Whose house is it, anyway? The growing problem of inheritance

With ageing populations and dementia rates rising fast, the family home — worth more than ever before — is increasingly the focus of discord

Last year, John, who is living with dementia, married his girlfriend, Eve. A few weeks later, he told his adult children.

Since the wedding, contact has been sporadic. Helen, one of his daughters, says she is worried about his capacity to make decisions and is “saddened by what is happening. There’s no communication, no relationship to speak of, and no way for us to help with his care.” The last time she saw her father, “he was very quiet and seemed quite anxious, a big contrast to his former social and bubbly self”.

Relatives had offered to care for John — which is not his real name, and we have disguised all the names of the families that appear in this story — but Helen believes his fear of being ill and alone hastened the marriage. “He relies on [Eve] for everything, from his social interactions to his medical appointments and food.” However, this has come at a cost. “He’s now isolated from friendships . . . What we really want is to support dad through this final stage of his life, surrounded by family and friends.”

There is also the inheritance: John’s children worry that if his new wife inherits his property, there will be little financial support to care long-term for one of his children with learning disabilities. “I’m really angry and upset,” Helen says. 

Home might be “the nicest word there is,” as Laura Ingalls Wilder, author of The Little House on the Prairie, once wrote. But it can become a battleground between family members, waged over autonomy and responsibility at a time of increased longevity, dementia rates and property values. 

For ageing parents, it is about the right to decide how and where they live their lives.

Caroline Bielanska, a solicitor, independent consultant and author of The Elderly Client Handbook, says there might be pressure to downsize and move, despite having “memories in your home, connections to the locality and neighbors”, when offspring become concerned about their safety and welfare. When new partners appear on the scene, they might fear their parents will be victims of predatory marriages — there is also risk of elder abuse.

$72.6tn Estimated value of assets that will be transferred to heirs in the US before 2045

At stake, too, is money, says Bielanska. “Families see the family home as their home and their inheritance.” Charlotte Fraser, partner in contentious trusts and estates at Farrer & Co, says children can have “an expectation [around property inheritance] and almost plan their lives around that. That is an unhealthy way to be”. 

The housing market exacerbates this. “The house is one of the most valuable assets,” says Charles Lloyd, head of private client disputes at law firm Macfarlanes. “Everyone is champing to get it.”

Selling the family home might be the means for adult children to pay off mortgages or help young adults on to the property ladder. Savills, the property group, found the proportion of first-time buyers receiving financial assistance from family increased from 46 per cent in 2022 to 63 per cent last year, spurred by high interest rates. Against a backdrop in which the role of inheritance, according to Demos, a think-tank, is becoming ever more important.

“While real incomes have stagnated, the value of wealth — driven in particular by house price increases — has continued to rise,” it said in a report last year. “The value of inheritances — adjusted for inflation — passed on annually in the UK has doubled roughly every 20 years since 1979.” 

According to estate agents Knight Frank, millennials are set to become the richest generation in history over the next 20 years, as they inherit wealth from their parents and grandparents. The UK government has been planning to overhaul inheritance tax — currently paid by about 4 per cent of families — but the measure was left out of the Budget this week.

In the US, research company Cerulli calculates that $72.6tn in assets will be transferred to heirs before 2045.

It can end up in court — probate disputes brought before the High Court in the first nine months last year had more than doubled the number in the same period seven years earlier. This is a byproduct of testamentary freedom in England and Wales, which enables the deceased to leave their estate to anyone, says Lloyd. Many countries — for example, Scotland and most of Europe — do not allow complete freedom to choose beneficiaries. Instead, they operate by the principle of forced heirship, which means a certain portion of the estate must be left to next of kin.  

In her case, Helen says, her father “promised all his children something throughout our lives. He worked tirelessly to provide for us. But honestly, I don’t care about that anymore. My main concern is my brother. There’s been no plan set up for his future.” 

This combination of family relations and money can become fraught, particularly after death, says Lloyd. “The share of the estate is [deemed] a proxy for love. It stirs up a lot of emotion mixed with grief.” One woman says influence by the wife of her late father over his estate has made her feel “dispossessed of our identity” while at the same time, “the money would be great . . . as our kids can’t afford to buy anywhere”. She ricochets through thoughts, including that maybe he “didn’t really care”. Or that her father believed he had equipped his children well for life and they did not need any more help. “Sometimes I think he was so controlled by her.” 

