Clarifying terms of a will to reflect 'advance payments'

[MyNameIsUrl]

A grandfather wishes to leave his estate split equally between 5 grandchildren, and his will reflects that wish. The total value of the estate is under the IHT limit.

As two of the grandchildren are currently saving for house deposits, grandfather has recently given them an ‘advance’, on the understanding that the advance comes out of their future share of the will, and the remaining 3 grandchildren will not be disadvantaged.

I will be the executor, and I would like to document something now to ensure the understanding remains clear. Can I ask the grandfather to write a simple note to sign?

How about this for wording: ‘In October 2019 I gave to my grandchildren X and Y the sum of £000, on the understanding that this is an advance on the amount they will inherit in my will.’

He could add, at the risk of over-complicating: ‘So the total estate plus the amounts given will be divided by 5 to give the share for each grandchild, and the amounts given will then be deducted from the shares to be received by X and Y.’

I don’t expect solicitors will be involved in probate or distribution of assets, but I think a bit of documentation would be a sensible thing to do. I want to keep it as simple as possible, because grandfather has done a nice generous thing and I do not want to be the person being awkward or casting doubts on his actions.

[PinkDalek]

[I will be the executor, and I would like to document something now to ensure the understanding remains clear. Can I ask the grandfather to write a simple note to sign?

How about this for wording: ‘In October 2019 I gave to my grandchildren X and Y the sum of £000, on the understanding that this is an advance on the amount they will inherit in my will.’

He could add, at the risk of over-complicating: ‘So the total estate plus the amounts given will be divided by 5 to give the share for each grandchild, and the amounts given will then be deducted from the shares to be received by X and Y.’ ...

My apologies for my crossed out reply yesterday. I had intended to come back to this thread and forgot. I'll ask for that reply to be deleted so as not to confuse further but part is repeated below.

1. I think the proposed simple note would require the executor to enter into a Deed of Variation of the Will, which would need the impacted beneficiaries to agree to the reduction in their inheritance, which may not be forthcoming if they decided to argue they had been gifted the monies despite what was said at the time.

If I'm correct, others will hopefully advise/comment, the Deed would come at a cost and may be resisted. Might it not be simpler for the existing Will to be replaced or a Codicil be prepared?

2. Any future further "advances" could be provided as an Interest Free Loan repayable on Demand?

The only documentation needed is a simple promissory note, signed ... according to a Solicitor here:

viewtopic.php?p=124831#p124831

Those debts could then be paid off when the time comes, if not before.

Edit: Subject, perhaps, to the ages of the grandchildren or are they already not minors.

[fca2019]

I though deed of variation of will was after someone dies.

I'd make a fresh new will, by a solicitor, incl clause re gifts and also to revoke the old will.

[PinkDalek]

I though deed of variation of will was after someone dies.

Yes.

I'd make a fresh new will, by a solicitor, incl clause re gifts and also to revoke the old will.

Correctly drafted (new) Wills revoke prior Wills. Thus wording along the following lines would be included at the start:

I [full name] of [full current address] revoke all my former wills and codicils and declare this to be my last will ('my Will').

[MyNameIsUrl]

I'd make a fresh new will, by a solicitor, incl clause re gifts and also to revoke the old will.

Correctly drafted (new) Wills revoke prior Wills. Thus wording along the following lines would be included at the start:...

Thanks for the responses, but I'm very keen to avoid asking grandfather to have a new will, as he would interpret that as having done something wrong in giving his grandchildren the cash. I'm trying to put in place some minimal documentation to enable me as executor to do what he wants and have some evidence why. As I mentioned, the probate will not be done by a solicitor and the estate will be under the IHT limit, so I'm happy to go with 'minimal' documentation.

I note the word 'loan' has been mentioned and I can see that the cash could be regarded as a loan, to be paid back by the grandchildren on death, and then the total amount distributed back, thereby achieving the original wishes in the will. But the grandfather sees himself as having given the money in advance - he won't want me to tell him it's a loan.

My original suggested wording was: ‘In October 2019 I gave to my grandchildren X and Y the sum of £000, on the understanding that this is an advance on the amount they will inherit in my will.’ Is this likely to cause problems?

