month payment towards living expenses, your sil has a valid claim against the estate and any accommodation to her should take that into account- if she made that claim, the estate would have to incur legal fees.

Did you miss the bit about inheriting 50%?

If she'd been written out of the will there may possibly be a case to argue but not relevant.

Are you wealthy enough that giving your SIL the £165k will never matter? What about if one of your DCs in the future lives a similar lifestyle to her and you want to help them?

I think a serious chat with SIL is warranted. Living on a boat in your early 60s might be fine, but what about in your 70s or 80s? Surely she'd want to be on firm land by then.

Is there any basis to her assertion that she won't live long? If so, there'd be no point buying an annuity as that dies with the person. She could, however, get around 5% fixed on long-term savings at the moment, which is £8,250 pa on £165k or £16,500 on £330k (less any tax due.)

If she's bad with money it probably wouldn't be a good idea to give her control of the whole sum. Perhaps your DH could put aside his £165k, give her the monthly interest if she needs it, but keep the capital in his name. If she burns through her inheritance he could then decide at a later date whether to give her lump sums or to use it for your own family.

Yes! I hadn’t assumed half DS was the same as SIL because different terms are used, but you’re quite right if they are the same

Can you not just continue to do this for her, although make it clear that the money will run out if she lives beyond a certain age? It can be formally set up and be completely independent and separate to you so that the money comes from a trust.

Not the house, you're saddling her with a whole shit load to manage administratively for a start.

With money that is not in a pension you can buy an annuity that does not die but rather returns funds at the end. Most of it will also not be taxable as it counts as a return of capital.

We are comfortable. The inheritance would help in so far as we could retire a bit earlier than 67 but we can manage without and had never taken the money into consideration. I'm more keen for it to be able to be passed down to our children should they need it.

I think I'm going to persuade DH to keep the money in his name, however he is a high tax payer so maybe a trust of some ko d could work. The

Will look into this thank you

I would not buy a rental property unless you are prepared to do the work of looking after it. and it can be a very high risk option - if there are awful tenants or something goes wrong, all your money is in one place.

be very careful with a trust because once you put money in, it can be very hard to take out and undo the trust. for example, if you put money in a trust and then SIL suddenly needs a wheelchair and needs to buy a bungalow, or she unfortunately dies, but the money is tied up in a trust where you can't touch it, then that doesn't help.

i'd put it in a stocks and shares investment designed to maximise income and then pay out the income to SIL regularly but you & DH keep the capital for your children to inherit one day.

I'd just offer to keep giving her the £300 a month, with interest you could increase it now, or by more when she's a bit older and may need more help. 3003012 is £108k so you could probably do £400 now, especially as it will grow. It means she doesn't have it to her name, can't waste it all, but it does mean he has a type of power over her forever, which may be uncomfortable. If you give her a lump now she will have £300k, which would only be useful really if she wanted to buy a house. Also keeping all the money means that if she dies you can pass anything left to your children, which she may or may not do anyway, but I think it may be better from a tax perspective too.

I’d hold on to the money for now, pay her the £300 a month and keep an eye out for when she needs real help with accommodation in future.

Your DH sounds like a lovely brother.

Trusts are a nightmare to set up and run, and bad tax-wise. Keep it simple and flexible

When did she last work? Has she ever taken on self responsibility or still blaming everything on her teenage life?

tax wise, your husband would be better off putting the money into your name (you mentioned he was a higher rate tax payer, so assume you are not) and then the income it generates will be taxed at the lower rate.

Then your husband can give his sister “regular gifts from income”, equal to the income generated (after you have paid tax at the lower rate) divided by 12. If you don’t currently maximise your isa allowance, use this money to build them up, so they reduce the tax burden.

this way you retain control of the money and the 12 regular gifts will be tax free for DSIL. They can also be stopped if they negatively impact benefits.

you should be able to continue the £300 pcm by doing this.

She worked as a carer and stopped around 3 years ago.

She doesn't really blame her teenage years. More herself really. She just can never forward plan - lives day to day almost.

Never tried at qualifications as scared to fail. Does not remotely want our conventional life of a house, jobs kids etc. The thought of being in my 60's and not having even a vague idea of where I'll be for the next 5 years is alien to me, but she just doesn't seem to think about it.

She is a lovely person but I feel as though DH will be helping her fund a permanent holiday for the foreseeable.