Can you do anything to mitigate inheritance tax after death

scoped1

Hi all

My Great Aunt has recently died, and left a larger estate than we anticipated.

She has left the entirety to my dad. he is the executor and sole beneficiary from my great aunts will of around £600,000. Her husband is still alive and suffers from Alzheimer's and doesn't have the mental capacity to handle finances. He is now resident in a care home. My Great aunt became ill and because of my great uncle's condition my dad was unable to get power of attorney over his financial affairs. My aunt had been looking after their finances for some years and she left her estate to my dad in order that my great uncle be properly cared for. Is there any way that we can reduce the amount of inheritance tax payable on the estate now?

Thanks

Mojisola

Who is managing your great uncle's affairs?

It's possible to do a deed of variation to leave some of the estate to the great uncle so that he can pay for his own care.

xylophone

http://www.hmrc.gov.uk/cto/customerguide/page21.htm

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

See a solicitor qualified in wills and trusts? http://www.step.org/online-directory

Cook_County

I should think a deed of variation for the amount required to pay for an immediate needs annuity might do the trick. I am a little concerned about deprivation of assets coming into play. The executor will need help from a solicitor.

getmore4less

Does the great uncle have a will?
What is the distribution when he dies(will or intestate).

The DOV to return funds to spouse for their care makes sense.
Not ideal using IHT taxed funds for that.

Does the great uncle have any assets eg: any house share that was jointly owned.

Mojisola

Has the court of protection appointed someone to look after your great uncle's affairs?

A spouse has a right to challenge a will if he/she is being financially supported by the spouse but isn't left anything in the will. Presumably your great aunt was paying for her husband's care before she died?

If a reasonable amount of money isn't redirected to her husband, a lot of money could end up in solicitor's pockets while the will is challenged.

CLAPTON

from a purely tax point of view then making a DOV of the amount over 325,000 to the great uncle would make sense as there would then be no IHT to pay

however, when great uncle dies would his estate come to your dad?
is there any other relative who could challenge the inheritance?
who is looking after great uncles financial affairs

scoped1

Hi,

Thanks for all the replies. I'll try and reply to each point in order.

Who is managing your great uncle's affairs?

It's possible to do a deed of variation to leave some of the estate to the great uncle so that he can pay for his own care.

My dad is looking after my great uncle's affairs

xylophone http://www.hmrc.gov.uk/cto/customerguide/page21.htm

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

See a solicitor qualified in wills and trusts? http://www.step.org/online-directory

Thanks for the info xylophone, i will show my dad so he can look through the links

Cook_County I should think a deed of variation for the amount required to pay for an immediate needs annuity might do the trick. I am a little concerned about deprivation of assets coming into play. The executor will need help from a solicitor.

What does deprivation of assets mean? I think my dad (the executor) will get help from a solicitor, but i thought it would be a good idea to have some sort of understanding before we do that.

Does the great uncle have a will?
What is the distribution when he dies(will or intestate).

The DOV to return funds to spouse for their care makes sense.
Not ideal using IHT taxed funds for that.

Does the great uncle have any assets eg: any house share that was jointly owned.

Yes he does have a will, the distribution is shared 50/50 between my dad, and his brother.

my great uncle has a half share in a flat (the other half was my great aunt's)

Has the court of protection appointed someone to look after your great uncle's affairs?

A spouse has a right to challenge a will if he/she is being financially supported by the spouse but isn't left anything in the will. Presumably your great aunt was paying for her husband's care before she died?

If a reasonable amount of money isn't redirected to her husband, a lot of money could end up in solicitor's pockets while the will is challenged.

My dad has applied to the court of protection to become my great uncle's deputy

My great uncle only went in to care recently (about 8 weeks ago) as my great aunt was looking after him until she became too ill to be able to continue looking after him.

My uncle has a pension of approximately £1500 a month, which is approximately £1000 a month less than needed for his care.

from a purely tax point of view then making a DOV of the amount over 325,000 to the great uncle would make sense as there would then be no IHT to pay

however, when great uncle dies would his estate come to your dad?
is there any other relative who could challenge the inheritance?
who is looking after great uncles financial affairs

When my great uncle dies his estate is to be split 50/50 between my dad and my dad's brother (as stipulated in my great uncle's will). But this isn't a problem as all monies (great aunt's and great uncle's) will be equally divided between my dad and my dad's brother. There are no other relatives to challenge the inheritance.

Thanks a lot to everyone, it is much appreciated

Mojisola

Either your great aunt has left everything to your Dad or she has left it divided between your Dad and your uncle - which is it?

By not leaving anything to her husband, she has incurred an inheritance tax bill. She could have left everything above £235,000 to her husband and there would be no tax due on her estate. You can change the will to make this happen by using a deed of variation. Every affected beneficiary has to agree so that's either just your Dad or your Dad and his brother.

If your great uncle leaves more than £235,000 when he dies, there may be some tax to pay then, depending on the threshold at the time and how much of the capital has been spent on his care.

scoped1

Hi,

My great aunt has left everything to my dad (which he will share 50/50 with his brother of his own accord) and my great uncle's will is the one that states a 50/50 split of his part of the estate.

My great aunt changed her will without getting advice on the specifics of limiting inheritance tax, otherwise i imagine that is what she would have done.

ok, thank you all for all the advice
i've passed it on to my dad, and i think we'll read about it, then see a solicitor

getmore4less

One simple approach.

Stick the lot back into the uncles estate.

Share 50:50 when he dies with a double nill rate band(assume they were married).

By just taking £325k and giving the brother 1/2 could have IHT for your dad should he die within 7 years as it would use up some of his nill rate band.

If doing a DOV it could be give the excess over £325k back and take 1/2 of £325k each(brothers)

How big is the total estate of both great aunt+uncle?

If dad and brother will have assets in excess of their nill rate bands there is also the opportunity to skip a generation.