Mum passing her inheritance straight to me - pitfalls

RainbowLaura

My mum has just inherited around £200,000. My parents are very comfortable financially, have a wonderful home that they never intend to move from, excellent pensions and say they don't need this extra money. They have therefore said they would like to pass it straight to me and my brother at £100,000 each. We both have young families and for us it would be life changing.

We have all looked into this a bit and it seems the main pitfall could be if mum were to ever go into a care home. We've read that the authorities can look back a long way and consider this kind of action to be deliberately depriving yourself of assets. If me or my brother had spent this money on getting bigger houses, for example, what would happen? Could they come after us and demand money to pay for mum's care?

Any insights or advice much appreciated!

bowlhead99

Literally any gift, or variation of a will, is 'deliberately depriving yourself of assets', because you are choosing to give assets that are yours (or would be yours) to somebody else so that you no longer have them.

What matters is whether you are deliberately depriving yourself of assets with the intention of obtaining means-tested benefits to which you wouldn't have otherwise been entitled to claim such as local authority care funding.

If the authorities can't prove that as the intention (ie your parents didn't reasonably expect to need to claim benefits for care - as they are not in ill health and have excellent pensions and a wonderful home they could sell if necessary to fund care) then there is no real problems in giving away a substantial amount of cash.

If the authorities can reasonably assume that was your parents real intention (for example, they are in poor health and don't have much in the way of income or other assets so would expect to need local authority funded care) then your parents would be treated as if they still had the assets, and wouldn't get their care paid for. It doesn't sound much to me like that is the scenario but each case would be considered on its merits.

Either way, ultimately if your parents do find themselves short of cash and needing care, you will perhaps want to repay their favour by remortgaging your house and giving them money to fund a nice care home rather than living in whatever crappy one the local authority would fund for them.

Linton

If your parents are comfortably wealthy, have good pensions and a valuable house they should not need council financial help for care funding anyway so the issue won’t arise.

Sea_Shell

Are they planning on passing it on using a Deed of Variation? This has the benefit of the £200k never actually hitting your Mums Estate for IHT purposes.

And as Bowlhead explains, it sounds like your parents have sufficient other assets to pay for any care, if needed, so I doubt the deprivation rules would ever need to be enforced.

RainbowLaura

This is extremely helpful, thanks everyone! Really appreciate your advice and it's helped me to understand the situation better. I haven't heard of the Deed of Variation Sea Shell, but it sounds like we would benefit from going down that route. I will look into that

Malthusian

RainbowLaura wrote: »

We have all looked into this a bit and it seems the main pitfall could be if mum were to ever go into a care home.

It isn't a pitfall - you'd just have to pay their care fees, out of the £100,000 each they gave you. You would only be liable for that £100,000. So you would have lost nothing.

As others have said it sounds unlikely that they'd exhaust their own assets anyway. Plus if they are comfortably off and have no anticipation of needing care, and there are other reasons for the gift such as helping you and your family move to a bigger home or avoiding unnecessary Inheritance Tax, it wouldn't be deliberate deprivation.

Uxb1

I also would go down the Deed of variation route
So the monies would never enter the mother's estate in the first place as it is variation to the terms of the original will.

Needs all the residual beneficiaries and obviously all the executor(s) of the deceased to agree as I recall and there is also a time limit after the date of death by which the deed must be fully signed (?? 2 years??)
One to get a solicitor to do to ensure it is done properly and is legally watertight.

SevenOfNine

We were in that position 4 years ago. Same financial circumstances as your parents & the deprivation of assets rule has been sufficiently explained by bowlhead99.

Too many people start screaming 'deprivation of assets' like it's some kind of blanket rule, when actually the circumstances applying when money was given away is most important.

Sea Shell has raised a very good point. We chose to employ a solicitor to do a Deed of Variation, not to simply 'give' £50k to each of our 2 grandsons. The cost was approx. £200, a drop in the ocean to have this done properly, legally. Circumventing our estate.

It would have had to be declared on the probate tax forms if one of us had karked it within 7 years IF we'd chosen to just give it away. So give some thought to possible tax implications for the estate if they choose the 'giveaway' option.

Some solicitors do advise those requesting DoV's for larger sums to wait a year & be sure that's what they want to do, but a DoV must be completed within 2 years of date of death.

If parents are indeed financially very secure, mum in good health physically & mentally, then it's a lovely gift. Though I believe people should be mindful of the possibility of care costs in later life I don't believe, in certain circumstances, that they should hang on to ever penny 'just in case'.

DiggerUK

The nonsense that surrounds 'deliberate deprivation of assets" is, in the main, a scare story of no substance.
In your parents case even more so due to no care needs being foreseen. Even inheritance rules don't penalise gifting. You're being smooched by some well known MSE wafflers.

I suggest that with a little imagination your parents could avoid falling foul of both IHT liabilities and being accused of 'deliberate deprivation of assets'..._
https://www.gov.uk/inheritance-tax/gifts

Malthusian

Uxb1 wrote: »

Needs all the residual beneficiaries and obviously all the executor(s) of the deceased to agree as I recall and there is also a time limit after the date of death by which the deed must be fully signed (?? 2 years??)

It needs all the beneficiaries who lose out to agree. Often that would include the residual beneficiaries but not always. If the £200,000 was a specific pounds-and-pence bequest to Mum then only Mum needs to agree to give it up.

The executors don't need to agree. If the beneficiaries vary the Will then the executors are now duty-bound to carry out the new Will.

The 2 year limit is the limit required to make the DOV effective for tax purposes as if that was how the testator(ix) originally wrote their will. You can still do a DOV after that but it has no effect on the tax position.

RainbowLaura

Malthusian wrote: »

It isn't a pitfall - you'd just have to pay their care fees, out of the £100,000 each they gave you. You would only be liable for that £100,000. So you would have lost nothing.

As others have said it sounds unlikely that they'd exhaust their own assets anyway. Plus if they are comfortably off and have no anticipation of needing care, and there are other reasons for the gift such as helping you and your family move to a bigger home or avoiding unnecessary Inheritance Tax, it wouldn't be deliberate deprivation.

Thanks Malthusian. I'm just concerned that if we put the 100k into a house then we would lose that house, as we wouldn't qualify for much more mortgage than we've got now on our small home.

I also don't really understand how it would work if one parent went into a home whilst the other is still alive? As that parent would still need the house etc. And the assumptions above are correct in that it wouldn't be a state run care home, we would of course want the best for them. It's hard to think about now as they are very healthy and in their 60s, but of course anything could happen as they get older.

Edit: sorry I cross posted this with a few others - you have all been extremely helpful thank you