Advice regarding late wills and intestacy

Tim.82

Hello,

My fear is that in posting this I will be seen as money grabbing. This is not the case, the thing I want to avoid is my Dad losing all his liquid assets to the taxman. Dad has asked me to look at his options and I don't know where to start.

The situation is that my Mum is on her death bed (it would be surprising if she lived another two months, she has cancer in multiple places now). We are distraught and IHT planning hasn’t come high on the list until now. She has no will, so intestacy will apply if nothing is done.

These are our circumstances:

· I am an only child and married with a kid.

· My father is alive and healthy.

· My parents have a family home worth £700,000 (this is obviously an estimate, but it’s a Victorian six bedroom in southeast London in solid condition).

· My Father has cash assets of roughly £100,000, his retirement fund!

My understanding is that under intestacy my Dad stands to inherit £250,000 plus half the rest £275,000. So £525,000. From this I understand he will have to pay tax on £200,000 which is £80,000. That’s what I think the law is but it doesn’t feel right saying he stands to inherit his own money, but I know that’s just an opinion.

I think if I will was written that allocated a bigger portion to me that Inheritance bill would go down. And unlike the taxman I would not be taking the money without my Dad pretty much forcing it on me.

I have three questions:

How is the value of the house determined? There are no plans to sell.

Is my maths correct?

The important one: Should we approach a solicitor or is it too late in the day for that? My Mum is too ill to leave the house other than in an ambulance. She is of sound mind. I don’t want to stick a will in front of her (or even know if it’s that simple) but I equally don’t want my Dad to lose the majority of his cash.

LisaW123

There is an article on this site which may help you. Here is the link.

http://www.moneysavingexpert.com/family/inheritance-tax-planning-iht

Crabapple

Sorry to hear about your mother, best wishes to you and your family at this difficult time.

The most important thing to say here is that presuming your parents are legally married then nothing that passes to your father will be taxed. Inheritance Tax does not apply to transfers between spouses, that share of the estate passes under 'spouse exemption'.

I wonder from reading your question whether this is not the case, so if they aren't married then the tax issue is more complex but the passing of joint assets is still a consideration when looking at what might pass to your father.

In order to see what exactly your father would inherit you need to look at how the assets are held. Joint bank accounts for example will normally pass to the surviving spouse automatically, and these sums would not be included in the amount of the estate passing under the intestacy rules. The situation with the house may be more complex as there are two ways of jointly owning property but if the house is held as 'joint tenants' then it would also pass by survivorship.

With some or all assets passing by survivorship you may find that the remainder of your mother's assets would be below the intestacy rules anyway. Any monies in your father's sole name (you mention the cash assets) are nothing to do with the estate.

I think if you discuss with your father the ownerships and what assets might be in your mother's sole name you will find that far less would be passing under the intestacy rules than you think, and it will not be taxed if it passes to your father (if they are married).

Any assets passing to you are potentially liable to Inheritance Tax so you would need to stay below the IHT threshold so there is no tax to pay. If the intestacy rules do apply to a large estate then this may be the case but even if everything you mention was considered you personally would not inherit a great deal.

I'm not sure from reading your question how you think you could get the bill down? If for example your parents are not married it makes no difference whether the assets are passing to your father or to you, it would still be taxed. The estate itself has a limit no matter who the assets pass to.

Your questions:-
1. the house would need to be valued by professionals. Estate agents may be enough if there is no tax to pay, but if there is an IHT issue then it should be done by chartered surveyors. This value is submitted to HMRC who may make further enquiries to ensure it is a reasonable open market valuation.

2. Your maths may not be correct (sorry!), it's not as simple as just the numbers.

3. It is not necessarily too late, but you need to consider the health of your mother and what medications she is on, and more importantly how she would feel about being given a will to sign at this stage. It's worth saying that if the estate is going to pass in ways your family don't want then your father could organise a Deed of Variation later on and redirect it appropriately, taking IHT into consideration.

Crabapple

Despite that essay (sorry!), just thinking about it further I'm not sure if I made it clear that assets passing by survivorship are outside the intestacy rules and end up with the joint owner, but are not outside Inheritance Tax.

So the key question is, are your parents legally married?

I'm a bit sleep deprived due to small baby, but you are saying he would inherit that much under intestacy then they must be.

If so, there's no real problem. If not, then redirecting assets to you makes no difference tax wise.

Given the sums involved it would be worth your father taking some inheritance tax advice in due course. Right now you'll quite rightly be focussing on your mother.