We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Iht - executors - liability
Options
SeniorSam
Posts: 1,673 Forumite
Are the executors responsible for saving as much inheritance tax as possible in their duties?
The senario is a large complex estate with family executors, lots of personal, business and private assets, extensive letter of wishes and inheritance tax liability, as only part of estate will pass to the spouse.
Discretionary Trust Wills were done some years ago, but no changes made following the 2007 act, which allows the first nil rate band to pass on to the spouse rather than be sheltered in a Trust.
If the Discretionary Trust were not used, it is probable that a far greater saving on IHT could be made when the spouse dies as present age is only 60 and the potential for two higher allowances in years ahead would be beneficial.
If the Trust is used, then there is likely to be a disadvantage to the surviving spouse's estate when she dies, but do executors have an obligation to act in the most appropriate, efficient manner, particularly when the deceased has been a most astute and tax concious person who would have wanted to be as efficient as possible.
I would appreciate guidance on this from the specialists out there - if it is not too difficult a subject??
Sam
The senario is a large complex estate with family executors, lots of personal, business and private assets, extensive letter of wishes and inheritance tax liability, as only part of estate will pass to the spouse.
Discretionary Trust Wills were done some years ago, but no changes made following the 2007 act, which allows the first nil rate band to pass on to the spouse rather than be sheltered in a Trust.
If the Discretionary Trust were not used, it is probable that a far greater saving on IHT could be made when the spouse dies as present age is only 60 and the potential for two higher allowances in years ahead would be beneficial.
If the Trust is used, then there is likely to be a disadvantage to the surviving spouse's estate when she dies, but do executors have an obligation to act in the most appropriate, efficient manner, particularly when the deceased has been a most astute and tax concious person who would have wanted to be as efficient as possible.
I would appreciate guidance on this from the specialists out there - if it is not too difficult a subject??
Sam
I'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, but my comments here and on Legal Beagles as Sam101 are just meant to be helpful. Do ask questions from the Members who are here to help.
0
Comments
-
Is it not possible to do a "deed of family arrangement", these days known as "deed of variation", provided the winners and losers involved all agree?
http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM1815.htm
0 -
John_Pierpoint wrote: »Is it not possible to do a "deed of family arrangement", these days known as "deed of variation", provided the winners and losers involved all agree?
http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM1815.htm
Thanks John, I am aware of the requirements for Deed of Variation, which may not be needed if the Will was drawn correctly with 'up to the nil rate band allowance' wording.
This would allow the executors to use the DWT but only put a nominal sum in it, leaving the majority to be used when the spouse dies.
I was really after an answer about the executors 'responsibility' on this issue, as they could help to make a far greater saving in inheritane tax when the spouse dies if they do not use the full nil rate band allowance in the discretionary trust, or an IOU for same.
Any ideas?
SamI'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, but my comments here and on Legal Beagles as Sam101 are just meant to be helpful. Do ask questions from the Members who are here to help.0 -
Senior Sam,
The executors must act in the best interests of the beneficiaries. If you are acting in a personal capacity rather than a professional capacity I would expect to have a clause in the Will exonerating you from liability for an honest mistake - as you are personally liable to the beneficiaries.
If you believe that the discretionary trust would not be as IHT friendly as a simple Will, then the law allows you to appoint the trust assets to the surviving spouse - and if this is done within 2 years of death then this will be regarded for tax purposes as though the trust never existed.
Any other gifts to non exempt beneficiaries will of course use up some of the nil rate band - leaving less to `uplift` later.
You will also need to look at the practicalities of such a move. By appointing the assets to the spouse they are entitled to leave them to who they want - ie they could remarry. It would also be risky if the deceased had children from a previous relationship - so you will need to explore why the deceased wanted the trust in the first place.
Then there is the issue of the surviving spouse requiring long term care. By retaining the assets within the trust they are safeguarded from means testing, by appointing them to spouse they won't be.
Hope that helps.[FONT="]Public wealth warning![/FONT][FONT="] It's not compulsory for solicitors or Willwriters to pass an exam in writing Wills - probably the most important thing you’ll ever sign.[/FONT]
[FONT="]Membership of the Institute of Professional Willwriters is acquired by passing an entrance exam and complying with an OFT endorsed code of practice, and I declare myself a member.[/FONT]0 -
Senior Sam,
The executors must act in the best interests of the beneficiaries. If you are acting in a personal capacity rather than a professional capacity I would expect to have a clause in the Will exonerating you from liability for an honest mistake - as you are personally liable to the beneficiaries.