Fraser observes some clients “in denial about their relationship with their parents. [They] want it to have been more positive than it was.” 

“Since at least King Lear, the issue of how parents spend their old age and the tricky topic of inheritances has been a source of stress,” says Andrew Scott, author of The Longevity Imperative. “But now that more people are living for longer the problems are becoming both more common as well as taking new forms.”

While adult children wait longer for their inheritance, the relationship with the family home is changing. Once a place to escape upon entering adulthood, now increasingly, due to housing costs, it is somewhere to return.

According to the 2021 Census, the number of families in England and Wales with adult children living with their parents rose 13.6 per cent from a decade before, to nearly 3.8mn, so that one in every 4.5 households included an adult child, compared with one in five in 2011.

“The younger generation remains around,” says Macfarlane. “It does create an expectation to a greater extent [that the home] is a family asset and you should share it.”

The NHS predicts the number of people in the UK with dementia to number 1mn by 2030. The home is likely to be the asset that pays for residential care. Scott says: “For some it means a longer time requiring care from children and a reversal of who is dependent on whom.” But he points out: “Old age isn’t always or only about decline. People want to have fun at all ages, and that often jars with long-held assumptions about age-appropriate behavior.”

Adult children can be unnerved by their parents’ plans, says Julia Samuel, grief counsellor and author of Grief Works. “There’s a raft of [older people who] believe their job isn’t just to knit and be grandparents.” Some clients say, “I’ve done my time. I’ve earned less responsibility.”

Adam Carvalho, a lawyer, coach and therapist, says “families are changing, older people are having relationships. I have seen this a lot where parents start relationships with all sorts of people their kids don’t like.” In some cases, says Fraser, the parent acknowledges a transactional element to the relationship to compensate for the companionship and the “time they have put into making their life comfortable and happier”. 

Yet older people can also be vulnerable. Elder abuse is a hidden problem, says Veronica Gray, chief executive of Hourglass, a charity. “A significant amount of property is stolen off old people. The housing crisis is fueling it. Adult children are right to worry about new relationships; we’ve seen romance scams time and time again.” Yet she says this concern comes with its own dangers. “There is a balance between being alert to abuse and autonomy — we’re all entitled to spend our money as we see fit.”

When the journalist Sue Mitchell released the BBC Radio 4 series, Intrigue: Million Dollar Lover, which tells the story of a woman in California falling out with her adult children over her relationship with a younger man, she was shocked by the number of stories listeners were desperate to share, including about control of properties being handed over.

“Love in later life is really important and can create lots of problems in families. It’s even more difficult when there’s waning mental capacity and when that’s being abused — sometimes it’s by adult children and sometimes the danger comes from others in the family, or from friends, carers and new lovers.”

According to the Office of the Public Guardian, investigations into abuse of the Lasting Power of Attorney — legal documents enabling someone (a “donor”) to appoint an “attorney” to make decisions about two areas of their life, welfare and money/property, should they lose capacity — increased from 2,464 in 2021, to 2,849 a year later. 

It is not just partners who can influence a vulnerable person but also family members.

In Sarah’s case, her brother gained control of his mother’s estate and moved her into sheltered accommodation, paid by their late father’s generous pension. Sarah is not allowed to visit. “He’s that focused on the money — he doesn’t want a share of the cake, he wants all of the cake. It’s a power trip. ”

The family home was cleared so Sarah has nothing left. “I know it’s not what my mum and dad would have liked. We got nothing from my mum’s house. The family photographs, all the little things of your childhood. My memories have been chucked in the bin.”

Her priority is seeing her mother. “Nobody listens to me. You’re powerless. The power of attorney [is] open to abuse. It’s inhumane that a child can do it to a mother.”

Concern over LPAs have again been raised after modernization plans were introduced in England and Wales last year. A recent British Medical Journal article said: “Abuse of older people is a global public health problem . . . Most people making LPAs are older than 75 and may not have digital access or the skills to use online services securely. Allowing donors to sign online, apparently without a witness, may undermine the safety.”

