varying a will

slim25

Hello all
I couldn't find anything about this here or any where else apart from the HMRC website. Hope some one can help me out

My friends Dad has just passed.
He owned the house outright in his name only. In the will he left everything to his wife (my friends mum).
I'm helping the mum with the estate as I did my Dads when he died and found it relitively simple to do without a solicitor.

I'm led to belive that the mum (who is the executor also) can vary his will so that the house can be split into percentage amounts between the mum and the two siblings or just the siblings depending on the houses worth so there share doesn't go above the IHT threshhold as tenants in common.
Is this correct?
If so;

1) Does anyone know or have any experience in how she would go about this with out getting a solicitor involved, How would a varyation letter be worded ect..?
2) From what I have read else where she would be able to continue living there rent free as it wouldn't be classed as a gift with reservation of benefit as it would now be bequethed in the will. Is that correct?
3) If qestion 2 is correct then they would need to draw up a trust deed. Would something like this be correct www.questbrook.co.uk/trust.htm or should they pay to get a bespoke one drawn up.
4) would she have to get a SDLT letter from Land Registry (SDLT1 I think) and would any monies have to be paid or would she just put all the parties involved using the AS1 form when the property assends as you would normally do if it had be written in the will??
Thank you in advance :beer:

SailorSam

As far as i know a Deed of Variation is usually drawn up to benefit in some way as a tax saving.
I don't think your friends Mum could alter a Will in any way.
But the best way out of the problem would seem to be, let the probate go through so that the lady now owns the house then she can then change the names on the land registry so they are all on there

slim25

Thanks for the reply.
The variation is for tax purposes and if made within 2 years of death will be allowed by HMRC as if the deceased wrote it in the will (as long as all benificiarys agree to it)

From HMRC

Can I change an inheritance after death?

Yes, but all the beneficiaries who would inherit less as a result of the change must agree. The change is called a variation.
A variation can

• affect the amount of Inheritance Tax payable on the death
• alter how HM Revenue & Customs (HMRC) might charge Capital Gains Tax in the future

If the beneficiaries making the variation want it to take effect for Inheritance Tax, Capital Gains Tax or both, the variation must contain a statement to that effect.

If they do as you suggest it would be classed as a 'gift with reservation of benefit' which is liable for tax

from HMRC
Inheritance Tax when passing on property

For Inheritance Tax purposes, giving your home away is treated as making a gift. The rules about passing on property are complicated, so it's a good idea to seek legal advice.
There are two things about gifts to be aware of when passing on property:

• Seven-year rule. You can make an outright gift of your home to someone, no matter what it's worth, and it will be exempt from Inheritance Tax if you live for seven years after making the gift. This is known as a Potentially Exempt Transfer.
• Gifts that you continue to benefit from. If you give your home to your children with conditions attached to it, or if you continue to benefit from the home yourself, this is known as a 'gift with reservation of benefit' and the gift won't be exempt from Inheritance Tax, even if you live for seven years afterwards.

The CGT will be payable even if the children move in with her which they won't as they are both married.

Or have I got this completely wrong?? :embarasse

I am trying to use the Dad's £325000 so that if the need arises and the mum has to go into a care home or the like that the house or part of won't be taken into consideration as her assets and have to sell it to pay for it and lose everything

Linton

slim25 wrote: »

..........

I am trying to use the Dad's £325000 so that if the need arises and the mum has to go into a care home or the like that the house or part of won't be taken into consideration as her assets and have to sell it to pay for it and lose everything

Why shouldn't the mum use her own wealth to provide a better care home for herself than would be provided by the state???

slim25

I'm sure she would if need be and I know her kids would help when needed.
But she wants the kids to have something and it gives some control to the children rather than the state take control i would think, and all this is hypothetical as she is as fit as a fiddle at the moment.
But there is nothing wrong in either paying for your own care or protecting your assets and if she lives another 15-20 years the house may be worth £800,000 say and the IHT threshold may be still £650,000 so would have IHT to pay. If they get a percentage now wouldn't their liability be smaller if that was the case??

