Gift with reservation

Exactly Craicon! "Handshake agreements" are no good - things need to be written up legally.

But it seems the op's df did work with a solicitor. There do seem to be some loose ends though, like not knowing if niece will actually pay back the money. I don't get how the solicitor didn't catch that or maybe just didn't care.

My grandfather was relatively well off and gave his house and business (run from the property) to his son-in-law with the proviso that he and granny could live in the house rent free until death. Nothing drawn up legally to cover this handshake agreement and no money changed hands.
A few years go by and son-in-law sells the house and business as a going concern and grandparents have no choice but to move out and into sheltered council housing.
Grandfather dies and granny has dementia and comes to live with my parents (her other daughter) as son-in-law and other daughter have moved to a luxury retirement bungalow and don't want to know.
My mum inherited nothing and had to give up work to look after granny until she died. I was a young teen at the time. We were not well off. Had outdoor loo and no central heating until I was about 16.
I loved my grandparents, but bloody hell, my granddad was stupidly trusting and naive.

This explanation seems to be clearer.

abbeytaxblog.co.uk/2013/11/19/inheritance-tax-gifts-with-reservation/

M0nica has written a good post. This is a website that may be helpful.

www.taxationweb.co.uk/tax-articles/inheritance-tax-iht-trusts-estates-capital-taxes/gifts-with-reservation-the-rules-explained.html

I wonder what your father thought he would achieve by giving your niece a gift with reservation.

Nobody should ever try to be too clever by half and try and trick either the law or the revenue, it will all catch up with you in the end and the result will be a very expensive mess.

A lot of family unpleasantness and rows could be saved if families would only just be prepared to pay for proper legal advice and make wills etc. It isn't that expensive, most families will pay much more for a holiday or a replacement car, without concern and then balk at £500 to sort out a will that ensures an equitable way to share out their assets at death. We first made our wills after the birth of our first child and have revised them roughly every 10 years ever since.

And as I have said the Gift with Reservations is entirely ineffective in saving the gentleman concerned either from the house being sold to meet care costs, or from inheritance tax because he is continuing to live in it and is not paying a market rent to his relation (hence the first para).

If it ever is made.

The solicitor probably hasn't been told about the payment to be made.

I'm amazed that any solicitor has condoned this arrangement.

Yes farnorth. A form of money laundering really.

Why is your niece paying only half the market value? How will she afford it while also buying her own property?

I'm guessing this is an under the radar deal, whereby your DF feels he's getting one over on officialdom and your niece is getting a property on the cheap, or free, the gift with reservation having been set up to look like it isn't a sale, and DF letting the house go cheap as he thinks it saves him bother.

Yes, she could, but again, you can invest the money you receive and increase your "share" that way, too. Also, Monica makes a good point, that brother probably won't be able to stay in the other house, once df is gone, unless df makes a will that says it goes to him.

But wait... the niece is YOUR niece? I thought she was HIS/your first cousin. So he's favoring one GC over the others? And dm is going along with this? I see why dh is angry. It's still their call but favoritism is still wrong, and this looks like favoritism to me. I don't blame you for being upset that she's only going to pay half the value (if she does that), but what can you do?

I couldn't imagine just abandoning my elderly parents, despite the favoritism. Perhaps cut back on contact, but keep up with them enough to make sure they're reasonable healthy and "ok."

Lilyflower, I'm sorry about what happened to you. But I'm not sureprised. Iv heard about stuff like this all my life. That's why I always say people with kids from a previous marriage should have a prenup, give their own kids their "inheritance" while still alive or leave money to them separately and directly. Some sps can be trusted to leave the sc the money they said they would but not all.

Thank you for fellow Gransnetters for all your comments and advice ( only just read them as Dh and I have had a much needed weekend away).
Apparently my DF went with niece to a solicitor and the Gift with Reservation was drawn up. Niece is currently purchasing her own property and has promised to pay DF some money as soon as she can afford it but this would be for half the market value of the house which my DF then proposed distributing to myself and siblings. I wouldn't feel so annoyed if said niece had just bought the blooming house from DF at market value. I couldn't believe that DF had been to a solicitor and not drawn up a will as some of you have pointed out, its very messy. I suppose my DH is annoyed as he feels that our DD the other grandchild has not been considered in all this and has taken it personally.
My DF plan is that he and DM will continue to live in the property rent free until the end of their days and my brother will stay in the other house my DF owns. I should add that neither of these two properties are in particularly good condition although habitable and unlike to meet the threshold for inheritance tax, however with some investment both would be valuable as resale or rental properties. Therefore my niece could end up with a nice little 'nest egg'.

No the brother will not get the house if his father still owns it when he dies. The value will be added to the estate and he will share that equitably with the other siblings. He will probably have to move out so that the house can be sold and the money shared out between him and his siblings.

If someone dies intestate their spouse is entitled to the first £250,000 of the value of the estate and personal belongings. The balance is shared equally between spouse and children.

AS you say the father is free to do what he likes with his assets, but if he doesn't have a will his estate will be distributes under the laws of intestacy, which may well not accord with his wishes, so if he has any sense he will make a will. If he doesn't he is a fool.

Oh, long post! Sorry!

I see I misread and df only gave the house he and dm own together - live in ? - to niece. As a pp said, perhaps because he thinks brother will get to keep the house he lives in especially if he is disabled in any way.

So that means that the proceeds from the house (if niece pays up in time) will be divided between all the siblings, but this brother will also get the other house? That makes it a little messier than I thought.

Yes, even if df plans to give out that money while he and dm are alive, it's true he could die tomorrow, sorry to say. But then wouldn't it go to dm and couldn't she divide it? Is she on board with all this? I would think so but the op didn't say.

