Property, trust and inheritance tax

freshman247

I'll try and keep this fairly simple where I can. My mother in law is due to remarry for the 3rd time and is in the process of trying to create a new will with her husband to be. Due to the failing of previous marriages, she is keen to own a property as a back up. Whilst she lives with her new husband, she will rent out the house she buys. As it stands, she currently owns another house which she also rents out.

Her intended plan, put simply, is to leave everything in her estate to my wife and my wife's sister. This is likely to be over the current inheritance tax threshold by a fairly significant amount I'd expect.

Whilst she wants to leave them her properties, she wants to allow her new husband to receive any rental income from those properties until he dies. I don't have a huge experience with wills etc but from looking, I assume that is something that would be done if the property is held on trust?? She is effectively using that as a pension income which they will both share.

I think she is being short-sighted when it comes to inheritance tax. We don't expect her to croak it prematurely but if she did, would they be expected to pay inheritance tax on those assets despite not being able to sell them? Her husband then being entitled to an income for however long until he died. The figure is likely to be over £150k which is simply not possible for us to pay. I'm not convinced she has sought any sort of advice so want to try and ensure she's thinking about different possibilities and speaks to a professional before marching into a will that hasn't been thought through properly.

Any guidance appreciated!

Savvy_Sue

I can only agree with you that she needs professional advice, both for IHT planning and for what's possible and sensible in a will ...

Keep_pedalling

The rules on immediate post death trusts changed in 2006 so that IHT is not paid on the first death but the trust forms part of the surviving spouses estate. This should take away the issue you are worried about but could creat issues for his estate.

You MIL should make sure she uses a STEP solicitor who can advise on trusts, and her future husband also needs similar advice.

diystarter7

OP
I strongly recommend you keep on doing what you are, IE ask questions get informed/etc, then seek a solicitor that specialises in this kind of thing. Don't take the solicitor's word for it, test them by asking what this plan is and how it works and any other questions you have then the fees. Then decide who is best.  

(When seeking advice from a professional - get all the knowledge you can beforehand to test them to a degree to see if they really know what they are talking about and get at least a couple of quotes)

When you think you have found a couple that sound ok and specialixe in trusts, look up their reviews in detail. In detail because a lot of reviews for all businesses may have high scores just for an enquiry etc. If there are any negatives read those to see why as at times it may or may not be relevant.

freshman247

Thank you so far.

Apparently November is 'free wills' month which is why she is trying to do it. Probably fine for a simple will or estate but i'll try and encourage some more!!

Keep_pedalling said:

The rules on immediate post death trusts changed in 2006 so that IHT is not paid on the first death but the trust forms part of the surviving spouses estate. This should take away the issue you are worried about but could creat issues for his estate.

You MIL should make sure she uses a STEP solicitor who can advise on trusts, and her future husband also needs similar advice.

That's good to know but I think would definitely cause some issues further down the line.

poppystar

Unlikely that this would be covered as a ‘free Will’ - I’m pretty sure there is something in the T&Cs that restrict it to reasonably straightforward estates.

I’m really at a loss as to why someone like your MIL (there are many others who seem to feel the same) would not be willing to pay to have a professional Will drawn up. They are not costly in the scheme of things and the consequences of not having a Will or having a badly drawn Will can be far more costly in the long term.