Inheritance tax situation!

skyrocketman

I need some advice on an inheritance tax situation!

My father (divorced) is living with his partner and has a considerable estate comprising of another property, savings, pension etc.

He has informed us he has written a will which leaves his estate to his 4 children - however we will only be entitled to this inheritance when his current partner dies. During that time the partner is entitled to live off the interest of the estate and live in one of the houses.

All sorts of questions arise from this i.e. -
When will we have to pay the inheritance tax and what do we do if we don't have the money?
Who would do all the calculation of interests and how would this be managed?
What would be a better (more tax efficient way) of doing this?
Could we change this situation after he has died via a variation or otherwise?
Should we plan via some sort of insurance for the inheritance tax bill?

Of his children 2 of us are executers and we want to be aware of what we could be heading for and the best way to plan for this!

Any help appreciated.

RayWolfe

If the estate is as considerable as you imply it would surely be beneficial to pay for some professional advice.

dzug

Replies in italics

I need some advice on an inheritance tax situation!

My father (divorced) is living with his partner and has a considerable estate comprising of another property, savings, pension etc.

He has informed us he has written a will which leaves his estate to his 4 children - however we will only be entitled to this inheritance when his current partner dies. During that time the partner is entitled to live off the interest of the estate and live in one of the houses.

All sorts of questions arise from this i.e. -
When will we have to pay the inheritance tax and what do we do if we don't have the money?
Before probate is granted. If you don't have the money you will have to borrow the money and then sell some of the assets to repay it. Some banks will pay the money direct if he has an account with them. NSI certainly do.

Who would do all the calculation of interests and how would this be managed?

His appointed trustees or their professional advisor. Unless otherwise specified you are those trustees
What would be a better (more tax efficient way) of doing this?

Possibly marrying his partner, assuming he hasn't already. (Actually, not sure that that would help). Giving it away before he dies. Giving it to charity.
Could we change this situation after he has died via a variation or otherwise?

Yes, but only if his partner agrees to give up her interest or part of it
Should we plan via some sort of insurance for the inheritance tax bill?

Up to you. It's one option. Unless he dies unexpectedly early you are going to be paying out a lot.

Of his children 2 of us are executers and we want to be aware of what we could be heading for and the best way to plan for this!

A complicated life methinks. Presumably you can't persuade him to arrange a different split in his will? One that leaves something to his partner absolutely rather than in trust and the rest to you without waiting for her to die.

Or you could decline to be executors - this would pass the problem on to someone else - his partner initially. If he hasn't consulted you about this he's not really being fair.

Any help appreciated.

elliebean_2

dzug wrote: »

What would be a better (more tax efficient way) of doing this?

Possibly marrying his partner, assuming he hasn't already. (Actually, not sure that that would help).

If they did get married there would be no inheritance tax to pay when your father dies as there is no inheritance tax to pay between spouses. Then when your (then) stepmother died she would have twice the inheritance tax threshold of the day to pass on. So, if the inheritance tax threshold at the time of her death was for argument's sake £400k, she could pass on £800k's worth of assets free of inheritance tax. But of course, he may not want to get married again!

Depending on how wealthy your father is, there are other things that could be done via an IFA or solicitor, but it's difficult to give accurate advice without knowing more about his situation and assets in detail. I do think he should seek professional adivce. It would be money well spent.

Murdina

What he is doing is nothing unusual in a situation where there are children from a former relationship. In effect, the assets go into a trust from which his partner gets the income. The will should state not only who are to be the executors but who are to be the trustees as they are the ones who will be responsible in law for the assets and for paying the income of those assets out to her. When she dies IHT as stated above is due in the normal way.
Of course, he could just leave it all to her absolutely and make your lives easier. Then she can sell it all, gamble it all away, marry someone else, leave it all to her best friend or whatever. What he is trying to do is to protect the assets for you his 4 children while also ensuring she has something to live on.