6 Comments Wills, probate, letters of administration, powers of attorney
You are permitted to do this if your brother agrees.
Effectively you are splitting the assets equally, other than the house, and your brother is giving you a loan to buy him out of his share of the house and you are going to pay your brother off over the next few years at a rate that the two of you agree on.
Ensure you both sign a properly drawn up loan agreement for this amount.
However why do you not pay for your brothers share of the house out of the cash inheritance you will be receiving?
Given the above scenerio, does someone know how I would show this in the accounts of the estate?
I haven't paid half the value of the house into the estate first to then be given to my brother as I suspect it would normally happen.
In this case, I have paid a smaller amount into the estate, I will transfer the title to my name, and I have an agreement with him to make regular payments. How would I show this?
Sorry Patrick but to me this does not seem like a good idea at all - just adjusting the figures.
As Martin points out you are borrowing from your brother and his rights must be protected with a properly set up mortgage over the property. What if something happened to you in 6 months and he has nothing to show for it but say $15k (including the interest due on the loan) but the whole title is in your name? That could get really messy if you fell into financial difficulties or (heaven forbid) you got hit by a bus.
Please organise a proper mortgage with a fair (appropriately discounted brother's rate) of interest or this may come back and bite either you or him. Not worth the risk - he is your brother after all.
Why the annual lump sums? Please don't do that. Why not stick with regular fortnightly (or weekly or monthly) payments to him? There are dozens of online mortgage calculators available. Please plug in the figures and go from there with a proper and fair contract.
From the above (first post) the maths seem to be that you plan to pay him something like $30k now plus another $80k or $100k or thereabouts. Way too vague for my taste! I think you need to write up a proper offer & acceptance stating what the agreed price is to buy out his half then pay the applicable stamp duty etc so it is all completely above board. This is your responsibility as the executor.
So if the whole house is worth only $260k (and I question if that is all it's really worth - frankly that seems a bit low to me) then you already have $130k equity. Add in the $30k you will pay him now = $160k plus a $100k mortgage. For ease of maths let's say a 5% interest rate or roughly $5k per year initially. Over the next 4 years you'd expect to pay him about $115 or whatever. That's about $2400 per month.
Are you planning to rent it out or to live in it? If the former, then for tax purposes, the interest, rates etc are tax deductible and it's what's known as an "arms length" transaction. Cover all bases please.
Thanks for the reply iconoclast.
I'm not sure if there's been a misunderstanding. I'm not adjusting the figures. I'll be paying some cash into the estate, plus will have the loan agreement with my brother.
Don't worry. There is nothing untoward happening. For the property valuation I have had a valuer do that (not a RE Agent).
With my brother we will have a written agreement and he will have a caveatable interest in the property. The way I will pay him (how much per month, plus lump sum yearly and final lump sums) will also be in the paperwork.
The reason the numbers in the first post may have seemed vague to you is that the exact numbers didn't seem relevant, it was more the concept that was important to get across so I could ask if certain things are possible.
I sometimes find when being specific with numbers, people tend to get hung up on that rather than the point of the discussion.
So I was wondering that once a loan agreement is in place with my brother (in whatever form it takes) how I would show that in the accounts as I haven't paid 50% of the value into the estate, but the title is going into my name.
One thing you said intrigued me. You said "I think you need to write up a proper offer & acceptance stating what the agreed price is to buy out his half then pay the applicable stamp duty etc so it is all completely above board."
I was under the impression that stamp duty was not payable on deceased estates when going to a beneficiary. Does that mean that if I were to come up with 50% of the property value in cash, pay that into the estate for distribution to him, that when I put the property title in my name I will have to pay stamp duty? Or is there still no duty payable?