Help! Mum’s will gives one of her three daughters the right to live in her house, but must we override this and sell up to clear debts?
A member of the family has recently died and her three daughters are named as executors and the only beneficiaries in the will.
The will gives the right to reside in the property to the youngest daughter who was her mother’s live-in carer. The other two daughters fully support this arrangement.
The problem is there is are insufficient funds in the remainder of the estate to cover the outstanding debts of the deceased without selling the house.
Inheritance and debts: Mother’s will gives one daughter the right to stay living in her house (Stock image)
As executors, is it their primary responsibility to sell the house to clear the debt, thus making the right to reside clause and trust irrelevant?
Am I right in assuming that the deceased cannot avoid debt by putting their assets into such a trust?
Tanya Jefferies, of This is Money, replies: My condolences on the recent loss of your relative, and I am sorry your family are now put in a dilemma by the debts and the terms of the will.
We asked a lawyer to explain what the law requires of executors in this situation.
She lays this all out below, as well as the consequences of not carrying out executor duties properly, and some possible options to ensure the debts are paid and the youngest daughter still has a place to live.
It sounds like it will be well worth your family taking legal advice to help resolve this matter.
Helen Taylor, partner and head of private client at Franklins Solicitors, replies: I am sorry to hear that your family are having to deal with debts as well as grieving for the loss of a mother.
However, the executors must know that death does not release a person’s estate from liability for their debts.
Executors have duties in the law and they owe those duties to the creditors of the estate as well as to the beneficiaries.
Helen Taylor: Executors owe duties to the creditors of an estate as well as to the beneficiaries
One of those duties is to pay the deceased’s debts and only then to distribute the estate if enough assets remain.
If they don’t do it properly, they can be personally liable for their mistakes.
You say that there is not enough in the residue to pay all the debts so I am afraid that does mean the other gifts will need to be used to pay them.
You don’t mention any other specific gifts in the will but if there are some, the executors will need to make sure they are used up in the right order.
This is because the law sets out that some gifts should be used before others.
So for example, if there are gifts of money, these would be used to pay debts before a gift of a property.
Again, if the executors do it wrong, they could find themselves personally liable to the person whose gift they wrongly used.
You are right to say that making a gift of a property with a right to reside or in a trust, from a person’s will, does not avoid the need to pay their debts.
However, I have assumed that the mother died owning the house. If the house was already in a trust, then the answer might be different although bear in mind that people can’t give away assets in order to avoid their debts.
You refer to both a right to reside and to a trust but it is important to understand that these are two different things with different consequences.
A right to reside is typically limited to a specific property and will usually come to an end in particular circumstances, like if the person leaves the property or indeed, after the property has been sold.
However, sometimes the right to reside can transfer to a new property which might be useful for your family.
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
You also don’t say what happens to the property when the right to reside ends and this is important to know because these beneficiaries will probably need to be involved in any discussions.
If the property is given to a trust, although it will depend on the type of trust and the exact wording used, the trust will usually provide for the beneficiary in a longer term way, maybe for her life or at the discretion of the trustees.
It is really important that the terms of the trust are properly understood and trusts are notoriously difficult to understand because of the old fashioned legal language usually used.
Getting specialist advice on the terms of the trust and the tax implications is vital.
If a trust has been used, there might be other ways of providing for the youngest daughter, even if this particular house has to be sold to pay the debts.
A different house could be purchased for her to live in or she might be able to receive a lump sum or an income stream from the trust.
Don’t forget that the executors could try to persuade the creditors to write off the debts or accept a lesser amount, rather than make the daughter homeless.
Creditors don’t want bad press or the costs involved in evicting a bereaved daughter and they are often willing to negotiate for less or accept payment in instalments.
Also, the youngest daughter might think it would be worth paying those debts off herself in order to be able to live in the property.
Of course, it will depend on how much is owed and the daughter’s own finances but there are often other ways around a problem and it might be worth a meeting with a solicitor or financial adviser to talk through various options.
Hopefully the three daughters can work together to meet their responsibilities as executors to pay the creditors and also to provide a home for their sister to live in.
THIS IS MONEY PODCAST