Buying Sibling’s Share of Inherited House

[TK]

Hi, I hope this is the correct forum to ask this question.

My father-in-law passed away recently and his will states that his estate is to be shared equally between his three children, my wife and her 2 brothers. The estate consists of a property and some money, around £175,000 in total.

One of the brothers lives overseas so the other 2 children are considering buying him out of his share of the property. Valuations have been given by 3 estate agents and are similiar in value. The intention would be to use the average value as the figure calculations are based on.

Can anyone suggest how it is best to proceed with making this arrangement if they decided to take this route please? My wife is the executor and she intends to process probate herself as the estate is a simple one. Is the best option to obtain probate first or is there an alternative way to formalise the agreement if 2 of them pay the 3 sibling his share?

Please let let me know if other information is required in order to answer this question.

Kind regards,

TK

[efpom]

Your scheme will not work - 2 reasons: Firstly, one cannot pass title to anything unless one has the right to transfer title, and secondly there is no share of the house, because, you say that "the will states that his estate is to be shared equally between his three children, my wife and her 2 brothers" so there is NO specific bequest of a share in the house. All of the beneficiaries would seem therefore to be entitled to the residue of the estate, in equal shares.

The fact the a person is named as Executor and Trustee in a deceased's will does not change that. A proposed Executor in a deceased's will can refuse that office.

However, assuming the Executor is prepared to take office, until probate is granted by the court, naming that person as Executor, the proposed Executor has no duties and no powers, so would not lawfully be entitled to dispose of any assets of the deceased's estate.

Upon the grant of Probate, the Executor then has a fiduciary duty to the Estate, as Trustee of it, the creditors of the Estate, and the beneficiaries named in the deceased's will. The first duty of the Executor is not to devalue the Estate, so for example, he/she would be required to insure the assets of the Estate, out of the liquid assets of Estate funds - insure the house here.

The rights of creditors of the deceased's estate outrank beneficiaries, and the Executor of the Estate has a duty to pay those creditors in full, before distributing what's left to any beneficiaries.

The rank of the creditors is also important - first is HMRC, second is anyone who has a charge on the house, a mortagee, for example - secured creditors, who are entitled to be paid in full before the unsecured creditors, who are either to be paid out of Estate funds in full, if there is enough money to do so, or in proportion to the debt owed by the Estate, if there are insufficient funds left.

It is only after that, that the Executor is entitled to distribute what's left of the Estate to the beneficiaries.

There is nothing to stop the Executor selling the house anyone including to one, or more, of the beneficiaries, for the purpose of raising funds for the Estate to enable it pay it's obligations to creditors and beneficiaries, provided the sale is not at an undervalue.

I hope my writing helps.

[TK]

Hi Efpom, thank you for your reply.

I wonder if I did not explain myself clearly in my original post. There is no “scheme” here; my wife and her brothers are equal beneficiaries and they have agreed that an option they wish to consider is for two of them to buy the third siblings share from him so these two own the house moving forward.

With this in mind, my question was about whether my wife, as the executor, should proceed with probate first or whether there was something else they needed to do.

Thank you for the information relating to insurance and creditors etc. All of that is in hand and there is no mortgage on the property.

Kind regards,

TK

[Amethyst]

Peridot

Ive tagged peridot for you but she is away this week but might look in - it may be wise to sort out probate and distribution first and then the two purchase the thirds share of the property afterwards.

I think what epfom was saying was that the house hadn't been left in thirds to the beneficiaries specifically - it simply forms part of the estate - so there's no 'share' of the property for the two to buy off the third. The estate has a value as a whole and if split three ways, as per the will, so up to the executor and beneficiaries how that distribution takes place ... maybe the third gets cash and the two get half the house each - depending how it works out.

[TK]

Hi Amethyst,

Thanks for your reply and for tagging Peridot.

Thank you for commenting on Epfom’s feedback. I think it was how I explained it that caused confusion. My wife and her brothers understand that the final estate will split equally three ways once everything is concluded. They were thinking of it in two pieces really; the house and the money, so that the estate agents valuation is used to determine how much each third of the house is worth if two of them decide to buy out the third sibling. Of course if the house is sold the final estate will just split three ways in cash.

If it adds clarity, the house is valued around £155,000 and the cash is around £20,000.

Kind regards,

TK

[efpom]

I meant no disrespect in my usage of the word “scheme”

Assuming probate is granted, the Executor now has a straightforward accounting task, which shortly, I explain below.

