Recover loan to estate

[Judy Justice]

My sister was loaned money by our father but after his death claims that this was a gift, even though her records clearly show this was a loan. She says Dad was happy to give it to her, although he told me he didn't want to let her have any more money. She is a joint executor and we are at a stalemate because she is refusing to repay the loan back into the estate. What can I do?

[Kati]

Tagging Peridot for help xx

[Peridot]

Hi Judy Justice,

It will very much depend on what documentation there is? You mention her records, what do these include? Unless there is some document, signed by both parties, confirming the money has been given by your father to your sister on the basis this is a loan to be repaid, you would have an up hill struggle proving otherwise I'm afraid.

Another factor, if you have sufficient evidence that this was a loan, that you needs to be considered is whether the loan amount is worth pursuing and what this will achieve, in terms of the residuary division of the estate. If the residue is to be divided equally between you and your sister then the amount to be divided could be significantly eroded by taking the matter to Court, thus reducing the amount due to the residuary beneficiaries. This isn't always the case but you should bear it in mind.

When was the sum passed to your sister? If she is claiming this was a gift and it was a significant sum of money, given to her in the 7 years before your father died, then the sum should be included in the estate values in any event and could affect what inheritance tax (IHT) there is to pay. It would be worth considering the effect of this if his estate could be liable for IHT. This link may help explain the 7 year rule

https://www.gov.uk/inheritance-tax/gifts

Is your sister refusing to discuss the matter at all or would she be open to negotiating? She doesn't necessarily have to return the sum to the estate. Any legacy due to her could be reduced by an amount to be agreed by all the residuary beneficiaries (and executors), that reflects the sum she previously received, or an amount of it? I suspect that this may not be something she would agree to but may be worth considering.

If there is a document as mentioned above and if the loan amount was significant, then it may be worth considering taking further action by making a claim. If this is not possible then you need to consider the 'gift' aspect and any effect this may have on the IHT forms. The executors are after all expected to account for all aspects of the estate, including loans, claims etc.

Apologies this is a little speculative but without knowing figures and the wording of the Will it is difficult to point you in the right direction. Basically if this was a gift in the last 7 years of your father's life then it needs to be accounted for in the IHT forms. If this is a provable loan then you need to consider the cost of pursing it and what the benefit would be to the residuary beneficiaries if any claim was successful.

If you have any further information feel free to post again and we can try and point you in the right direction.