[scrumpyjack]

Your proposed wording does not, as far as I can see, form any sort of legal contract, so would probably be unenforceable if the grandchildren who received the money chose to ignore it. It is simply a retrospective statement of your grandfathers wishes. At the point he writes this, he has already given the money away unconditionally.

I can't see how you can alter that fact.

If he does not want to change his will perhaps he could write a codicil noting that in view of the amounts he has already given to certain beneficiaries the legacies will now be the following amounts ..... to ensure each shares equally after taking account of gifts made before his death.

I am not a lawyer, but a codicil does change the Will but could be presented to him as a simple way to reflect his wishes rather than writing a new will from scratch.

[Chrysalis]

I’m not a lawyer either, and can see where you are coming from in managing the grandfather’s intentions with ensuring you don’t end in a pickle with executing the will.
I agree that to make it watertight, you’d need to do what others have suggested in terms of legal alteration or addition to the will. I suppose the question is, for whose benefit and for what purpose is the simple note? If it is mainly to ensure that the grandchildren are clear about the intentions, that the gift now will be taken off their inheritance, then your suggestion will probably be adequate. Have you yourself had any discussion with them?

(Another option which springs to mind is for grandfather to give all grandchildren the same amount now, then the will needs no alteration).

[PinkDalek]

Thanks for the responses, but I'm very keen to avoid asking grandfather to have a new will, as he would interpret that as having done something wrong in giving his grandchildren the cash. ... My original suggested wording was: ‘In October 2019 I gave to my grandchildren X and Y the sum of £000, on the understanding that this is an advance on the amount they will inherit in my will.’ Is this likely to cause problems?

Yes, I understood your dilemma before. Your duties as the Executor are to follow the terms of the Will and any valid Codicil. I don't think a side letter changes that in the circumstances described but, as previously, a Codicil would.

I note the word 'loan' has been mentioned and I can see that the cash could be regarded as a loan ...

When I mentioned Interest Free Loan repayable on Demand I was talking about future advances to the same grandchildren or others. I am not in favour of changing the terms of whatever has already been undertaken and agreed. Others here, not on this thread so far, may come up with reasons that you could do this and that but I'll leave it to them.

Does any paperwork at all exist at this stage? Did the grandfather write any letters to the grandchildren on making the gifts?

[If he does not want to change his will perhaps he could write a codicil noting that in view of the amounts he has already given to certain beneficiaries the legacies will now be the following amounts ..... to ensure each shares equally after taking account of gifts made before his death.

I am not a lawyer, but a codicil does change the Will but could be presented to him as a simple way to reflect his wishes rather than writing a new will from scratch.

Yes, agreed, but any Codicil should be professionally prepared and a competent solicitor may prefer to draft a fresh Will (qv Clitheroekid's many posts on the subject where laymen attempt to draft a Will or Codicil themselves with unfortunate results).

[I suppose the question is, for whose benefit and for what purpose is the simple note? If it is mainly to ensure that the grandchildren are clear about the intentions, that the gift now will be taken off their inheritance, then your suggestion will probably be adequate.

As you'll note, I disagree but I too am not a lawyer!

[genou]

But the grandfather sees himself as having given the money in advance - he won't want me to tell him it's a loan.

You have to choose whether to involve the GF in fixing it now, or concede that the will, when executed, shall not achieve the GF's intentions ( presumably leaving some pretty disgruntled ) . He cannot "give money in advance" . The money already paid over is a gift or it is not. Clearly it was intended as a gift, and that cannot be altered in retrospect. In which case GF needs to alter his will, in order to distribute his wealth as he intends.

As mentioned, he could give equivalent gifts to the others, but that requires that he has the finances to do that.

[MyNameIsUrl]

Useful comments thanks, but there may be a little misunderstanding due to my poor use of terminology. The sums were understood as ‘advance payments’ in layman’s terms, not as ‘unconditional gifts’, and it seems to me that legally they are probably best viewed as loans. When I say the money was ‘given’ I mean it was transferred from one bank account to another, not that it was made as a gift. There is certainly no attempt being made to retrospectively change the agreement.

I understand that a codicil or a letter of wishes can be used alongside a will to modify it, and as executor that is what I will do, if I can get an adequate form of words, as I suggested earlier.

