Mum passing her inheritance straight to me - pitfalls

Malthusian

MumOf2 wrote: »

Just one more thing to consider. If there is a Deed of Variation (DoV), this reduces the amount of IHT allowance available. For example:

1. The Nil Rate Band (NRB) on date of death of first spouse was £250,000.
2. A DoV is set up by surviving spouse in favour of daughter of £200,000.

Nowadays that would be a silly mistake. It makes no sense for a widowed spouse to DOV an estate so that some of their late spouse's inheritance goes to their kids. They should take the money and then give it to their kids, and hope to live seven years. If they don't live seven years the kids lose nothing as they would have paid IHT anyway.* (I.e. what Bowlhead said.)

DOVs are useful in the OP's situation where the spousal exemption doesn't apply.

This was the case when my mother's estate was being assessed for IHT. My father died in 1986 when the NRB was £71,000 but mother executed a DoV in the sum of £40,000 in favour of two daughters for just the reasons you've outlined.

Is it possible that this may have been to use his nil rate band which would otherwise have been lost, as unused NRB wasn't transferred to the spouse in 1986? It may have been correct advice at the time.

In general a DOV does not reduce the nil rate band except to the extent the original Will would have reduced it anyway. You would not DOV an estate where the spousal exemption and the transfer of the NRB between spouses would apply.

AnotherJoe wrote:

AFAIK if it's done by a DoV then there can be no question of DOA because there was no gift given, legally the money was given by the deceased's directly to the OP.

[Piling on, just because Bowlhead used the word "seems"] This is wrong. Using a DOV can be deprivation of assets just as if you'd given the money away. This is very much the case for all means tested benefits including LA assistance with care fees.

The legal fiction that when you DOV an estate within two years, it's treated as if that's how the testator(ix) wrote their Will in the first place, only fools HMRC and nobody else. The DWP, LAs etc don't share this statutory gullibility. (At least I can't think of any other situations in which the fiction makes a difference.)

*disregarding other options than the gift which could have saved IHT quicker, e.g. investing in Business Property Relief assets

AnotherJoe

Every day is a learning day. Thanks Malthusian.

MumOf2

Unfortunately, the legal advice at the time was to execute a DoV even though all daddy's estate was left to mum. It was just what was best in 1986. Since then, IHT legislation has changed and that's why we got caught :-(

MumOf2
x

Mothman

MumOf2 wrote: »

Unfortunately, the legal advice at the time was to execute a DoV even though all daddy's estate was left to mum. It was just what was best in 1986. Since then, IHT legislation has changed and that's why we got caught :-(

MumOf2
x

My Mum also did a DOV 20yrs ago when my Dad died, she was also advised by the IFA to put an amount into an Offshore Bond held in Trust because she was worried about her future IHT liability as at the time it was not possible to transfer your spouses NRB. With the benefit of hindsight both decisions have proved to be sub-optimal, but you can only deal with legislation as it stands at the time.