1. Open a separate account with a bank, in the name of the Executor as Trustee of the Estate funds.
2. Transfer all of the deceased’s liquid assets into that account – cash, money held in the deceased’s bank accounts, Premium Bonds, any pension payments due but not paid as of the date of death.
3. Put all of the deceased’s other assets for sale – contents of the house, car etc
4. Put the house up for sale, with the expenses of sale paid out of Estate funds.
5. Put the net proceeds of 3 & 4 into the Estate funds bank account.
6. Pay all of the deceased’s debts, out of Estate funds.
7. Distribute the amount remaining to the beneficiaries.

Importantly, it makes no difference whether the house is sold to two of the beneficiaries, or anyone else, the buyer(s) must come up with the full purchase price, before distribution – 7 above.

[TK]

Hi Efpom,

Thank you for your reply. I thought the use of the word “scheme” was being interpreted as some intention to circumvent process or seeking to gain inappropriately, hence why I replied as I did about it.

Thank you for the information you have provided. It is interesting you mention option one. My wife discussed this with both of the banks my father in law had accounts with and neither offer that option apparently. In both cases they have transferred the money into my wifes’s accounts with the same banks on production of the death certificate. This was apparently due to the amount involved.

There is no car and limited furniture; certainly no valuables. My wife is collating and recording details of all that is outstanding both in terms of expenditure and anything to be paid into the estate.

The information regarding the value of the house is something that we were not aware of. For my complete understanding here, you are advising that if my wife and her brother intend to retain ownership of the house, and it is valued at £155,000, with, as an example, £3,000 of expenses to sell it, they must pay half of the net value of £152,000 (£76,000 each) into the estate and cannot just pay the other brother’s share (£50,667) to him between them?

May I please ask you to explain why the house actually needs to be put up for sale if all three siblings agree the valuation based on three estate agent assessments.

Kind regards,

TK

[efpom]

Do please bear in mind that the Estate is a separate (legal) person.

Your penultimate paragraph is close, but they must pay £155,000 not 155,000 less the costs of sale which is paid by the Estate. There can be serious legal consequences if a house is transferred at an undervalue - look it up on the internet! - Also, and seldom highlighted is the capital gains issue.

4. of my previous writing could have been better put - there is no need to advertise the intended sale to the whole world.

One final point, the executor should not mix up her own money with the Estate monies - find a bank willing to open a trustee account - most will.

[TK]

Hi Efpom,

Thank you again for your reply and for clarifying the topics.

There is absolutely no intention to transfer the house at a lower valuation and we understand the potential impact of capital gains.

Kind regards,

Tracey

[Peridot]

Hi TK,
Apologies for the delay I've been off the last week. As far as dividing the estate is concerned you can base this on the valuations you have obtained. Provided all the beneficiaries end up with their 1/3rd share it doesn't matter how this is dealt with. If for example the assets available were a house at a valuation of £150k and other assets of £30k then each beneficiary should receive £60k or the equivalent (remember testamentary expenses and debts should be deducted before the shares are calculated so it will not be quite as easy as dividing the asset values 3 ways). So if all the beneficiaries agreed that 2 would inherit the house then they would have to raise £30k between them to reimburse the third beneficiary for their house share and the third beneficiary would also receive all the other asset value of £30k.

It would be sensible to have a Deed of Variation drawn up which then protects all parties in the future and confirms how the estate was divided. You can obtain probate and then decide how the estate is divided before drawing up the agreement. Would you be raising a mortgage against the property to allow the third beneficiary to receive his estate share or would you be funding the difference yourselves?

You will need legal help with the transfer of the property following the deed of variation as there are potential capital gains tax issues down the line when the property came to be sold in the future and how the amount due would be calculated. This website may help you understand Deeds of Variation a bit more clearly:- https://www.gov.uk/alter-a-will-after-a-death

So the property doesn't need to be sold provided the three beneficiaries receive their equal share or money's worth or a Deed of Variation is prepared that all beneficiaries agree to. You could even have the Deed state that the property passes to two beneficiaries and the cash assets pass to the third. How you deal with the outstanding sum due to the third to 'equalise' their share is a matter for you, but I suspect if they seek legal advice they would be told to make sure all was in writing to ensure they get their equal share.

Hopefully this makes things a little clearer for you.

[TK]

Hi Peridot,

No apology needed, thank you, and I hope you enjoyed your break.

Thank you very much for all of the information in your reply, it is very helpful indeed and much appreciated.

We are fortunate enough to have the funds available to be able to pass over the share to the third sibling without the need for a mortgage.Does this imact any of the processes you referred to please?

Thank for the information in relation to the Deed of Variation. We would all be keen to ensure we had something which formalises the agreement so there are no issues in the future.

Confirmation that we can obtain Probate first is one of the topics that my original question related to so thank you for this information.

Best wishes,

TK