Fabian Hamilton, a Labour MP, says he has been aware of several cases “where properties have been lost to unscrupulous abusers who have targeted people with cognitive impairments such as dementia . . . Housing will be among the very first things that are targeted by abusers.” He is pressing for the government to remove the option to have instant access to finances through an Lasting Power of Attorney (LPA) without a medical assessment.

Dexter Penn, clinical research fellow at the UCL Dementia Research Centre, says “even the most senior doctors at times struggle [to judge this] with many finding the process incredibly difficult and anxiety producing”. The Mental Capacity Act, he says, stipulates that it is “decision specific, therefore someone can lack capacity to make one decision but perfectly able to make another. Someone living with dementia could have the capacity to decide whether to sell a property, or to direct the use of their savings to give gifts to their grandchildren yet lack the capacity to consent to an operation. On the other hand, someone could be very capable of the opposite, or their abilities could fluctuate, or they can change their mind with the availability of new information . . . We must all discard any notion that someone can lack capacity to make any decision.”

Gray says the risk is “infantilizing people and taking away their autonomy. As adults we’re all allowed to make unwise choices. Cognitive decline comes with age but we can’t attribute every change to the ageing process.”

When it comes to inheritance planning, early conversations are essential, says Lloyd. “Write your will, tell everyone about it.” It means that people have a clear understanding of a parent’s wishes, he says.

“When people lose mental capacity to make everyday decisions, the values they had are eroded,” says Bielanska.

She often hears children say, “It doesn’t matter where she lives as she has dementia.” The problem is, she says, “We don’t always know our parents as well as we think we do. A lot of people are in the dark. It can [include], ‘If I have to go into a care home I want to live near where I live [now].’”

Fraser says the risk of financial abuse of LPAs can be mitigated with “a considered choice of attorneys — ideally more than one — as well as with careful planning and instructions . . . The donor can restrict the scope of the powers included in either type of LPA. It is also possible to insist that certain decisions must be made jointly by more than one attorney.” She also recommends detailing general preferences or instructions in the LPA, such as requesting the attorney to consult with certain people before exercising their powers. More detail in a letter of wishes can help, too. 

The fear about discussing death or becoming ill, Bielanska says, is “if you say it, it’s going to happen. Having good conversations can create better outcomes.”

Source: Financial Times

On interest due on housing loans

Housing loans account for a bulk of outstanding consumer loans in the Philippines.

In a study conducted by the Bangko Sentral ng Pilipinas in June 2020, the total amount of residential real estate loans (RREL) is the highest with P772 billion out of the P10.6 trillion, which was the total loan portfolio for consumer loans, including, among others, motor vehicle loans, credit card receivables and salary-based general-purpose consumption loans, under the Philippine banking system.

Nevertheless, nonperforming RREL—that is, where the borrower is usually 90 days past due in making any scheduled payments of principal or interest thereon—account for the highest percentage of nonperforming consumer loans (NPL) at P26.77 billion out of the total NPL of P232 billion.

Meanwhile, the nonperforming RREL account for 3.47 percent of the total RREL.

Settling a nonperforming RREL usually means paying the interest due. Take note, however, that under the Civil Code, interest shall be due only when it is expressly stipulated in writing.

Thus, in a string of cases involving the Philippine National Bank (PNB), the Supreme Court declared void the clause in its credit and housing loan agreements, which does not specify the applicable rates of interest.

Instead, this clause merely authorized the PNB to unilaterally determine and impose said rates and notify beforehand its borrowing clients of any increase.

According to the Supreme Court, this clause violates the principle of mutuality of contracts under the Civil Code. Pursuant to this principle, a contract must bind both contracting parties. Its validity or compliance cannot be left to the will of one of them.

This binding effect is premised on the following: that any obligation arising from a contract has the force of law between the parties; and that there must be mutuality between the parties based on their essential equality. Any contract, which appears to be heavily weighed in favor of the parties so as to lead to an unconscionable result, is void.

Meanwhile, as in the PNB cases, the borrower is not prevented from questioning the unilateral increase in the interest made by the lender despite repeatedly paying the imposed interest rates and renewing the loan several times.

In this regard, the Supreme Court declared that the borrower’s silence cannot be construed as an acceptance of the lender’s imposition of these rates.

If the borrower would pay interest when it was not stipulated, the provisions of the Civil Code on solutio indebiti or natural obligations shall apply. In this regard, the legal principle of solutio indebiti requires that if something was received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. Moreover, the lender who accepts an undue payment in bad faith shall pay legal interest thereon and damages, if applicable.