I will also take heed of the suggestion to discuss with grandchildren in advance.

[Lootman]

The sums were understood as ‘advance payments’ in layman’s terms, not as ‘unconditional gifts’, and it seems to me that legally they are probably best viewed as loans. When I say the money was ‘given’ I mean it was transferred from one bank account to another, not that it was made as a gift. There is certainly no attempt being made to retrospectively change the agreement.

Words like "gift" and "loan" have specific definitions and meanings. I wonder if it could happen that a court might determine that a transfer was not a gift even if the parties to that transfer claim that it was a gift. Or rule that it was not really a loan even though the parties claim that it was a loan.

A transfer of value with no consideration is generally considered to be a gift. But if I can ask for it back or retain some benefit from it, then the claim that it is a gift might be disallowed by a court or HMRC.

A loan, on the other hand, remains an asset of the estate. If I transfer the money to you and no interest is paid nor any repayment ever happens, nor any expectation on my part that it would, then it might look more like a gift than a loan to the authorities.

In other words it is not just what the parties claim it was. It's also whether it looks and walks and smells like a gift (or loan).

[staffordian]

Combining some suggestions already made, surely the answer is to be found by slightly amending the OP's original suggested note to read ‘In October 2019 I advanced to my grandchildren X and Y the sum of £000, on the understanding that this amount is to be repaid upon my death by settlement from their inheritance'

I assume it would need to be signed by X and Y to be legal, but surely any debt owed to the estate is implicitly dealt with by the executor, thus no amendment should be required to the will.

Along with most other posters, I stress that IANAL!

Staffordian

[PinkDalek]

Useful comments thanks, but there may be a little misunderstanding due to my poor use of terminology. The sums were understood as ‘advance payments’ in layman’s terms, not as ‘unconditional gifts’, and it seems to me that legally they are probably best viewed as loans. When I say the money was ‘given’ I mean it was transferred from one bank account to another, not that it was made as a gift. There is certainly no attempt being made to retrospectively change the agreement.

Then, if I may, I'll repeat from my original paragraph 2 but reworded:

Document the advances as Interest Free Loans Repayable on Demand (commonly abbreviated as IFLRODs).

The only documentation needed is a simple promissory note, signed ... according to a Solicitor here:

viewtopic.php?p=124831#p124831

Those debts could then be paid off when the time comes, if not before. There is no need for the IFLRODs to state anything other than the payments were Interest Free Loans Repayable on Demand. No need to include the reason behind the loans nor how they are to be repaid. In fact best not.

This suggestion might depend on how long ago the transfers were made.

I understand that a codicil or a letter of wishes can be used alongside a will to modify it, and as executor that is what I will do, if I can get an adequate form of words, as I suggested earlier.

If they are loans and treated as such you won't also need a Codicil etc.

I will also take heed of the suggestion to discuss with grandchildren in advance.

Again, are they adults? If you go down the IFLROD/simple promissory note route they will need to sign them.

[MyNameIsUrl]

Then, if I may, I'll repeat from my original paragraph 2 but reworded:

Document the advances as Interest Free Loans Repayable on Demand (commonly abbreviated as IFLRODs).

The only documentation needed is a simple promissory note, signed ... according to a Solicitor here:

viewtopic.php?p=124831#p124831

Those debts could then be paid off when the time comes, if not before. There is no need for the IFLRODs to state anything other than the payments were Interest Free Loans Repayable on Demand. No need to include the reason behind the loans nor how they are to be repaid. In fact best not.

This suggestion might depend on how long ago the transfers were made.

If they are loans and treated as such you won't also need a Codicil etc.

I will also take heed of the suggestion to discuss with grandchildren in advance.

Again, are they adults? If you go down the IFLROD/simple promissory note route they will need to sign them.

Thanks, this looks a very promising route to take. It doesn't involve potentially upsetting grandfather with confusing documentation. The grandchildren are in their 30s, admirably mature and sensible, and will understand the need for documentation. The previous thread to which you link warns against IHT implications, but this won't be an issue in my case.

[Lanark]

So the total estate plus the amounts given will be divided by 5 to give the share for each grandchild, and the amounts given will then be deducted from the shares to be received by X and Y.’

