IHT Options for a £1,000,000+ estate

CityOwl

MY FIL recently asked us to help him with inheritance planning as he does not use the internet and I assume values our opinions. I subsequently read the article on how to avoid IHT and some associated posts, my husband and I were pleased to inform him that he need not worry as any estate worth under a million pounds by April 2020 would by free of IHT. FIL & MIL will each inherit the entire estate upon the first death, the estate will then pass in equal share to their 4 children upon the second death. Job done we thought.

“It’s more than a million pounds”, he told us. We were a little surprised as although he is a skinflint (he would take this as a compliment), they both had manual jobs and retired early in their fifties (fast approaching their eighties now). We did not ask how much over a million as we didn’t want to pry, which is a bit silly as we are meant to be helping them. However, I have had a quick look at house prices on their road and as their’s could do with a new kitchen and bathroom, I have guesstimated that its worth around £450,000. It’s their only property.

We were caught on the hop, but we made the following suggestions;

1. Spend anything over a million pounds (my favourite)
Reasoning: You earned it so you should spend it. Is anyone inheriting really going to appreciate the hard work and sacrifice made to accumulate this money? In my opinion, they could do with a new kitchen, bathroom and car. But old habits die hard, FIL still saves from his DB pension (£15,000 per annum, not including any return on his substantial investments) and the response from both was “we don’t need anything”.

MIL might be persuaded to spend some money if she inherits from FIL, which I believe is likely as she is in better health and a couple of years younger. MIL is bright and articulate and certainly knows her own mind, but cannot read or write which is another concern for him.

2. Gift anything over a million pounds
Reasoning; IHT is avoided if you survive seven years. We did suggest that MIL make the gifts as she is younger and fitter so more likely to reach the seven year threshold.

There is an added complication with this option as one child has severe mental health issues. The gift will be spent in a very short period of time and these items will add to their current hoard. Not sure how my FIL will cope as this is an area of conflict in their relationship. The longer term thinking being that FIL will not be around to see any inheritance that is frittered away after his death.

3. Pay the IHT on anything over a million pounds
Reasoning: If you cannot reconcile yourselves to the other two options, then just pay the inheritance tax. If the estate is £1.1 million then the tax to be paid is £40,000. MIL suggested giving it to charity, but FIL scoffed so I think this is a none starter. My contribution was that we all have to pay tax and that it is not the government’s money but “our” money to pay for the NHS, education, policing, etc.

We finally discussed the obvious, which is getting some independent financial advice. He didn’t look too impressed as this will cost him and, as we have already established, he doesn’t like spending money. FIL can be stubborn and MIL thinks that the worry is making him ill. What is the point of all this money if it is going to make you ill? :mad:

He will need to be convinced that a IFA would be able to give him some serious alternatives to consider. I have absolutely no idea but maybe you could educate me on this, so we can persuade him to go down this path.

xylophone

https://adviserbook.co.uk/

He could type in his post code and then when the menu comes up on the left, tick confirmed independent and then Inheritance Tax and perhaps Chartered Financial Planner.

CityOwl

xylophone wrote: »

https://adviserbook.co.uk/

He could type in his post code and then when the menu comes up on the left, tick confirmed independent and then Inheritance Tax and perhaps Chartered Financial Planner.

Thank you for your response, unfortunately he doesn't use the internet, Teletext is as modern as he gets. We could do this bit for him, but we have to persuade him to view this as a serious option in the first place, hence my post.

tacpot12

So FIL is not keen on spending money, nor giving money to charity, or to the child with mental health issues. Nor on getting professional advice. MIL might be prepared to do all of these if unconstrained.

Your FIL is really limiting his options, yet he has asked for help so feels that something should be done. I think you need to show him, based on your understanding, how much inheritance tax he will pay if he dies without making any preparations. (both if he dies first and if MIL dies first). Then find out from a STEP professional (see https://www.step.org/about-us) how much it might cost to put a plan of action together. You can ignore the cost of enacting the plan as FIL needs to consider whether the cost is worth the saving (assuming all IHT can be avoided).

Given he has investments, does he have an IFA already? if so, does this IFA have am employee who is a STEP member?

xylophone

MIL is bright and articulate and certainly knows her own mind, but cannot read or write which is another concern for him.

Does she want to learn?

If so, get hold of a copy of "Step by Step" by Mona McNee. and teach her.

one child has severe mental health issues.

