How to buy out other beneficiaries from a will. The proper way.
Senior Lawyer, Private Client
How to buy out other beneficiaries from a will. The proper way.
Have you thought that one day, when the time comes, you would like to keep your parents’ home in the family? Perhaps live there yourself? Even bring up a family there? You may even have had conversations with your siblings about how one of you would buy out the others.
If this is something you are thinking about – you need to start planning now.
Buying out other beneficiaries can be complex, and depending on the wording of your parent’s Will – potentially not possible. If you are the Executor of their estate and are thinking of buying out the other beneficiaries – then you need to understand the self-dealing rules, as there are some scary consequences ahead for those not in the know!
I want to keep my parent’s home
For a lot of people, their parent’s home carries so many memories from childhood, or for their own children. It is a special place – and understandably, you might want to keep it in the family.
Who deals with the sale of the house when they die?
When someone dies, it is the Executor of their estate who is responsible for arranging the sale of the property. Even if the family work together, the executor is ultimately responsible working out the probate value, discuss marketing options and ultimately accept an offer and signing the sale documents. An Executor has many duties to make sure they are doing these jobs properly – one of these duties is to get the best price possible because these proceeds will be shared with all the beneficiaries.
But what happens when if I am the Executor and a beneficiary?
This can be considered a conflict of interest and this is where the self-dealing rules come into play.
What are the self-dealing rules?
As a buyer, you will want to buy the house from the estate for the best (lowest) price possible. BUT this conflicts with your duty as Executor to get the highest price possible for the property. An Executor therefore in law cannot deal (sell) to themselves. Hence the name ‘self-dealing rules’.
So what can you do?
You could agree with the other beneficiaries that you will buy the property and they agree to the price. However, at any point in the future, the beneficiaries can decide that they are no longer in agreement and have the power to undo the sale and take the property back out of your name, even when the sale has long since completed. They can do this by applying to court and stating that you breached your duties as Executor by selling to yourself and the court has the power to undo the sale.
This may sound unlikely, even unbelievable. However, given that co-beneficiaries are often siblings, and given that we all know how often, unfortunately family rifts occur, it is a real risk.
How can I avoid getting caught by the self-dealing rules?
There are several ways this can be avoided. If your parent is still alive, and if this is an open plan, then your parent should draft their will with this in mind. Get advice and we can help!
If, on the other hand, you are already the Executor and your parent has died, then you should ensure that a binding deed is drawn up to protect your position. This can only work if all beneficiaries are over the age of 18 and have capacity. If not, an order of the court will be needed before you can go ahead with the sale. We can help you prepare this agreement and negotiate the terms with the beneficiaries.
What else could go wrong…
Where there is a probate there could be a tax…
Every single sale or sale of part in a probate matter can result in tax; in this case the possibilities are stamp duty land tax (SDLT) or capital gains tax (CGT). Get it checked. We can do that as part of our advice.
Our Private Client team specialise in these matters and if you would like to speak to us about how we can help you keep your parent’s home in the family – please contact us.