Meanwhile, where the law on natural obligations applies, the borrower does not enjoy a right of action for reimbursement upon proof that he voluntarily paid the interest. Interest may be paid in money or in kind. If it was payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment.

As a general rule, interest due and unpaid shall not earn interest. Nevertheless, the contracting parties may capitalize the interest due and unpaid as an added principal by stipulating that it shall earn new interest.

Moreover, interest due and unpaid shall earn legal interest from the time it is judicially demanded—that is, from the time a claim is being filed in court, even when the disputed contract fails to stipulate the same.

In this case, the legal rate of interest shall be 6 percent a year to be computed from either judicial or extrajudicial demand as defined under Article 1169 of the Civil Code.

In one case, the Supreme Court held that this rate is an affirmation of the contracting parties’ intent—that is, by their contract’s silence on a specific rate, then the prevailing legal rate of interest shall be the cost of borrowing money, and which shall not be susceptible to shifts in rate.

Source: Inquirer

Understanding the nature of sublease

“Any blockhead can arrange a sublet. All I ever wanted was to support myself on art,” said frustrated visual artist Walter Keane, who claimed to have painted the images of wide-eyed children actually painted by his then-wife, Margaret Keane.

Despite (or because of) this oversimplified view of a sublet or sublease agreement, it can be the source of conflict between the contracting parties, as shown in the cases decided by the Supreme Court below. Understanding the nature and legalities concerning this agreement is thus key.

In Mallarte v. Court of Appeals, for instance, Spouses Nicolas and Ramona Gopiao leased to Vicente Mallarte a certain apartment on a monthly basis. In this regard, the parties stipulated in their corresponding agreement that Mallarate was prohibited from subleasing or otherwise transferring to another the leased premises, or any portion thereof, without Spouses Gopiao’s prior written consent. Failure to comply with this provision shall be ground for Mallarte’s ejectment therefrom.

During one of their routine inspections, Spouses Gopiao discovered that Mallarte had converted certain areas of the apartment into bed spaces for eight boarders. Thinking that Mallarte had violated the pertinent provision of their agreement, Spouses Gopiao demanded him to vacate the leased premises. He refused to do so, constraining Spouses Gopiao to file an ejectment suit against him before the then City Court.

Meanwhile, Mallarte argued that the boarders were his nephew, nieces, grandchildren and other relatives who had been studying at a nearby university. Moreover, he accused Spouses Gopiao of filing the instant suit because he had refused to pay the increased rent.

This case was eventually appealed to the Supreme Court, which ruled in favor of Mallarte. It held that accepting boarders was not tantamount to a sublease agreement, which necessitated the lessee to surrender his control and possession of the leased premises or any part thereof.

Meanwhile, the sublessee rents from the lessee the same premises for a term less than that stated in the lease agreement.

While a lessee may be expressly restricted from subleasing the premises in the lease agreement, the Supreme Court held that it effectively restrains alienation and is, thus, looked with disfavor by the courts.

In this case, Mallarte remained the actual occupant and possessor of the leased apartment. He merely accepted his relatives as boarders therein and assigned them their rooms or bed spaces, while agreeing to provide them with meals and/or lodging for a price.

Meanwhile, Blas v. Court of Appeals concerned the Premier Theater Building, whose owner, Alfonso Bichara, leased to Emilia Blas. In their lease agreement, Bichara authorized Blas to sublease the premises for a five-year period. Thus, Blas orally agreed to sublease to Arthur Yao a portion of the leased premises for a monthly sublease rental fee.

Afterwards, however, Bichara demanded Yao to pay to him the sublease rental fee since his lease agreement with Blas had already expired. Yao complied with Bichara’s demand, upon which the latter filed against Blas an ejectment suit before the Metropolitan Trial Court (MeTC).

The MeTC and upon appeal, the Regional Trial Court ruled to extend Blas and Bichara’s lease contract for another five years. This development compelled Blas to demand Yao to pay the accrued sublease rentals. Nevertheless, Yao continued to remit his payments to Bichara and refused to vacate the subleased premise when Blas demanded to do so.