This will be fine if the grandfather dies in the next few years, but if he lives another 10 or even 20 years then inflation is going to change those sums significantly giving an advantage to the grandchildren who got an early payout.

You could solve this by using percentages:
Lets say the estate is £1M and each child would expect £200 K (20%)
if one child was given £100 K early (10% of estate)

Then when the grandfather dies, that one child will get another 10% (actually estate_value * 1.111 * 0.1) so its 10% of the original estate's value not 10% of what is left.
The other children will then inherit the remainder divided by 4.

So if the estate at probate was worth £2M, one child would get £222 K (plus the original £100K, plus any interest it may have earned)
The other children would get £444.44 K each.

That would be fair but you can see why anyone with a poor understanding of the maths might not see it that way.
Another consideration if its a sizable estate would be inheritance tax, if the early payments manage to avoid tax and the later ones don't, do you want to account for that somehow in the will?

[staffordian]

Another consideration if its a sizable estate would be inheritance tax, if the early payments manage to avoid tax and the later ones don't, do you want to account for that somehow in the will?

The OP has stated that that IHT is unlikely to be an issue.

One other issue which I thought about after posting earlier is that it might be the case that the grandfather needs expensive care at some stage which could quite possibly mean there is nothing left to pass on. How would the grandchildren who have not received an advance feel if this were the case?

[scrumpyjack]

If he did need care, the interest free loans might have to be called in to pay for the care! They would be his assets and therefore available to be called on to fund care needs.

[Howard]

Useful comments thanks, but there may be a little misunderstanding due to my poor use of terminology. The sums were understood as ‘advance payments’ in layman’s terms, not as ‘unconditional gifts’, and it seems to me that legally they are probably best viewed as loans. When I say the money was ‘given’ I mean it was transferred from one bank account to another, not that it was made as a gift. There is certainly no attempt being made to retrospectively change the agreement.

I understand that a codicil or a letter of wishes can be used alongside a will to modify it, and as executor that is what I will do, if I can get an adequate form of words, as I suggested earlier.

I will also take heed of the suggestion to discuss with grandchildren in advance.

Could I support Chrysalis and Genou's suggestions. The only commonsense solution to your problem which does not involve complications down the line is for the Grandfather to give the other three grandchildren the same gifts as he has given the first two.

This means his will does not need to be changed and has the added benefit that it will not be affected by any improvement or deterioration in his financial circumstances in the future.

I sympathise with your predicament in having to explain this to him. As a grandfather myself, I understand it is important to think about the future and to take responsibility for getting these things right. Hopefully he will see the logic in this.

regards

Howard

[PinkDalek]

Could I support Chrysalis and Genou's suggestions. The only commonsense solution to your problem which does not involve complications down the line is for the Grandfather to give the other three grandchildren the same gifts as he has given the first two.

Yes but we don't know enough about the Grandfather's financial situation to establish if he has sufficient funds to make the further "advances" (not now gifts according to the OP and, so far, we haven't even touched upon Deliberate Deprivation of Assets for State Benefits purposes, should that potentially ever be applicable in these circumstances if Gifts are in play).

Further genou said The money already paid over is a gift or it is not. which was before the OP clarified, as was the comment by Chrysalis.

This means his will does not need to be changed and has the added benefit that it will not be affected by any improvement or deterioration in his financial circumstances in the future.

Subject, inter alia, to scrumpyjack's post immediately before yours.

[MyNameIsUrl]

Thanks for further comments:

…paying the other three grandchildren the same amounts

wouldn’t be possible as there isn’t the cash available, the value is tied up in the house

…care costs

won’t be an issue. Clearly my previous posts could not contain every detail, just those I thought relevant, but as discussion has opened wider further issues are raised. In this case grandfather has a son with both wealth and great generosity who has committed to covering care home costs.

…gifts

I was always careful not to use this word as it has a clear meaning; the advance payments I referred to (never unconditional gifts) I can now see as loans (never to be repaid in grandfather’s lifetime, only notionally as part of the distribution of his estate)

Deliberate Deprivation of Assets for State Benefits

won’t be an issue either – I hope it comes across in my posts that there is no hint of any hanky-panky or fiddling the system.

Thanks to all who contributed – I will research in more depth about IFLRODs and discuss with family members.