Estate and inheritance tax - confusing situation.

jonnypetrovski

Trying to make sense of a confusing situation within my family, in respect of inheritance tax allowances and estate - would anyone have any thoughts on liabilities etc?

• Father in law has passed away

• His is succeeded by his wife, but she is not named specifically in the will - his estate is split 3 ways between his daughters

• His wife is incapacitated with Alzheimers, and the 3 daughters are joint Power of Attorneys - we suspect she may need to go into care relatively soon

• There are a total of 5 properties in his estate - one of which was his main residence, and another one of which is his wife's main residence (they lived apart but never formally separated or divorced).  The other 3 properties are rented out.

• We'd expect the total property value of the estate to be in the region of £600k.  There is probably another £100k in assets in the estate on top of this.

Any views of what this may all mean in terms of inheritance tax - allowances etc?  Gratefully received!

Marcon

jonnypetrovski said:

Trying to make sense of a confusing situation within my family, in respect of inheritance tax allowances and estate - would anyone have any thoughts on liabilities etc?

• Father in law has passed away

• His is succeeded by his wife, but she is not named specifically in the will - his estate is split 3 ways between his daughters

• His wife is incapacitated with Alzheimers, and the 3 daughters are joint Power of Attorneys - we suspect she may need to go into care relatively soon

• There are a total of 5 properties in his estate - one of which was his main residence, and another one of which is his wife's main residence (they lived apart but never formally separated or divorced).  The other 3 properties are rented out.

• We'd expect the total property value of the estate to be in the region of £600k.  There is probably another £100k in assets in the estate on top of this.

Any views of what this may all mean in terms of inheritance tax - allowances etc?  Gratefully received!

Your FIL has the usual £325K allowance, plus the value of the property which his main residence (up to a maximum of £175K) as this is being left to his direct descendants, so that's potentially up to half a million on which no IHT is payable.

Any of the properties in joint ownership with his wife (as opposed to tenants in common, or possibly sole ownership)?

jonnypetrovski

Thanks. 

 Should have said - all the properties are solely in his name. 

jonnypetrovski

I thought that perhaps just by virtue of them being married, she would effectively have joint ownership of the properties

Keep_pedalling

From what you have said he owned all the properties including his wife’s home, which is not good news as far as her ongoing care is concerned.

if this is the case and his wife has no substantial asset, then a good solution would be for the daughters to make a deed of variation so that some of his estate goes to his wife. This would achieve two things it would remove any IHT liability on his estate as it would be covered by spousal exception and would open up a far greater choice in residential care as she could self fund removing the risk of ending up in over my dead body grove.

jonnypetrovski

thanks - could you possibly explain the care funding part in a bit more detail if possible? Just trying to get my head around this! 

Keep_pedalling

jonnypetrovski said:

thanks - could you possibly explain the care funding part in a bit more detail if possible? Just trying to get my head around this! 

For anyone with few assets will have to rely on the LA to find their care, and their are a couple of serious issues with that. The first is you have to get by the LA funding committee which from experience means you will need to get in a pretty decrepit state before that happens. Secondly the choice of care home will be restricted to those that the LA are prepared to pay for so you risk over my dead body grange.

The situation here appears to be that somehow one married partner has ended up owning all the matrimonial assets and has left the other with very little. The result is that his estate has a IHT liability of around £80k which frankly would be better used providing his wife with some self funded residential care in a nice care home.

If all the beneficiaries agree the taxable portion of the estate (£200k) could be diverted to his wife to fund her foreseeable care costs. This would then be exempt from IHT as it is going to a spouse. The beneficiaries would be giving up £40k each but I would hope their mother’s welfare would come before money.

bobster2

jonnypetrovski said:

• His is succeeded by his wife, but she is not named specifically in the will - his estate is split 3 ways between his daughters

• His wife is incapacitated with Alzheimers, and the 3 daughters are joint Power of Attorneys - we suspect she may need to go into care relatively soon

Does his wife have significant assets in her name?

If not - and she needs care - and he has not made provision for her in his will, the Local Authority could possibly bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 on her behalf.

If she was living in a property that he owned in his sole name - and he has made no provision for her - then I would think this is a very distinct possibility.

See here...

https://www.birketts.co.uk/legal-update/provision-for-family-and-dependants-act-1975/

Provision of housing can also be maintenance, such as the deceased allowing the claimant to live in their property either rent free or at a nominal or reduced rent.

A deed of variation, along the lines that Keep_Pedalling, has suggested - that makes provision for her care, could potentially avoid this sort of legal action by the Local Authority.

Keep_pedalling

bobster2 said:

jonnypetrovski said:

• His is succeeded by his wife, but she is not named specifically in the will - his estate is split 3 ways between his daughters

• His wife is incapacitated with Alzheimers, and the 3 daughters are joint Power of Attorneys - we suspect she may need to go into care relatively soon

Does his wife have significant assets in her name?

If not - and she needs care - and he has not made provision for her in his will, the Local Authority could possibly bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 on her behalf.

If she was living in a property that he owned in his sole name - and he has made no provision for her - then I would think this is a very distinct possibility.

See here...

https://www.birketts.co.uk/legal-update/provision-for-family-and-dependants-act-1975/

Provision of housing can also be maintenance, such as the deceased allowing the claimant to live in their property either rent free or at a nominal or reduced rent.

A deed of variation, along the lines that Keep_Pedalling, has suggested - that makes provision for her care, could potentially avoid this sort of legal action by the Local Authority.

Excellent point. Just to add that if it panned out this way and it took more than 2 years from the date of death to resolve, the beneficiaries could no longer make a DoV and the IHT liability would be unchanged.

badmemory

I am certainly no expert but I would have thought that if she was dependent on her husband that the daughters as POAs could land up being required to bring a case against the executors of his will.  Which could land up interesting if they are also the executors.

bobster2

badmemory said:

I am certainly no expert but I would have thought that if she was dependent on her husband that the daughters as POAs could land up being required to bring a case against the executors of his will.  Which could land up interesting if they are also the executors.

Interesting point. But I think Local Authorities can step in and bring the action on the person's behalf so this might avoid that scenario.

Normally a Local Authority might not become aware of a lack of provision in a will. But if you've got someone undergoing financial assessment for means tested care, they will ask about who owns the home - so the circumstances will become apparent.

If it does go to court - under the Inheritance (Provision for Family and Dependants) Act 1975, as I've noted before in another thread the rule of thumb as to what's reasonable provision is not what the wife would receive if the husband died without a will (under rules of intestacy) but rather what she would have expected to get if the relationship had ended with divorce instead of death (probably about 50% for a long marriage). 

Consequently, a deed of variation that makes ample provision for her long term care needs (in a high quality setting) could head of the possibility of legal action that could result in a much larger award (e.g. 50%).