SailorSam

If when the childrens names were added at the Land Registry and it was a Gift so not allowed, what if the bought a share of the house, for say £50. Is the anything stopping the Mum selling for whatever price she wants.
I'm in the middle of changing the names of the owners of my house at the moment and the form we had to sign from the solicitors just asked if there was any monetary benefit to anyone, and we put No.
When my Mum died (4yrs ago now), i bought her house from the rest of the family, but i suggested to my Sister that her name went on the deeds, i said if i was to pop-my-clogs it would be easier for her to get quicker access to details if she was part owner. And also if i was to meet a floozzie who decided a few years down the line that 'my' house was 'our' house i may lose out.
But now my Sister has hinted she may get married, what then if something happened to her and this guy turns up saying he wants her share.
Better safe than sorry, i want to leave it to the kids not some stranger.

Yorkie1

The quotes you provide refer to IHT and CGT. However, you mention minimising / avoiding care fees. That is different from those two taxes; it involves the Local Authority.

They have power to look back at transactions to see whether someone has deliberately removed some assets from their ownership. I don't know for sure but it seems arguable that if she has inherited a complete house, and given away 2/3 whilst retaining the right to live in it for as long as she wishes, then she has deliberately deprived herself of some assets - and the LA thus treats her as still owning them. I'd get specialist advice on this aspect.

There is also the point, on a different note already mentioned by other posters, that she will be one of three owners. She will no longer have control over the other two thirds' shares - and who may make claims on them.

CLAPTON

deeds of variation are largely made obsolent after the law was changed so that the surviving spouse 'inherited' the first deceased IHT limit
in fact it's usually worse to use a deed of variation than simply to give the asset away after inheritance.

is you situation special so this rule doesn't apply?

G_M

No IHT on a spouse inhetiting, so no point for IHT purposes.

'Deprivation of assets' would apply in the case of care fees. Google it.

You need specialist advice if you are to have any chance of improving things legally.

slim25

CLAPTON wrote: »

deeds of variation are largely made obsolent after the law was changed so that the surviving spouse 'inherited' the first deceased IHT limit
in fact it's usually worse to use a deed of variation than simply to give the asset away after inheritance.

is you situation special so this rule doesn't apply?

No nothing special about the situation.
Just the mother worried that if something were to happen to her that she would want to leave the kids something and me thinking it would be better to take a percentage of the house now to save them IHT in the future as you cannot gift a house and the mum still live in it as the 7 year rule doesn't apply and me being a cynic thinking the goverment could take away or change the £650,000 rule.

The house is worth about £450,000 now and would probably be worth a lot more in 20 years time if she was to live till the average age of 85.
So her thinking was to split the house so the 2 daughters got a share equivelant to £162500 each and she (the mother) got a £125000 share plus about £30,000 in savings would hopefully be enough if something untoward happened and she needed care in the future and if it wasn't at least the girls would have something from her and her husbands hard work which they could use for their Mum's care by renting out or selling if the wanted to. But basically the Mum wants them to have something and the goverment as little as possible.:rotfl:isn't that what everyone wants LOL

G_M wrote: »

No IHT on a spouse inhetiting, so no point for IHT purposes.

'Deprivation of assets' would apply in the case of care fees. Google it.

You need specialist advice if you are to have any chance of improving things legally.

No no IHT for the spouse but the kids would when the mum passes.

If they got a percentage share now would their appreciation of it be liable for CGT rather than IHT and if so isn't CGT lower than IHT?

Yorkie1

I do not know the answer to this question. But I reiterate my earlier point, and that of G_M's, that these questions cannot be taken in isolation. The mother will be giving away part of her inheritance in order (in part) to minimise what the state can claim in tax and if care is needed.

Deprivation of assets to prevent the state claiming them for care needs is a major issue which can be undone by the state retrospectively. and needs careful consideration - and proper advice in my opinion.

I think trying to do all of this purely on views of people on a forum - whose qualifications you don't know, who have no idea of the full facts, and who have no responsibility to your friend / friend's mum if it all goes wrong - is foolhardy.

The fact that you need to ask for advice here (and there's no shame in that, don't get me wrong) indicates that it is not as straightforward as you initially thought. The implications of getting it wrong could be mahoosive.