Avoid IHT by Deed of Variation? 31 January 2018 at 7:38PM edited 30 November -1 at 1:00AM in Deaths, Funerals & Probate 26 replies 2.3K views

Hoploz

This is regarding a large estate of a family member who has recently died - well in excess of £1m. The will states the beneficiaries in a very simple way with % shares. However there would be a huge IHT liability on this.

I think it might be possible to vary the will to place some of the estate in a Trust in order to avoid the tax bill. Can someone please confirm whether this basic idea is right?

If so I will investigate getting professional advice as I am aware Trusts are very complicated. But if it means we can avoid handing over a 6 figure sum of hard earned money then it would be worthwhile.

Thanks.

Yorkshireman99

Hoploz wrote: »

This is regarding a large estate of a family member who has recently died - well in excess of £1m. The will states the beneficiaries in a very simple way with % shares. However there would be a huge IHT liability on this.

I think it might be possible to vary the will to place some of the estate in a Trust in order to avoid the tax bill. Can someone please confirm whether this basic idea is right?

If so I will investigate getting professional advice as I am aware Trusts are very complicated. But if it means we can avoid handing over a 6 figure sum of hard earned money then it would be worthwhile.

Thanks.

It may b e possible but paid for professional advice is needed from an IHT specialist. look for a STEP member.

Crabapple

Unless the trust is for a spouse or disabled person (who fulfills fairly strict criteria) then you cant save IHT with trusts.

A trust is just another non-exempt beneficiary.

Keep_pedalling

It is not possible to reduce IHT after someone has died unless the DoV diverts money to charity. DoVs can only be used to reduce IHT for beneficiaries. For instance a parent can pass an inheritance to a child through a DoV to avoid an inheritance ever entering their estate.

G_M

Hoploz wrote: »

This is regarding a large estate of a family member who has recently died - well in excess of £1m. The will states the beneficiaries in a very simple way with % shares. However there would be a huge IHT liability on this.

I think it might be possible to vary the will to place some of the estate in a Trust in order to avoid the tax bill. Can someone please confirm whether this basic idea is right?

If so I will investigate getting professional advice as I am aware Trusts are very complicated. But if it means we can avoid handing over a 6 figure sum of hard earned money then it would be worthwhile.

Thanks.

As Keep Peddaling says, the answer is no.

The Estate would have to pay IHT based on the value of the Estate at the date of death.

What happens in the distribution of the Estate later (to Beneficiaries, to a trust etc) does not alter that.

The exception would be to divert somee of the money to Registered Charities. That would remove that sum from the taxable Estate, and could reduce the tax rate from 40% to 38% (if 10% of the estate or more went to charity.)

Varying the Will to divert inheritance from a Beneficiary to that Beneficiary's child(ren) is sometimes done. That would nt reduce the IHT on this Estate, but would mean it never appeared in the original Benficiary's estate when they die.

Tom99

Is there a spouse? A DOV leaving more to the spouse would save IHT.

Keep_pedalling

Tom99 wrote: »

Is there a spouse? A DOV leaving more to the spouse would save IHT.

Good point, I had rather assumed there wasn’t. Rubbish will if there is however.

Hoploz

No spouse and no children

Yorkshireman99

Hoploz wrote: »

No spouse and no children

In which case then the only immediate IHT saving would be if the DOVs were used to give part of the estate to charity.

macman

How much IHT is 'huge'? Why not do the actual calculation before taking any further action?
If there is a predeceased spouse then as much as £650K will be exempt, so that would result in an IHT liability of around £140K. Maybe lower depending on the value of the main residence.

Hoploz

Feeling a bit like I'm asking the impossible but all advice I can see online says things like, 'most estates don't pay IHT' and 'get professional advice if there is an IHT liability.' Which of course I will, but am just trying to get a few pointers in order to ask the right questions of the solicitor. So far they have said a one-liner 'a deed of variation would not help to avoid paying IHT.' Which it would appear is not strictly correct, eg. The charity exemption suggestion.

One thing I do know is that all of us dealing with this will be getting advice regarding our own affairs to try and ensure our children and grandchildren get as much as possible of what we've worked for in the future.