Wealth protection question

[sheiks]

This is a hypothetical question and does not specifically relate to my own circumstances

Suppose a person (call him Joe) dies and leaves a will bequeathing his Estate 100% to his partner (call her Sally). Let’s say that prior to his death they had joint loans for a number of IP’s (each with different lenders) as follows:

IP1 (Loan with Bank 1)

Valuation: 300K
Debt: 200K

IP2 (Loan with Bank 2)

Valuation: 400K
Debt: 220K

IP3 (Loan with Bank 3)

Valuation: 400K
Debt: 180K


Sally also has access to $400,000 being life insurance policy taken out by the deceased.

As a joint couple, the 3 loans were being serviced relatively comfortably. However, since Joe’s death, Sally cannot service the loans on her own. The only way she could possibly do so is by making drawings from the life policy each month to replace Joe’s income.

My question:

• Will the banks agree to such an arrangement? If not, what would the bank’s position be?

Would appreciate some feedback especially what measures one needs to take to prevent assets being re-possessed by banks due to the unfortunate death of one of the borrowers.

PS: My apologies if your names are Joe & Sally

 

[Twitch]

$400k would be more than enough to make that portfolio cash flow positive; either using the money to buy income producing assets or by using it to reduce debt. Or am I missing something?

 

[grossreal]

hi sheiks
first I would rent out the highest rental earners in the group and live in the lowest rental one not sure which that is.
then calculate the rental return against the cost of funds and see what the short fall if anything is.
then take the 400k and split into 4 groups of 100k
and invest across different asset classes so shares and cash funds etc.
and you should be able to cover all debts
at the worst case you have 600k debt and at 8% and thats high thats 64k per year and thats without rent
and the rent should take a big bite out of these repayments
I would have a chat with the lender and looking at the numbers there is no major problem.
by spliting across different classes she is protected from a market change in one.
and changing from two living people to one is not an issue for a lender as long as the asset position is covered and looking at it it is.
the only issue I see is an income for sally as she will be assett rich and not sure what that will have an effect on any dept money she gets

 

[sheiks]

Twitch...you haven't missed anything. I have just asked the question badly

I think Grossreal pretty much understands where I am coming from. Let's say Sally tried to convince each of the lenders to reduce the debts thereby making each individual IP cashflow positive. My question is will they agree?

I assume the lenders will be wanting to protect their own positions first. I imagine them thinking...if the market experiences a downturn the customer may not be able to service the loans despite a reduced debt (perhaps I have not chosen very good figures in this scenario). Maybe Sally has young kids and may have to scale back on work. I'd imagine the lenders would want to factor all this in before agreeing to anything.

All I am trying to establish with this question, is how agreeable are banks to negotiate in such situations? Hope my clarification helps!

 

[chrispy]

It depends on the age of the people involved. When this happened to me I sat down and did a review of the actual situation, sold the lowest value, paid off the loans, then took time out to travel and work out what I wanted to do with my life.

If this is a big worry why not increase the insurance to cover the outstanding loans?

Chris

 

[letiha]

So does Joe own anyother assets other than holding the life insurance.

If i get your post you are worried that the banks will makeSally sell is that correct, i get this impression from you saying that Sally would have to convince the bank to let her reduce the loans.

Also how are the properties owned, jointly or tenants in common?

Baiscally I don't think the bank would give a s**t about what was done as long as there was a lot of equity in the property, basically if Sally stopped paying they could sell and get their money back, from the numbers given that is not a problem.

The second point is they just want to make sure that Sally is paying, unless she started missing payments I don't think anything would happen. I am sure this is a common occurance with the bank..as people die all the time.

I even think if the money from life insurance was delay for a month or two Sally could speak to the bank and explain the situation and they would be happy to make arrangements.