Query from my parents

MrChips

My 77 year old father has recently had a health scare and is waiting for a diagnosis. Hopefully it's nothing too serious but there is a chance it could turn out to be a serious illness.

This has triggered some discussion between my parents as to how their finances would work out were he to pass away. I'm a bit more financially savvy than them so offered to look into their concerns on their behalf.

Their bank accounts are in separate names. My father's account (with HSBC) deals with the majority of household bills, has most of their cash in it (around £30k I understand) and is where his pension is paid into (my mother doens't have an occupational pension as she was a housewife). I understand there is a standing order which sends a monthly amount into my mother's account which is what she uses for her day to day spending.

If he was to pass away, they are concerned my father's account might be frozen by HSBC and my mother might not have ready access to the family funds in it. Potentially direct debits for household bills might cease being paid and the monthly standing order could be switched off leaving her in (temporary) financial difficulty.

Is this a valid concern or can spouses access funds in their deceased partners account (obviously this would be my father's intention and my mother would stand to inherit a significant share of my father's estate in his will).

If this is what would happen, at least they have some time to put it right. I guess they could turn it into a joint account, or transfer some of the cash into an account in my mother's name.

Thank you.

poppystar

It is a valid concern.

The best thing would be to have a joint account which will then only require a change of name on death (a quick visit to the bank) whereas the individual account would cease operating once the bank is notified of the death.

Robisere

Do they have a Will? If not, make that a priority.

zagfles

He should just be able to convert his existing account into a joint one. That would be the easiest, obviously he'd need to trust his wife! It might also remove the need for probate, if other large assets are also owned jointly (eg the house).

MrChips

Thanks a lot for responses.

Yes, he has a will. To the best of my knowledge he trusts my mother! They've been married almost 50 years. I think the accounts have just always been run like this and it's what they're used to.

House is jointly owned. I think they made some sort of arrangement a few years back such that when the first of them passed away a share of the house would be passed to me and my three sisters to help avoid inheritance tax - although that arrangement may no longer be necessary given spouses can transfer their nil rate band now.

I'll mention the joint account solution, and that they are wise to have spotted this potential pitfall now rather than when it would have been too late!

zagfles

MrChips wrote: »

Thanks a lot for responses.

Yes, he has a will. To the best of my knowledge he trusts my mother! They've been married almost 50 years. I think the accounts have just always been run like this and it's what they're used to.

House is jointly owned. I think they made some sort of arrangement a few years back such that when the first of them passed away a share of the house would be passed to me and my three sisters to help avoid inheritance tax - although that arrangement may no longer be necessary given spouses can transfer their nil rate band now.

Yes, and there are lots of downside to that sort of arrangement now. For instance, capital gains tax liability on any increase in value after inheriting. It would count as capital if any of you needed to claim means tested benefits, and so would probably disqualify you. If your share is worth more than £40k and you bought a house for yourself in the future or moved house, it would count as a second property and so make you liable for a higher rate of stamp duty.

MrChips

Thank you - I'll double check what the plan is on that front when I next see them.

Yorkshireman99

The IHT dodge will not work if indeed it ever did.

MrChips

I think they got legal advice at the time (over 10 years ago). Can you explain where it falls down so I can explain to my parents (notwithstanding the subsequent change to make nil rate band transferrable to spouse makes it obsolete)?

Keep_pedalling

MrChips wrote: »

I think they got legal advice at the time (over 10 years ago). Can you explain where it falls down so I can explain to my parents (notwithstanding the subsequent change to make nil rate band transferrable to spouse makes it obsolete)?

If your parents estate is worth less than £850k then IHT is not even an issue, as their combined nil rate bands and primary residence nil rate bands would cover everthing. By April 2021 this will rise to £1.

Any percentage left to anyone other than the surviving spouse can't be transferred to the survivor on their death. This might make little difference overall, but if their is a big gap between the two deaths then beneficiaries may be subject to capital gains tax if the value of the property has increased significantly.

The reason this type of split is done is to protect half the value of the house from care fees should the surviving partner need care later, although it is not something we would ever consider doing.

After 10 years they really should be reviewing their wills, they really should have lasting powers of attorney in place as well in case either of them ever become incapacited.

getmore4less

Transferable nil rate band came in 2008(backdated to oct 2007) so this may not have been considered at the time if the will is 10y old.

before that the use trusts and passing at least the nill rate bands worth away from the survivor was a legitimate IHT mitigation tool that worked to avoid future IHT on a larger estate.

Not needed now as the assets and nil rate band can both be transfered efectively neutral for future IHT at that time.

The current use of trusts it more to protect the assest from deprivation issues and care fees, an immediate post death interest in possesion trust can be used to ring fence assets(often just a share of the house to keep it simple) and has no IHT or CGT complications because the assets are still treated as belonging to the life tenant for both of those.


Time to review the will and get further advice customised to the particular circumstances.


As well as ensuring that cash flow is not interupted(as said a joint account with some money in will do) probably a good time to review the pension and the paperwork needed to ensure any spouse pension transition is as smooth as possible.