Inheritance Tax Planning

slopemaster

It seems to me that I have been given extremely poor advice which could have cost my OH tens of thousands in unnecessary tax.:eek:

2 years ago I made a will at a local solicitors. I wanted to leave everything to my OH, but as I have a son from a previous marriage I also wanted to be sure he would get something eventually.

The solicitor therefore wrote a will leaving everything in trust for my son, with a life interest for my OH. Now, at that time my estate would have been well below the IHT threshold, so no problem. But I’m pretty sure I TOLD the solicitor that it was on the cards I would inherit from my parents at some point. That happened last year, and my estate is now well OVER the IHT threshold.

I did not understand at that time how the IHT worked, but I have been reading up about it recently. Can anyone confirm if my understanding is correct as follows

• I could leave everything to my husband with no tax at all. (Tho’ there wd be tax on anything over £650000 when he dies)

• But if it all goes (in trust for) my son, then everything over £325000 would be taxed, and it would be taxed when I die, not when my OH dies. (So he might have to sell the house).

If this is correct I need to change my will urgently.

But, just picking a long-established local solicitor seems to have gone badly wrong – (and this was my second try; I ‘sacked’ the first one after 3 months went by and they still hadn’t sent the draft will promised in ‘a couple of weeks’).
So, how on earth do I find someone competent to advise me?
I have read the helpful answers to Emma’s Q, and I will follow them up. But the amount of money in my case is a lot less and we don’t currently need investment advice, only wills and (fairly simple???) estate planning.

Also, any bright ideas to reduce tax on the second death would be very welcome. I was interested by the one about leaving ‘a business’. Could this be a property-letting business? Would it have to be a limited company? Or set up as a partnership or something?

Sorry its so long. Thanks for any advice

John_Pierpoint

If you publish the exact wording of your will, some legal eagle might correct me BUT I think your solicitor might have done exactly the right thing and something in the terminology is confusing the issue.
Your husband will be given a life interest in your estate. This is called an Interest in Possession Trust in tax man speak.
There is no logic to tax (or very little) it is just a rag bag of political pressures and has grown to be the world's second most complex mess (India is worse apparently) but if there is logic to it, nobody can ever have more than a life interest, and it is in the tax man's 40% interest that your husband does not spend the capital. Having the estate in an Interest in Possession trust also protects the capital from care/nursing home fees.

So if I am right, the interest in possession counts as leaving the estate to your husband for IHT purposes.

The downside is that (some) husbands may think it is the last insult from their spouse. who cannot trust them and allow them to do what they want in their dotage. Will he turn into a silly old fool buying a sports car and chasing women young enough to be his granddaughter?

It also means that the widower and the step son have to agree on what is done about capital expenditure: Loan for a classic sports car (it is an investment!) or a loan for a mad cap new business venture?

Who will be the executors of the will and trustees of the Interest in Possession trust?

slopemaster

John_Pierpoint wrote: »

I think your solicitor might have done exactly the right thing and something in the terminology is confusing the issue.....if I am right, the interest in possession counts as leaving the estate to your husband for IHT purposes.

Oh, I do hope so!
(And it's certainly hard to understand, and HMRC will not help.)

John_Pierpoint wrote: »

Will he turn into a silly old fool buying a sports car and chasing women young enough to be his granddaughter?

:rotfl:

John_Pierpoint wrote: »

Who will be the executors of the will and trustees of the Interest in Possession trust?

My husband himself, and my cousin, who is very sensible.
I took the solicitor's advice not to make my son executor/trustee, to reduce the likelihood of disputes.
so if he wants to buy that sports car, he can!

I'll dig out the exact wording

stevepett

Then the kids have an accident and get sued.
Get divorced.
Die.
Go into care while you are under 60.

Either way, YOUR house is part of their estate!!

A Home Protection Plan trust will put your home in trust to protect it, though it won't save IHT. It is possible, but not so easy to save IHT on your home.

Giving it to the kids is a bit like going to the bookies. You win some, you lose some - and if their spouse is looking for an opportunity to cash in, half of you gift of your house to your child will be a great bonus!!

Steve

slopemaster

Here it is

I give my Residuary Estate to my Trustees upon Trust to pay the income thereof to my husband A until the distribution date as hereinafter defined…..

The distribution date shall be the earliest of the following:

• upon his death

• the date when A surrenders relinquishes or compounds the entitlement…

On and upon the distribution date to pay the fund to the said M absolutely.


So, can anyone say whether this is treated for IHT purposes as being left to my husband (A) and not my son (M)?


PS I am still chuckling about the idea of A in his sports car doing a Berlusconi.
It's so unlikely that I almost hope he does.
Mind you, my (middle aged, female, mother-of-four) cousin blew her inheritance on a sports car! (This is not the same cousin who will be my executor.)

xylophone

http://www.hmrc.gov.uk/trusts/types/iip.htm
might be of interest

slopemaster

Thanks.
I have looked at that but struggled to understand it.
Would this be the relevant part do you think?

Immediate post-death interests and Inheritance Tax
If someone acquires an interest in possession from a beneficiary who has died - either under the beneficiary's will or as a result of the rules of intestacy - the assets don't count as 'relevant property'. The beneficiary will continue to be treated according to the old rules for interest in possession trusts. This means there is no Inheritance Tax to pay at the ten year anniversary.
There will be no Inheritance Tax to pay as long as the asset stays in the trust and remains the 'interest' of the beneficiary.

xylophone

http://www.blog.thelawwizard.com/2011/02/probate-inheritance-tax-immediate-post-death-interest-trust-the-archers/

For fun.....

See also http://www.crippslaw.com/guidance/a-brief-guide-for-trustees.pdf

But you have paid your solicitor and it is up to him to explain the clauses of the will to your complete satisfaction- why not make an appointment and discuss the matter?

John_Pierpoint

slopemaster wrote: »

Mind you, my (middle aged, female, mother-of-four) cousin blew her inheritance on a sports car! (This is not the same cousin who will be my executor.)

Somehow that triggered a memory of this ballad; it was a big hit in Switzerland.
http://www.youtube.com/watch?v=MfapKxWamIM

Getting back on topic, these guys explain the way that "funny money" threatens those trying to provide for the future. This trick is far more dangerous than paying an honest transparent 40% to the government:

http://www.youtube.com/watch?v=Oe0fGXzKb1o&feature=related

A bit different from the government of Queen Victoria 160 years ago. It had to scrape by on a minting of 8 million yellow coins that only required a picture of a queen for vast areas of the world to know what they were and trust them.

[To be fair the British government has had these for longer than USA has existed - and over the last 20 years they have been a pretty good investment but now..........................:eek: ?]

http://en.wikipedia.org/wiki/Consol_%28bond%29

claire21

I posted on the article discussion thread but guess it should have been on here.

Anyone using the 2 year instead of 7 year rules for ITH planning?