Dad's Will

badenmorgan

Hi all, my Dad tried to change his will before he died in March, but failed to do so as he was too ill. He had written a will years ago that left everything to my Mum via a discretionary trust of some sort (I've not seen the will) but tried to write a new will that left equal amounts of shares etc to his children (3 of us) under £325k IHT nil rate, with  the rest (house, another ISA etc) left to my mum. Mum was happy him doing this and supported him, but he left it too late sadly. It's left things in a bit if a mess. My mum still wants to give us an equal share of the money Dad wanted to bequeath to us to fulfill his dying wish, but the solicitors say the easiest way to do that would be for Mum to effectively inherit Dad's estate and gift it to her children. However IHT would apply should Mum die within 7 years etc.... I'm not sure my Dad would have wanted Mum to take that risk if God forbid anything should happen to Mum and hiss children have to pay IHT. I spoke to Mum about it and she has been advised by the solicitors there isn't any way of using Dad's NIL rate for this other than contesting the will which would be time consuming and costly, which I don't think anyone wants to do.  Can anyone help? Thank you

Flugelhorn

If they owned a property the IHT threshold would be more like £1 million - is the estate worth more than that ?

badenmorgan

No, it would be well under £1M

Keep_pedalling

The solicitor’s are correct in that this would be the best way to do things, and she would not be taking a risk. The 7 year rule makes it possible to potentially remove assets from your estate, but if you don’t make the 7 years then you are no worse off.

Example.  A person’s estate has a potential IHT bill of £40k if they died tomorrow, so they give away £100k to try and avoid that. If they live for more than 7 years then their estate will pay no IHT, if the die within the 7 years their estate will still owe £40k of IHT but although they have not saved any tax the estate is no worse off so zero risk.

badenmorgan

Ah ok, so as long as Mum's estate doesn't exceed the IHT threshold (which would now be £1M as dad has effectively transferred his IHT allowance to her) then her gifting us the money now is fine and we won't have to pay HMRC money back should anything happen to Mum? Mum said to me that we would need to keep her alive for 7 years (haha), but that must have been what the solicitors told her too, so sounds like they gave her wrong advice on that matter.

badenmorgan

Or perhaps the solicitors just advised that the money would be added to Mum's estate if she did die within 7 years, and that is the tax risk she would need to consider. They may not know yet the full value of the estate and that it is under £1M and likely to stay that way. Even then I suppose house prices could rocket or her ISA and the estate could in theory exceed the nil rate threshold, so perhaps it's just a risk in that sense they advised.

xylophone

He had written a will years ago that left everything to my Mum via a discretionary trust of some sort (I've not seen the will) 

Was it a nil rate band discretionary trust as here?

https://www.battens.co.uk/news-events/news/my-will-has-a-nil-rate-band-discretionary-trust-in-it-should-i-change-it

If an individual dies and they still have a nil rate band discretionary trust in their Will, then in practice this does not really cause an issue. If desired, an appointment can be made of the nil rate band out of the trust to the surviving spouse within 2 years of the death so that it is read into the will for IHT purposes and the entire estate will be spouse exempt.

doodling

Hi,

Some comments:

1. You say his will sets up a discretionary trust - who is this in favour of?  I think it will require the consent of all possible beneficiaries of that trust (difficult if it makes provision for as yet unborn children!) for his will to be varied to avoid the creation of the trust.  If the beneficiaries of the trust can be identified and can give consent (i.e. are over 18) then varying the will so that his wife receives everything sounds like a good idea.
2. The way inheritance tax works is that on death the estate is valued (taking into account any gifts in the 7 years before death), the amount of tax is calculated and the tax is paid out of the assets in the estate at death.  Only if those assets are insufficient would the inland revenue come knocking at the door of people who had received gifts.  This means that unless your Mum is planning on giving away the majority of her money (and this is usually a bad idea - what if she needs to pay for care in the future?), it is unlikely that inheritance tax would have any effect on gifts already received.
3. As others have noted, the nil rate band is transferrable between spouses and there are additional exemptions giving a total of £1m if a property is involved and the funds are going to descendants.  This might mean that the estate is outside IHT altogether.

badenmorgan

Thanks yes it was exactly that. The latest solicitor letter explains that following Grant of Probate (I have an IHT205 form on its way to me to sign), they will prepare a Deed of Appointment to enable us to bring the trust to an end. 

badenmorgan

Doodling , thank you.

1. Mum says it was for her only but can't be 100% sure as I've not seen the will. 
2. I'm clear on this now thank you. Mum has the house and savings plus inherited an excellent widows pension from Dad so will be fine.
3. I think it is outside the IHT threshold