Probate Application for Deaths of In-laws with Zero IHT Due - Help with Forms, please!

MoneySavingAndy

Hi All,

I'm trying to sort out probate on behalf of my wife following the loss of her parents. Her father died first, followed a few months after by her mother; both suffered dementia and had their financial affairs managed under powers of attorney. We intend to submit the paperwork for probate for both at the same time, with a covering letter, so that everything can be seen clearly and transparently by HMRC.

The paperwork is getting a little tricky (to my untrained mind) because of the way my brother-in-law managed their finances over the last couple of years, as around £50,000 was transferred out of my father-in-law's accounts before he died, which therefore constitutes a gift. The remainder of his estate on death was passed to my mother-in-law, and the total estate value is worth well under £650,000, so irrespective of the gifts there is zero inheritance tax due across both estates.

What is confusing me is about the best way to prepare the various IHT forms. By declaring the £50,000 gift on the IHT205 for the first death of my father-in-law, that means that the some of the £325,000 nil-rate band is used up, so for my mother-in-law, I would then be unable to use the simpler IHT205 / IHT217 ("Claim to transfer unused nil rate band for excepted estates") combination, as the estate is not an excepted estate as only part of the nil-rate band is available to be transferred. That then means using the far more complex IHT400, IHT402 and all the various IHT4xx schedules, which seems so unnecessary. Between them, they only had a house, some savings, and personal/household possessions of very limited value, with nothing more complex in their financial affairs.

Is there a way to do this more simply? I can think of three possible simplifications:

1. Could the £50,000 gift be listed as a loan on the IHT205 for my father-in-law, so that the estate value at the time of death is larger and includes this sum, but the nil-rate band is fully unused? That then seems to mean I can use the simpler IHT217 / IHT205 combination for my mother-in-law.
2. Should I just add the £50,000 to the value of my father-in-law's estate, even though it was not held in an account in his name?
3. Given that there is no inheritance tax due, would it be acceptable to leave out this gift completely? Strictly, this would clearly be inaccurate, but as there is no financial gain to be made it does not seem to be fraudulent, just simplifying things.

This is not about trying to save tax as there is none to pay, just making it as simple as possible whilst staying the right side of the law! It's just that as (annoyingly!) some money was transferred out prematurely using power of attorney, this gift seems to make the paperwork hugely more complicated, and maybe calling it a loan, adding the sum back into the estate or simply omitting the information are possible ways of simplifying things - but clearly we don't want to land in trouble with HMRC! Whichever approach is taken, clearly the money won't actually get paid back, it will just be taken into consideration when sharing out the residual money between beneficiaries.

Sorry for a slightly long post; I've tried to give all the relevant information as clearly as possible, so thank you for reading this far, and thank you even more if you are able to help me, please!

Andy.

Keep_pedalling

Can you clarify where that £50k went? If it was simply transferred to an account in the name of his POA but still for use for your FIL then it was not a gift and was still his money when he died. 

If it was a gift then you will have to declare it as such but the POA had no authority to make such a gift so it should never have happened. 

MoneySavingAndy

Hi, thanks for coming back to me so quickly.

Yes, the £50k was moved into an account in the name of his POA; in total, more than £50k was actually moved, the additional funds having been spent on care, provisions, etc., so the £50k was the "unspent" sum remaining when he died. I should probably have mentioned that point, sorry.

Was my conclusion that it should be treated as a gift therefore wrong, and actually that because some of the sums transferred had been (quite rightly) intended and used for care, that this remainder should just be added to his estate? That seems both simple and honest if that interpretation is right. Thanks.

xylophone

I am mystified as to why  money needed to be moved from the accounts of the donor into the account (s) of the Attorney.

My relative was the Attorney for his relative for a number of years - all payments to the Care Home and all other payments relating to her needs  were made from  accounts in her name which he authorised as Attorney.

MoneySavingAndy

Hi Xylophone, you make a point that I agree with entirely: it was not strictly necessary, however that was what happened in practice and as a consequence we now need to get all the paperwork sorted out in the easiest way possible. Any more tips out there, please?

xylophone

 it was not strictly necessary,

If there were accounts  (joint/sole) in the name of the father/mother, then it wasn't necessary at all?

Can you clarify, was the house owned as joint tenants or as tenants-in-common?

Father and Mother each had their own sole bank accounts and there were no joint accounts?

Both Mother and Father had made valid wills?

Both Mother and Father's wills left all the assets of which they died possessed to the spouse (with the  (2?)  offspring as beneficiaries if the spouse had died)?

MoneySavingAndy

Okay, so arguably not necessary at all... the unfortunate fact is that it happened and was not under my control, and I'm now just trying to help sort things out in the best way possible.

To answer your queries, I think everything else is very straightforward: wills for both leaving full estate to the surviving spouse (and then children as beneficiaries on second death), house owned tenants-in-common (50/50), and separate bank accounts for each parent (none held jointly).

It really is just this (unnecessary) way that some monies were moved into the executors' accounts when using POA on their own accounts was the right way to do things, and some of the money that had been transferred out was there unspent at the time of death - the executors are ultimately beneficiaries, but at the dates of death, the money was not in accounts of the parents, so should I simply add the sums involved into their total cash assets on the IHT205 form or does this require some more complex declaration? Thanks again!

xylophone

It really is just this (unnecessary) way that some monies were moved into the executors' accounts 

I'm now even more mystified. You stated that your BIL held PoA for your FIL and was moving money out of FIL's accounts into his own personal account before FIL died - what is this "executors' account" to which you refer?

MoneySavingAndy

Hi, it was their personal accounts - I intended the term "executors' accounts" to refer only to the fact that these were personal accounts, and that those same people also (now) have the role of executors - they were not some kind of special account.

xylophone

Then at the time of your FIL's death, he was the beneficial owner of his interest in the marital home, his chattels (apparently of negligible value), the cash in his accounts and the money that the  Attorney (for some reason best known to himself)   had moved into his personal account.

It would appear that the Attorney was also named as one of the executors (your wife being the other?) of your FIL's will.

Are FIL's accounts now frozen pending probate?

It seems to me that  your wife needs to establish exactly how much was moved out of FIL's accounts and how much was used solely for FIL's needs - anything over and above was part of FIL's estate and should properly have been due (under the terms of his will) to his wife who was named as sole beneficiary.

The wife died before probate was granted ( or even sought) so that (as I understand it), all father's assets fall into her estate. 
https://www.finalduties.co.uk/what-happens-when-a-beneficiary-of-a-will-dies/



 

MoneySavingAndy

Thank you for your help, Xylophone - I'll add the sums moved out of my father-in-law's account into the cash assets of his estate (i.e. my original Option 2 above), so that this sum is then passed to his (late) wife, and in turn that will form part of her estate for distribution to beneficiaries (which is easy to resolve in retrospect within the family).