Paying someone else's funeral expenses

frogeyesimon

My father died a couple of months ago. His funeral has been paid for out of his assets. His widow is suggesting that she could now pay his funeral expenses and in so doing she would (a) Enable his estate to pay all of his will's bequests in full (rather than pro-rata as there are insufficient monies left) and (b) Reduce her estate's potential IHT liability in the future.
Is there any reason why she shouldn't do this?
Is it OK for her simply to pay money into the estate administrator's bank account?

Yorkshireman99

frogeyesimon wrote: »

My father died a couple of months ago. His funeral has been paid for out of his assets. His widow is suggesting that she could now pay his funeral expenses and in so doing she would (a) Enable his estate to pay all of his will's bequests in full (rather than pro-rata as there are insufficient monies left) and (b) Reduce her estate's potential IHT liability in the future.
Is there any reason why she shouldn't do this?
Is it OK for her simply to pay money into the estate administrator's bank account?

She can if she wishes. It will not affect her estate's future IHT bill. She can just pay it to the administrators.

frogeyesimon

Thanks YM99.
As far as her future potential IHT liability is concerned would it not simply reduce her assets by the value of the funeral bill. (She's currently well over the £650k threshold)? Or would this be classed as a gift and so subject to the 7-year rule?

Yorkshireman99

frogeyesimon wrote: »

Thanks YM99.
As far as her future potential IHT liability is concerned would it not simply reduce her assets by the value of the funeral bill. (She's currently well over the £650k threshold)? Or would this be classed as a gift and so subject to the 7-year rule?

It will be a gift subject to the seven year rule and not deductable.

getmore4less

If not already using her annual allowances, far easier to just gift the people direct that gives upto £6k(2 years worth) exempt if not enough another £3k in April(they can wait).

Or are we dealing with a seriously expensive funeral?

Depending on exact wording and order of the will abatement may not be prorata.

frogeyesimon

Understood about annual allowances. Funeral cost was just short of £6k so there is presumably no issue with 2x gifts of £3k each to his estate?

Going for a bit of thread-drift here, but in the past 18 months or so she has paid out approx £5k in nursery care fees (directly to the nursery) for one of her grandchildren - does this potentially count as a gift?

Linton

Yorkshireman99 wrote: »

It will be a gift subject to the seven year rule and not deductable.

You may well be right about this but it raises some questions. Given that the funeral bill has already been paid by the estate....

- If the bill had actually been paid by the widow directly presumably it would not be a gift but just normal expenditure. Individuals may well pay for a relative's funeral particularly if the estate is insolvent. They may want to know if this could be a "gift".
- Under the current circumstances, is it a gift to the estate or a gift to the benficiaries? This could make a difference in the (very unlikely) event that the HMRC's right to chase the recipients for future unpaid IHT was exercised.
- Can anyone make a gift of anything to a deceased's estate? I am not sure of the implications. Is the distribution of the money covered by the will or intestacy rules since it wasnt part of the deceased's assets?

I cant see any of this making any difference to the OP, but it would be nice to know.

frogeyesimon

Linton wrote: »

You may well be right about this but it raises some questions. Given that the funeral bill has already been paid by the estate....

- If the bill had actually been paid by the widow directly presumably it would not be a gift but just normal expenditure. Individuals may well pay for a relative'ss funeral particularly if the estate is insolvent. They may want to know if this could be a "gift".
- Under the current circumstances, is it a gift to the estate or a gift to the benficiaries? This could make a difference in the (very unlikely) event that the HMRC's right to chase the recipients for future unpaid IHT was exercised.
- Can anyone make a gift of anything to a deceased's estate? I am not sure of the implications. Is the distribution of the money covered by the will or intestacy rules since it wasnt part of the deceased's assets?

I cant see any of this making any difference to the OP, but it would be nice to know.

OK so the plot thickens a bit here. The funeral bill was originally settled by his widow. The estate has since repaid this money to her. I'm starting to wonder whether this, in hindsight, was the best course of action.

Linton

frogeyesimon wrote: »

OK so the plot thickens a bit here. The funeral bill was originally settled by his widow. The estate has since repaid this money to her. I'm starting to wonder whether this, in hindsight, was the best course of action.

I think in reality this is more of a problem to amuse legal and tax nerds. In practice it wont make very much difference, and if something possibly questionable is done with £6K no-one will notice or care. The rules are imprecise and so HMRC appear to police what happens very lightly unless someone is really taking the p**s.

Yorkshireman99

frogeyesimon wrote: »

Understood about annual allowances. Funeral cost was just short of £6k so there is presumably no issue with 2x gifts of £3k each to his estate?

Going for a bit of thread-drift here, but in the past 18 months or so she has paid out approx £5k in nursery care fees (directly to the nursery) for one of her grandchildren - does this potentially count as a gift?

That does count as a gift and needs to be declared. It is all very well glibly saying that HMR&C don't care but if they subsequently do investiagte the consequences can be costly and time consuming.

getmore4less

Just get it paid back and adjust the inventory & account.