How far does executor need to look at money spent by the deceased in the last 7 years

mwalter51

My 88 year old aunt is above the £325,000 inheritance thresh hold. She has about £450,000 in cash and investments and is spending less than £36,000 annually on her nursing home and other expenses. She keeps telling me to spend her money. I know she can give a max of £3000 away annually and gifts of no more than £250 per person.

My question is, how far will my aunt's solicitor (executor) be required to look to to see how my aunt spent her money in the last 7 years of her life? If my aunt continues pay for things on her credit cards, bank debit card, etc will the solicitor have to check out all those expenditures to see what they money was spent on after she dies? Will the solicitor have to try and figure out if my aunt bought someone something on her credit card or if the purchase at store X was for something for my aunt's own use?

Could my aunt potentially pay for things for family and friends on her credit card and have that fly under the radar as far the HMRC is concerned? Where is the line in the sand?

I live in Canada and find the whole inheritance tax thing bizarre. If I had to go back through my own credit card bills and bank account and identify what each amount spent was for during the last 7 years I would probably fail miserably at this. So how the hell will this be handled for my never married aunt who has been very independent all her life and accountable to no one?

We are just wondering if this is small loophole to help reduce her estate.

getmore4less

in the absence of good records of gifts solicitors take a pragmatic approach as it would be very expensive to go through 7 years of accounts in detail.

asking relative if they got any gifts.
look at asset base for obvious reductions and try to account for them.

if a few £k go missing that will not be worth chasing, multiple £10k need more research.

Gifting rarely makes the IHT situation worse so a simple solution would be to gift now unless cashing investments triggers CGT.


If income is creating more than she needs then that can be gifted(with records) to avoid the capital base growing.

getmore4less

she needs to do the gifting spending not you.

Yorkshireman99

mwalter51 wrote: »

My 88 year old aunt is above the £325,000 inheritance thresh hold. She has about £450,000 in cash and investments and is spending less than £36,000 annually on her nursing home and other expenses. She keeps telling me to spend her money. I know she can give a max of £3000 away annually and gifts of no more than £250 per person.

My question is, how far will my aunt's solicitor (executor) be required to look to to see how my aunt spent her money in the last 7 years of her life? If my aunt continues pay for things on her credit cards, bank debit card, etc will the solicitor have to check out all those expenditures to see what they money was spent on after she dies? Will the solicitor have to try and figure out if my aunt bought someone something on her credit card or if the purchase at store X was for something for my aunt's own use?

Could my aunt potentially pay for things for family and friends on her credit card and have that fly under the radar as far the HMRC is concerned? Where is the line in the sand?

I live in Canada and find the whole inheritance tax thing bizarre. If I had to go back through my own credit card bills and bank account and identify what each amount spent was for during the last 7 years I would probably fail miserably at this. So how the hell will this be handled for my never married aunt who has been very independent all her life and accountable to no one?

We are just wondering if this is small loophole to help reduce her estate.

It is really up to the donor to keep accurate records. A degree of common sense is required. I record anything over £100 though that is an arbitrary figure. Items less than that I don't record on the basis that they are out of income anyway. Not legally correct but it seems a reasonable compromise. In my case it all comes under the £250 individual exemptions or the £3,000 per annum. I emphatically don't agree that a few £k going missing is wise.

Keep_pedalling

Is your aunt a widow? If so her nil rate band could be well above her assets.

She can give away any amount she likes, but gifts over £3000 will still be classed as part of her estate for 7 years. My executor won't have to trawl through bank statements because I keep detailed records of major gifts, but not everyone makes it that easy.

Linton

The "inheritance tax thing" 7 year rule isnt bizarre, it's simply there to prevent rich people avoidimg tax by giving away major assets when they are close to death. Like any tax rules you may get away with illegally evading them if you are so minded, on the other hand you may not get away with it with results that could well be worse than paying the tax. And as with other tax matters HMRC arent looking for a £20 note slipped to a grandchild, but rather for £10Ks of discrepancies.

As an executor I looked back over 7 years bank statements to identify all gifts, though this was so that I could demonstrate that all the large gifts were made out of income or covered by the £3K allowance. I would expect an executor to at least carry out checks to ensure that the deceased hadnt obviously impoverished themselves by gifting their assets and if there was any doubt to look further. If you are going to use the gifts out of income "loophole" you do need to keep good records.

mwalter51

No, she's a spinster.

BobQ

" She keeps telling me to spend her money."

I assume your aunt knows what she is doing? If she just knows she has money and is telling you to spend it without understanding the consequences then it would be a different matter.

If you are helping her spend money under a Power of Attorney and she does not understand what she is doing, you need to be careful about what is spent.

troubleinparadise

I cannot think you are her attorney as you live in Canada, and it reads as though your aunt is in a nursing home in the UK, but stranger things have been known.

But if you are not her attorney, I equally cannot see how you could spend her money either

If she wishes to buy you a gift, or give you money, then that is her choice. But to be working out how family and friends can spend an old lady's money and keep it under the radar seems a bit grasping to me. :eek:

missbiggles1

Your aunt could live for another 10 years or more and, with spiralling care home costs, she could run out of money to pay for these if she gives too much away.

securityguy

The £3000 limit is not the only way to spend money.

You are entitled to spend income, without limit, controls on purpose or consideration of who benefits, provided it does not affect your standard of living. There's a lack of case law about giving away all your income whilst living on capital, but presumably it would be handled case by case, and would need professional advice.

So if, as a lot of pensioners are, you are a net saver, you can give that money away without it being subject to the 7 year rule. The citation is Inheritance Tax Act 1984 S.21(1). You would need professional advice as to what counts as "income".