I don't think it was "harsh" or "callous" of me to say df has a right to do as he chooses. I was just stating reality. Ac shouldn't "expect" that things are going to be this way or that with their parents' money. Particularly in today's world, too many other factors can become involved like trying to keep money/property in the family and not have it all go to a care home.

Also, perhaps that's "wrong," but df probably thinks it's the "right thing to do" and has everybody's best interests at heart. If all goes as he plans, niece gets the one house, but she has to pay for it. The op and her siblings get the money for free. Sure, niece can sell the house, eventually, and make a profit, but they can invest that free money and make it grow. The only inequity seems to be brother getting a house for free. But maybe he's not getting as much/any of the money from the other house? Not a foolproof plan but, imo, df is trying to do what he thinks is best.

There is a danger that niece won't pay up by the time df and dm are sadly gone. And then I don't know if op and her siblings could get the money from her. But would a will solve that problem?

Op, are you still reading? Do you know anymore about how df plans to go about this and divvy things up? It does sound a little messier than I thought. But perhaps he is already working with a solicitor and has it all worked out? Instead of complaining and expressing annoyance, why not ask more questions? Be prepared for the possibility that he might not answer, however, which is his right, even if a little cold.

Everything the father has done will be negated if there is no will. Once he dies all his estate, including the house the brother lives in will be aggregated into the estate and shared out under the laws of intestacy, which essentially, and in simplified terms, means the estate will be shared out equally between all the children of the deceased. That will probably mean the house the unemployed son lives in will have to be sold and he will have to find himself alternative housing.

As far as the 'Gift with Reservation' goes, here is a quote from a Solicitors leaflet on the subject that I found online

"If you have given away the legal title to your home but wish to continue living in the house then you have made a gift with reservation of benefit. This means that the value of the property will always come back into your estate for Inheritance Tax purposes. However for all other purposes the gift is effective. For example if the owner of the house dies it is part of their estate for Inheritance Tax purposes not withstanding that
because of the gift with reservation it is also part of your estate for inheritance tax purposes^
This sort of gift is potentially disastrous."

In other words, if your father is still living in the house when he dies, the house will still form part of his estate for inheritance tax purposes. I also think his niece is free to sell the house, even while he is still living in it, which could leave him potentially homeless

The house will also still be considered part of his assets for Care Home cost calculations unless he is paying his niece the full market rent, even then the Local Authority can claim that he gave her the house to avoid paying care home fees and they will still treat it as part of his assets

Sounds to me like the Niece thinks show knows exactly what she is doing (gaining an asset she thinks will be valuable and make money from) I wonder if she has any intention of helping care for the elderly people if she gets the house > and how is this legal without a sale ? Simply 'signing it over' will not be recognised legally and would therefore mean the asset of the house is still the father's which in turn would mean it will be taken into account should he need care.

There are schemes now where a Solicitor or Probate professional will come to the house in order to make a Will ...somehow you must try to persuade him he really needs to do this .....you could tell him his wishes are not legally recognised if he does not make a Will....difficult !

If you gift something like a house to someone else, do they own one seventh of it after Year 1, two sevenths after Year 2, etc etc?

If so, DF will still own part of the property and it won't totally belong to the niece until the end of Year 7.

This is important because if DF dies intestate, the sublings will take priority over a niece in the inheritance "pecking order".

Whilst it may be a purchase rather than a gift if the niece pays DF for its true value, I suppose that can be a private arrangement between them to avoid inheritance tax.

It's possible that because the niece is clued up, she suggested this to DF without knowing he has made no will.

If no Will is made and then only the next of blood kin can apply for probate, it all sounds very messy to me, also just a thought if the brother has been living in the house for many years he will probably have some sort of rights and it could be difficult and costly getting him out. A solicitor needs to be consulted on this.

Haven't read ft but if your DPs are in their late eighties it would be quite reasonable for the Local Authority to claim he had done it to avoid care home fees?
And you avoid inheritance tax altogether only if you live for 7 years after gifting... (crossing fingers as we have given DDs large sums 18m ago)

They say "where there'-s a will there's relations" but where there's no will all the relations come out of the woodwork, irrespective of how previous relationships between the parties have been. I have made a will and had 4 copies of it done so they can all know what is in it. Apart from a few specific bequests the balance will be divided amongst them but they have made it clear they won't fall out and, due to circumstances, don't expect much, for which they will have to wait until the house is sold. This may take a considerable time unfortunately.

Starlady is a little harsh. Yes, one's property is one's own to dispose as one wishes but to disoblige your nearest and dearest after they have put in years of love, goodwill and gratitude is mean and unloving. The DF has snubbed his loving children and is letting them in for endless trouble when he has passed away.

My father divorced and married again and left his property to my step mother and she left it to her children despite promising to divide it evenly between the children of both families. I must say I had no expectations and never gave it a second thought but this post has made me think that this was a pretty rum thing to do. However, I knew my father didn't like me much so I didn't have any wild expectations.

Yet again, Gransnet has opened my eyes to the casual callousness and cruelty of ordinary people. How valuable are the kind and empathetic folks. They are like jewels in the fabric of life.

They need wills and power of attorney arrangements in place.

Your niece sounds very on the ball, I wonder where she gets her advice from?

Do your parents have other money to leave which might even things up a bit? Maybe they think they will avoid inheritance tax in this way?

Whatever the case is, they can do as they like with their money even if they are being duped.

Even if DF intends eventually to distribute the proceeds from his niece he may drop dead/be killed in an accident tomorrow. Of course he should make a will, and so should his wife.

The Age uk leaflet about the definitive legal situation.

www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true