Estate and inheritance tax - confusing situation.
jonnypetrovski
Forumite 15 Posts
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.
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Any of the properties in joint ownership with his wife (as opposed to tenants in common, or possibly sole ownership)?
I thought that perhaps just by virtue of them being married, she would effectively have joint ownership of the properties
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.
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.
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/
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.
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%).