If you believe that the discretionary trust would not be as IHT friendly as a simple Will, then the law allows you to appoint the trust assets to the surviving spouse - and if this is done within 2 years of death then this will be regarded for tax purposes as though the trust never existed.
Any other gifts to non exempt beneficiaries will of course use up some of the nil rate band - leaving less to `uplift` later.
You will also need to look at the practicalities of such a move. By appointing the assets to the spouse they are entitled to leave them to who they want - ie they could remarry. It would also be risky if the deceased had children from a previous relationship - so you will need to explore why the deceased wanted the trust in the first place.
Then there is the issue of the surviving spouse requiring long term care. By retaining the assets within the trust they are safeguarded from means testing, by appointing them to spouse they won't be.
Hope that helps.
Localhero,
thank you for your reply which has a number of points to consider and has been very helpful.
SamI'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, but my comments here and on Legal Beagles as Sam101 are just meant to be helpful. Do ask questions from the Members who are here to help.0 -
Hi SeniorSam & Localhero,
Have we not been round this loop once before?
I thought that the Interest in Possession trust (Life Interest trust) was back in favour for the value of the zero rate band; allowing the surviving spouse the use of the zero rate band's income but without exposing the capital to the local authority or the risk of it being given to the replacement spouse or the local cats home?
However I get the impression that this estate in question contains considerably more than the zero rate band and so the issue of giving it all to the surviving spouse; in the hope of postponing and possibly minimising the IHT charge on the second death?
Mind you to get our economy off the hook of excessive debt will require increased tax rates or a dose of inflation, neither of which bode well for the future real value of the estate at the time of the second death.0 -
John_Pierpoint wrote: »Hi SeniorSam & Localhero,
Have we not been round this loop once before?
I thought that the Interest in Possession trust (Life Interest trust) was back in favour for the value of the zero rate band; allowing the surviving spouse the use of the zero rate band's income but without exposing the capital to the local authority or the risk of it being given to the replacement spouse or the local cats home?
However I get the impression that this estate in question contains considerably more than the zero rate band and so the issue of giving it all to the surviving spouse; in the hope of postponing and possibly minimising the IHT charge on the second death?
Mind you to get our economy off the hook of excessive debt will require increased tax rates or a dose of inflation, neither of which bode well for the future real value of the estate at the time of the second death.
Thanks again John,
I'm working on the economy situation at present and although I had thought of enlisting the PM for advise, I have thought better of that for obvious reasons!
With estates up to around £700,000 now, the DWT may best still be used, possibly by using the IOU route to shelter the first NRB in the Trust, but allow the spouse full access.
On larger estates, this may not be as good and in this case the surviving spouse age is 58, so many years expected before the second death and the potential for a far higher allowance if DWT not used and both allowances available later.
SamI'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, but my comments here and on Legal Beagles as Sam101 are just meant to be helpful. Do ask questions from the Members who are here to help.0 -
Hi John,
The Discretionary trust still has its place, but with the transferable nil rate band I generally prefer the life interest route for the following reasons:- The nil rate band uplift available on second death is maximised with the life interest whereas it is frozen upon first death with the discretionary trust
- The entire home is arguably safeguarded from care fees whereas if the assets of the discretionary trust are `lent` to the surviving spouse only half of the home is safeguarded
- A life interest is less likely to require the involvement of `professionals` - and the accompanying expense - for the two lots of probate and duration of the trust in between
- Simpler to administer, no annual trustee meetings, exit/10 year charges
- And for estates that exceed 650k, trustees can be given the flexibility to appoint capital to other beneficiaries which is treated as a PET from the surviving spouse.
[FONT="]Public wealth warning![/FONT][FONT="] It's not compulsory for solicitors or Willwriters to pass an exam in writing Wills - probably the most important thing you’ll ever sign.[/FONT]
[FONT="]Membership of the Institute of Professional Willwriters is acquired by passing an entrance exam and complying with an OFT endorsed code of practice, and I declare myself a member.[/FONT]0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 351K Banking & Borrowing
- 253.1K Reduce Debt & Boost Income
- 453.6K Spending & Discounts
- 244K Work, Benefits & Business
- 598.9K Mortgages, Homes & Bills
- 176.9K Life & Family
- 257.3K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards