Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

harryhound

The figure I have at the back of my mind for long term care is 1/5th of men and 1/3rd of women, but that might have been journalist hyperbole.

What I do know is that my late mother had a stroke in winter 99/00, and as soon as it was obvious she was going to survive, I learned a new mantra: "Is she self funding" - roughly speaking that translates into "does she own her house and if so get her out of here". This was my introduction to a hidden underworld of "God's Waiting" room, where 300 a week bought a Victorian shared room and 700 bought a room in a hotel with extra wide passageways to take the wheel chairs. It was pretty obvious that money did not buy happiness (but we poms do love a good winge).
Fortunately, we as a family, managed to put together a care package to keep mum in her own home for her last 4 years, where her damaged brain at least still knew the way to the bathroom (even if it was no longer sure when to go!).
These were Home Counties prices, the "hotel" was part of a chain and the branch in a "northern former steel town" near my sister, charged half the price for the same facilities.

localhero

Hi Rod,

Thank you for your post(s) and I take on board your comments. To comply with forum rules I shan't quote my website address but I shall be referring to it. Anyone following this thread who wishes to refer to it can click on my name to access my homepage. I am grateful to receive any feedback whatsoever.

It's not my policy to shout about my credentials (unless of course I'm asked). I think the IPW logo on my website is enough, since membership itself demostrates competency in the profession. In any case I've found that my clients are only really bothered that they are dealing with a competent honest professional - and most know that already because most of my work now comes from referrals. (Do they really care about my grades at A'level/where I got my law degree? - No they don't).

The statistics I quote on my website about long term care are indeed factual. How many live past 12 weeks after entering a care home? - Who knows - a lot. Fact 70,000 homes are sold each year to pay for long term care. Fact 1 in 4 women and 1 in 6 men require long term care in old age.

I don't believe in stating these two facts is scaremongering. If my clients want to minimise their liability to care fees I explain how. If they don't want to I have at least advised them of the risks and done my job - ditto with any course of action.

Trusts as you and Harryhound appreciate can be very complex (although in many cases they need not be), and as such my website merely explains in layman's language the common types of trust and what they are used for. I tend to steer most of my clients away from the more complex types of trust as I believe in keeping things as simple as possible.

Of course there's pros and cons to every course of action. There are of course many pros to trusts (IHT & care fees mitagation/certainty) The cons of many trusts are the administrative/taxation burden for the trustees and the obvious requirement that the selection of trustee(s) is made with care. These are therefore explained face to face according to their circumstances and the decision rests with the client to make an informed choice.

My website therefore guides the reader to consider if any of the scenarios apply to them. They don't want chapter and verse online, the occasional anorak might (in which case they can go to a legal bookshop and write out a big cheque), but most don't in my experience.

So when I arrive to see clients considering mirror wills (leaving their estates to each other) where there's children from a previous relationship, the idea should be in their minds that an outright gift to surviving spouse may not be the most advisable course of action. I then explain how to avoid a potential scenario and explain the pros and cons of a particular course of action and the client ultimately makes an informed decision (and hopefully the right one).

You will no doubt recall the post on this forum about the girl treated as a child of the uncle who's now at the mercy of the aunt. (That would have never happened if I wrote uncle's will). He (hopefully would have read my literature and been alerted to this risk before I even got round to his house). This example unfortunately in today's society is very common and ultimately avoidable.

And how many posts do we see week in week out (In fact you will have seen more since I've only been posting on here for 2 weeks) about surviving spouse, sole owner of the family house worrying about care fees, wondering whether they can give the house away now? I meet widows and widowers all the time in the same situaton who have left it too late or been badly advised about this issue and IHT.

Like I said, if joe public read the pages of my site, whether they want my services or not they should be asking the right questions of their willwriter and have an indication of a possible course of action that may suit their needs. If it spurs them into action after thinking 'hmm this applies to me' then so much the better.

My particular bugbear is the issue of unregulated, unqualified, uninsured willwriters doing more harm than good. It's an absolute disgrace that the government reneged on their promise to act. (To regulate the profession.)

The Institute of Professional Willwriters are currently seeking approval from the OFT for a code of conduct to provide further reassurance to the public of the gold standard of its members. (I am one of 500 members nationwide). This will hopefully be the first step towards the profession becoming properly regulated. This will ultimately compel all willwriters to meet a uniform standard and conversely drive out of business all the cowboys doing more harm than good to the population and to the good name of the minority that provide a thoroughly honest, ethical and professional service. This minority that invest considerable sums of money in continuing professional development to keep up to date with the law and Professional Indemnity Insurance.

Sadly the law still allows anybody whatsoever to charge for writing wills. Many willwriters have arrived recently from the financial services industry following tighter regulation in that area. Sadly the maxim a little bit of knowledge is a dangerous thing is very true. I have encountered several myself who've convinced themselves (and sadly many ordinary members of the public) that they are competent. It's only when the client dies (and ultimately too late to correct) when a problem is spotted. Someone selling pensions one week doesn't qualify them to be writing important legal documents the next. Wills need to be written with precision and clarity so that there's no uncertainty or doubt upon death. Public be warned.

Kind regards
localhero

samjocky

OK, so I have read the information so far, but can any of you help me out regarding a greedy "ex" wife? I am very happy with my OH who has 2 children with his ex-wife. I have 2 children from my ex-husband. Me and the OH are besotted with each other, been together 4 years now and intend to stay that way. I just know that when my OH dies that the ex will demand every greedy penny she can from him "for the children". I am worried that if we set ourselves up as tenants in common, that she can force a sale on the property so that the kids get their money. Is there ANY watertight way we can prevent this happening? We would want all kids involved only to get any money when both of us have departed this planet.

RayWolfe

Isn't it interesting how ALL ex-wives, left with the children, are greedy?
Just an observation on life.

margaretclare

So when I arrive to see clients considering mirror wills (leaving their estates to each other) where there's children from a previous relationship, the idea should be in their minds that an outright gift to surviving spouse may not be the most advisable course of action.

Hi local hero

We in fact did that following our marriage in 2002. However, the wills are so written that following the death of the second, the remaining estate (if any) is to be divided equally between 5 grandchildren, 3 of mine and 2 of his. We feel that's the fairest way all round. Of course there have been other views expressed on forums like this - one in particular stated that, in the event of her husband's death and her remarriage, she would want 'what she and her husband had built up together' to go only to the children of her first marriage and not to any others. This, to my mind, goes against the spirit of the marriage vow 'all that I am I give to you, all that I have I share with you'.

Fortunately our estate(s) are way below IHT level at present, and the Footsie will have to do a lot better before our investments reach anything like that level even though we're 'retirement investors'.

Margaret

localhero

Hi Margaretclare,

You have obviously considered the matter carefully and taken advice. You will also undoubtedly keep the matter under review and act accordingly if your combined estate exceeds the nil rate band threshold in the future.

Everybody's circumstances differ of course, but it's important for people to understand the pros and cons and ultimately make an informed decision.

Hi Samjocky,

How you own the property with your OH is not relevant. You don't say whether your OH's ex has remarried or not or whether he's paying her maintenance. I assume his children with her are still under 18.

Issue no 1, If he's paying her maintenance (for herself) when he dies (presumably leaving her nothing in his will), then the law would allow her to challenge his will as she would be a dependant of his. If he's not paying maintenance then fine. If there was a divorce settlement, then that should (most likely) exclude any future claims (including on his death), likewise if she's since remarried.

Issue no 2. If he leaves nothing to his children with her (and they are under 18 when he dies) whether he is paying maintenance or not for them, she as their guardian would be entitled to challenge his will on their behalf. The court would consider all the crcumstances, but it's likely they would succeed and obtain a share of his estate for the children.

If his children with the ex are adults and he leaves them nothing, they could challenge his will, but if they are non-dependant (ie no longer in education etc) they would be less likely to succeed.

So the real issue for both of you is to consider all of the competing claims and to work out exactly how you will organise things in a sensible way. Definitely speak to a professional and get your wills sorted. That way things won't get messy later.

Kind regards
Localhero

P1CASO

Please can anyone tell me exactly when IHT is due. My motherinlaw died and left money to numerous people but the house remains with her boyfriend until he dies. Is IHT due on the house now or later.

EdInvestor

How much is her estate worth? If under 300k no IHT will be due at all.

pinksonia

trying to find out some advise, so that the tax man doesnt get his hands on my grandads hard earnt money in the furture, why should they after all.

my grandad owns his own home and is windowed, his son lives with him still, not a young son though, if that makes any difference.

his home is worth over 300,000

when the time comes and my grandad passes away his house is left to 3 children, half of the house goes to 1 son, the one that lives there. and the 2 quarters go to the other children,

does that mean even though it is split between 3 children, would you still have to pay that 40% inhertiance tax.

if so wud this common tenancey agreement thing ive read about work on that situation.

if not please help in any way u can,

thanks
sonia

localhero

Hi Sonia,

When your granddad dies inheritance tax will be calculated as follows: Total value of all his assets (house, savings, investments etc) less any debts & funeral expenses. The first £300,000 under the current rules is taxed at 0% the remainder at 40%.

The inheritance tax is usually deducted before the estate is divided up. So unless grand dad gets married and leaves money to his spouse or to charity, it looks like there is a future liability.

Since one of his sons lives in his house with him (and I assume this son doesn't own a property of his own elsewhere), your granddad could make a gift of half of the house to him now. If he then survives for 7 years, the value of his estate upon death will be reduced by the value of this gift. Therefore it could reduce or even eliminate the inheritance tax liability.

To do this would be relatively straightforward - he could do it himself for nothing with a little help from the Land Registry. He needs to own it with the son as tenants in common. He then needs to make a will leaving his half of the house to the two other children.

The downside to this is if he dies within 7 years. Although taper relief is supposed to reduce the inheritance tax due on gifts, in practice this is useless, because the value of the gift would absorb the value of his 'nil rate band' allowance first.

So depending on your granddads age and state of health this might be worth considering. If however he's very old and in poor health (and unlikely to make it for 7 years) avoiding the inheritance tax becomes a little more tricky (not impossible if hell-bent) but not easy.