Inheritance tax and property from an Ex-wife

ManInWetherby

Hi,

I suddenly had a thought pop into my head and I probably need to go and get some financial advice, but thought I'd first ask here to get an idea.

My ex wife has a terminal illness. She created a will on learning of the illness which sees her property and all finances transfer to me, on the agreement that I will then hold create a trust for our u18 daughter (with a family friend being the other trustee) until she is 21, rather than her assets go into trust automatically on her death.

When the will was created, we had been separated for many years, but were still technically married, so no IHT would be payable on the transfer of the home and assets.

Since then, we have divorced.

Does anyone know - does this now mean I would have to pay inheritance tax? If so, how does that work and at what rate, assuming an estimated property value of £200k and minimal other assets (pension etc.) 

I think I need to see an advisor, but a general steer would be welcome.

Thanks.

Flugelhorn

Pension should be outside estate and hence not included in IHT. 

If the assets were going into trust for your daughter then presume there wouldn't any IHT (threshold would be £325k for assets + £175k for property  =500k)

Savvy_Sue

Of course you personally would not have to pay any IHT: that would be sorted by the executors and come out of the estate long before you see anything. 

BUT it would be good to know what the will actually says, because if she is leaving to you rather than to your daughter directly, there's a potential mess there. 

Also need to check what kind of trust is to be set up for your daughter, because some trusts specify 25 for the age to inherit, but that may not be enforceable. And if it IS enforceable, it's a more complicated kind of trust which can generate a need for tax returns, tax payments, and more specialised knowledge. 

How old is your daughter?

Keep_pedalling

IHT is not an issue, but she needs to make a new will as I believe the bequest to you has been made invalid by your divorce, which is probably a good thing as the way this was done has a number of flaws in it.

She needs to see a STEP solicitor ASAP to discuss the will and trust options. The age stipulation adds complications as far as management and taxation that you need to be aware of. How old is your daughter?

ManInWetherby

Thanks all. Our daughter is 12, so it was advised that leaving to me to create a trust would give us more control over the trust. Otherwise it's automatically created and whatever the needs might be, it's locked away until she's 18 and then all hers.

The trust hasn't yet been created obviously, and will be created when the them comes with support from advisors.

Keep_pedalling

ManInWetherby said:

Thanks all. Our daughter is 12, so it was advised that leaving to me to create a trust would give us more control over the trust. Otherwise it's automatically created and whatever the needs might be, it's locked away until she's 18 and then all hers.

The trust hasn't yet been created obviously, and will be created when the them comes with support from advisors.

Who advised her to do it this way? Normally you would draft a will that creates a trust on the death of the testator. 

ManInWetherby

The solicitor. We were told that she couldn't leave her assets to her daughter without them automatically going into trust and that trust being inaccessible until 18.

I'm not sure she'll want to revisit the will unless there is a definite need.

Savvy_Sue

Ah, right.

If you have divorced since that will was made, it's invalid. That means, I believe, it all goes to your DD, in trust until she's 18.

Now might your ex wife revisit the will?

ManInWetherby

Savvy_Sue said:

Ah, right.

If you have divorced since that will was made, it's invalid. That means, I believe, it all goes to your DD, in trust until she's 18.

Now might your ex wife revisit the will?

Thanks. Just so I'm clear, is that a definite and certain statement that the will is invalidated because of our divorce?

We were separated and living very definitely separately when the will was made, so it was made to me as a separated, albeit not divorced ex husband in name, not by default.

Thanks

Savvy_Sue

Clearly, you'd need proper legal advice to be certain, and to be fair it seems my language is slightly imprecise, but Google 'does divorce always invalidate a will uk'.

The will itself is not invalidated by your divorce, but you cannot receive anything left to you.

UNLESS there's some special wording in the will, which is a possibility I've not heard of - you can for example write a will 'in contemplation of marriage', and you can write a will post divorce which includes your ex, but 'in contemplation of divorce'???

Flugelhorn

Savvy_Sue said:

Clearly, you'd need proper legal advice to be certain, and to be fair it seems my language is slightly imprecise, but Google 'does divorce always invalidate a will uk'.

The will itself is not invalidated by your divorce, but you cannot receive anything left to you.

UNLESS there's some special wording in the will, which is a possibility I've not heard of - you can for example write a will 'in contemplation of marriage', and you can write a will post divorce which includes your ex, but 'in contemplation of divorce'???

or possibly if the individual is just named in the will