Consumer rights: Will father's marriage mean I'm disinherited?

What will happen to dad's cash when he gets hitched ... A reader receives a legacy and wants to know if it's wise to clear his daughter's student debts

My dad is getting married again in a few weeks. He has a little bit of money from the sale of his flat when he first moved in with his future wife. He always said it was for me, but he never made a will. He'd said I'd get it anyway. What will the situation be once he's married?

DV

Leicestershire

Marriage changes just about everything including who gets your father's money if he hasn't made a will. If your dad still means you to have the money, he'll need to make that clear. Once he's married, if he dies intestate (without a will), then whether you get anything or not will depend on how much there is in his estate.

Anything he owns jointly with his wife automatically passes to her, so any home or shares they own together will become hers. If his estate, which is everything he owns separately from his wife, comes to less than £250,000 in total, and there's no will, it will automatically go to his wife. If there's more than that in his estate, she will get the first £250,000, you will get half of the rest (shared with any brothers and sisters if you have any). His wife will get the interest on the other half until she dies when that capital will come to you.

Your dad may already have made a will, in which case he will need to revisit it after he's married. Marriage revokes a will unless it says in the will that it doesn't. If your dad doesn't make a will, maybe he's happy for everything to pass to his new wife. Perhaps he doesn't realise that's what will happen. Perhaps he's thrown in his lot with his future wife and already put everything in joint ownership. You won't know unless you discuss it with him and I advise you to that at the earliest opportunity. Such matters can be sensitive, so it's best to broach the subject with a degree of caution. However, going by what you write, it seems that he has promised you an inheritance in the past so I think you are entitled to bring the subject up. Perhaps, if his new wife doesn't have children, they could make you a beneficiary of their joint estate.

Remember it is his money to do with as he wishes, and if he chooses to leave everything to his new wife, there is nothing you can do about it. Challenging the terms of a will in court can be difficult and often not worth the effort or expense.

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My daughter has just graduated with a first-class honours degree. But sadly, she has horrendous debts – about £25,000. Going to a London university seems to have made the situation worse. However, as luck would have it, I have just had a small legacy and am thinking of using it to clear her debts. Would that be a sensible plan? She seems to have accepted the debt as a part of life but the idea of owing money goes against the grain as far as I'm concerned.

LJ

Canterbury

What you don't tell me is how much of the £25,000 debt is to the Student Loan Company and how much of it is to the banks, family or card companies.

Let's assume most of it is to the Student Loan Company. If your daughter has just graduated after a three-year course at university, she would have first borrowed from the Student Loan Company in 2006. When she gets a job, and once she is earning over the threshold of £15,000, repayments will be deducted through the income tax system from her wages by her employer and paid to Her Majesty's Revenue and Customs ( the Inland Revenue as was) which, along with the Student Loan Company, is responsible for collection. These are income-contingent repayments to use the jargon. Her repayments will be 9 per cent of anything she earns over £15,000 and that stays the same no matter what the interest rate is.

Student loans are charged at an interest rate dependent on inflation. The interest rate is usually changed each year in line with the March Retail Prices Index (RPI). However, it can be calculated according to the interest rate offered by the big banks plus one percentage point – if that figure is lower than the March RPI.

At the moment, interest is 1.5 per cent (0.5 per cent Bank of England base rate plus one percentage point) but from Tuesday until 31 August 2010, the Government has decided it will be 0 per cent. If interest rates go up higher than the RPI, the interest charged will revert to the March RPI. Do you follow? Not exactly the easiest calculation.

If your daughter first borrowed a student loan in 2006 and it's still outstanding, or an amount of it is, 25 years later (35 years in Scotland) the remainder will be written off.

If I'm wrong in my assumption and your daughter's course was longer than three years, so she started before 2006 and borrowed from the Student Loan Company before 2006, her outstanding debt won't be written off until she's 65.

In reality, few people are going to earn so little during their lives that the loan will be written off. Let's assume, therefore, that the debt must be repaid. Your daughter's debt can be paid off quicker. You can make additional payments and if you want to you can use your legacy to clear the debt. However, the student loan is not your debt. You are, in effect, giving your daughter a gift of the amount of the legacy. Think carefully about whether that's what you want to do with the money. If the answer is yes, sit down with her and work out whether paying off her student loan is what you both want and whether it's the most cost-effective thing to do. There are also potential inheritance tax implications. If you make a gift to your daughter it remains part of your estate for seven years. If you die before the seven years have elapsed, then IHT may be due.

If your daughter's total debt is made up of other elements as well as the student loan – such as bank loans, credit-card or even store-card debts – the interest rates will be higher on those and so her total amount owed is growing faster. Those are the debts that she needs to prioritise and clear first. Talk to your daughter about what you are planning and ask her for a run-down of what she owes and where she owes it. This will give you a better idea of the parlous nature of her finances and where, if anywhere, you need to help.

Her student loan is one of the cheapest loans your daughter is ever likely to have. When interest rates on savings were higher than the interest charged on student loans, many students, who didn't need to use the money to live, borrowed the maximum amount they could from the Student Loan Company and put the money in savings accounts. Interest rates are lower now, of course, so that's not so attractive.

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