Discretionary Trust for Vulnerable Adult - he'll need expert professional advice.

https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people

polymaff

You seem to have done your duty. Now your FIL needs to make some decisions - and to do so before he seeks further advice. You write as though both MIL and FIL have made wills. If so, then that's that. If not then won't the rules of intestacy prevent the surviving spouse from inheriting the entire estate?

For heaven's sake, don't tell him how much more getting Probate will cost after 1st April 2019.

Owain_Moneysaver

CityOwl wrote: »

MIL is bright and articulate and certainly knows her own mind, but cannot read or write which is another concern for him.

There is an added complication with this option as one child has severe mental health issues.

This may be an issue for appointing executors.

Is it possible to skip a generation and make gifts to grandchildren?

Would FIL consider giving to charity if he understood better what a charity could do with a substantial bequest? A £100k gift could be a £10k per annum bursary for an apprentice for the next ten years, if he'd like to support a young person going into his former industry. Many industries have educational charities or benevolent societies associated with them who could administer such a bequest. He could have a piece of woodland named after him (or his parents, or someone else that is special to him). Etc.

kidmugsy

One possible line of persuasion with FIL is that if he wants to do what he can for his widow it wouldn't simply be a question of leaving everything to her. In the long term her position would be more secure if several of her children were prosperous too. And perhaps grandchildren.

Therefore suitable gifts to them that might allow them to secure their own finances might be helpful. (As xylophone said, the difficult case could be covered by a Discretionary Trust for Vulnerable Adult).

Another point is that if the excess over a million is small enough he may be worrying about nothing: the cost of "care" could consume it in no time at all.

Anyway, you should at least be able to persuade him that the fees for an IFA/lawyer/tax adviser would get a 40% discount, in that they will avoid IHT.

CityOwl

tacpot12 wrote: »

Your FIL is really limiting his options, yet he has asked for help so feels that something should be done. I think you need to show him, based on your understanding, how much inheritance tax he will pay if he dies without making any preparations. (both if he dies first and if MIL dies first). Then find out from a STEP professional (see https://www.step.org/about-us) how much it might cost to put a plan of action together. You can ignore the cost of enacting the plan as FIL needs to consider whether the cost is worth the saving (assuming all IHT can be avoided).

Given he has investments, does he have an IFA already? if so, does this IFA have am employee who is a STEP member?

They both have mirror wills which mean each inherits the entire estate upon the first death and the estate then passes to their children upon the second death.

I suspect the majority of his money is now in cash as I think he took a bit of a hit when the financial crash happened 10 years ago. No IFA that we know of and we haven't asked as it hasn't been any of our business. I am sorting of wishing now that it still wasn't...

polymaff wrote: »

You seem to have done your duty. Now your FIL needs to make some decisions - and to do so before he seeks further advice. You write as though both MIL and FIL have made wills. If so, then that's that. If not then won't the rules of intestacy prevent the surviving spouse from inheriting the entire estate?

For heaven's sake, don't tell him how much more getting Probate will cost after 1st April 2019.

Gulp, what is probate and how much does it cost? I must remember Google is my friend :huh:

CityOwl

xylophone wrote: »

Does she want to learn?

If so, get hold of a copy of "Step by Step" by Mona McNee. and teach her.

I suspect not, English is not her first language and I think she'll say she has got by all this time.

Owain_Moneysaver wrote: »

This may be an issue for appointing executors.

I hadn't even considered that MIL's inability to read and write would be an issue. FIL has always managed everything for her and I just thought her children would take up any slack. We may need to consider this further.

CityOwl

xylophone wrote: »

Discretionary Trust for Vulnerable Adult - he'll need expert professional advice.

https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people

One of FIL's concerns is that this child will believe that they have been treated less favourably than the other siblings. He believes that this child will be very angry and resentful if their share was to be put in a trust while the other siblings would have complete control over their's. FIL is right, it will cause untold grief and this child will take it out on siblings, who genuinely love and worry about their future.

Owain_Moneysaver wrote: »

Is it possible to skip a generation and make gifts to grandchildren?

kidmugsy wrote: »

One possible line of persuasion with FIL is that if he wants to do what he can for his widow it wouldn't simply be a question of leaving everything to her. In the long term her position would be more secure if several of her children were prosperous too. And perhaps grandchildren.

Therefore suitable gifts to them that might allow them to secure their own finances might be helpful. (As xylophone said, the difficult case could be covered by a Discretionary Trust for Vulnerable Adult).

FIL wants to be as fair as possible to his own children and skipping a generation means that they get different amounts as not all his children have the same number of offspring. I don't think that this is a big deal, but in his head it is and its not my money. He is relying on his children to pass the money on to the grandchildren when they feel its appropriate.