This time, Blas filed against Yao an ejectment suit before the MeTC. The MeTC ruled in favor of Blas and directed Yao to vacate the subleased premises. Upon appeal, however, the RTC and Court of Appeals effectively reversed the MeTC’s findings.

In this regard, the Court of Appeals particularly held that Blas was not entitled to eject Yao since the period of the sublease agreement had not yet expired and was effectively renewed upon the renewal of the lease contract. Moreover, Yao had not defaulted on his payment of the sublease rentals since he had done so with Bichara, who in turn was crediting the same to Blas.

In Blas v. Court of Appeals, the Court of Appeals found, among others, that based on the stipulation in Emilia Blas’ lease contract with Alfonso Bichara that the term of the sublease agreement shall be coterminous with the terms of the latter, the sublease agreement was effectively renewed upon the renewal of the lease contract.

Thus, Blas’ sublessee, Arthur Yao, was entitled to stay in the subleased premises.

The Supreme Court reversed and set aside the Court of Appeals’ decision, stating that the disputed stipulation in the lease contract did not prohibit the lessee or sublessor from subletting the premises involved for a period shorter than the duration stated in the lease contract. This is consistent with earlier jurisprudence that the sublessee’s right to remain in the premises depends on the lessee’s right to remain himself.

In this case, Blas was entitled to sublease to Yao the subleased premises on a monthly basis in accordance with the sublease agreement, instead of renewing the sublease for the full period of five years stated in the lease contract.

Moreover, the Supreme Court found that Yao default on his payment of the sublease rental in favor of Blas, despite having paid the same to Bichara. To be sure, a sublease agreement involves two distinct leases—that is, the principal lease and the sublease. The lessee’s personality as the sublessee does not disappear, such that his rights and obligations to the lessor are not acquired by the sublessee.

In this case, Yao’s payment of the sublease rental to Bichara was not payment to Blas.

Meanwhile, Inocencio v. Hospicio de San Jose concerns a parcel of land owned by Hospicio de San Jose (HDSJ), which was leased to German Inocencio. The lease contract stated, among others, that it is non-transferable unless HDSJ’s prior written consent to the transfer is obtained.

German constructed two buildings on the property, which he thereafter subleased, and designated his son, Ramon, to administer them.

German passed away, after which Ramon started collecting the sublease rental. He did not notify HDSJ of German’s death, but was paying the rent to the latter and taxes on the property.

In a subsequent letter to Ramon, HDSJ stated that it recognized that an implied lease contract existed between them, considering that it had been accepting Ramon’s rental payments. Nevertheless, considering that Ramon had been paying the rent on a monthly basis, despite the parties failing to agree on the lease period, HDSJ decided to terminate the lease contract by the end of a particular month.

Ramon sought to renegotiate the terms of the lease contract for the sublessees’ welfare, to which HDSJ refused since neither was it notified nor did it give its consent to Ramon subleasing the premises to 20 families on top of a commercial establishment. HDSJ also refused to accept Ramon’s rental payments.

HDSJ then filed a complaint for unlawful detainer against Ramon and the sublessees before the Metropolitan Trial Court (MeTC). Ramon countered, among others, that HDSJ was estopped from challenging the non-transferability of its lease contract with German since after his death, it admitted that it had an existing lease contract with the former.

MeTC ruled in favor of HDSJ, affirming the non-transferability provision in HDSJ and German’s lease contract. Since it could not be transferred to Ramon as German’s heir, he could not sublease the disputed premises. The Regional Trial Court and Court of Appeals affirmed the MeTC’s findings.

The Supreme Court partly granted Ramon’s appeal. It upheld the non-transferability provision in the lease contract, which merely reiterated the Civil Code provision that the lessee cannot assign the lease without the lessor’s consent, unless there is a contrary stipulation. Nevertheless, in acknowledging its month-to-month lease with Ramon, HDSJ is deemed to have continued its lease with Ramon in his capacity as a lessee, and not as German’s heir.

As such lessee, Ramon was entitled to sublease the premises. To be sure, the assignment or transfer of lease under the Civil Code, and which has been prohibited from the lease contract, is different from a sublease agreement, where the lessee becomes a lessor to the sublessee. The sublessee then becomes liable to pay rent to the original lessee. But, the juridical relation between the lessor and lessee is not dissolved.

Source: Inquirer