Changes to will after spouse's death

turquoisespiff

Hi.
My mother-in-law died at Easter. She had cancer but till shortly before she died there was always an assumption that my father-in-law would died first as he'd been in poor health for many years. Everything was set up so she could stay in the marital home. 
Father-in-law decided immediately that he wanted to move to a small flat. He's desperate to do this as soon as possible. The house was last valued at £700k (London, not large) and they have £100k in premium bonds and about £400k in savings in various forms. Mother-in-law managed all the finances and I'm concerned he doesn't really understand what's going on but he won't see a financial advisor or be advised by us.
Father-in-law is convinced that he needs to do a deed of variation to the will to release some money to their kids at this stage and avoid paying inheritance tax. I'm less convinced that it's worth the effort but don't know enough about such matters to be sure. His health isn't great and although he seems to be coping surprisingly well superficially, his wife would just have wanted him to do what caused him least stress. That said, he does seem remarkably unstressed (or numb) so maybe I'm worrying unnecessarily. 
I dealt with probate for my Dad when he died a few years ago, having long outlived my Mum, but I'd been managing his money for a couple of years and the sums involved were much, much smaller. Plus we'd sold the house when he moved into a nursing home. 

Can anyone advise please on deeds of variation and inheritance tax. I believe it isn't payable if everything transfers to surviving spouse but is otherwise?

elsien

How much does he want to spend on the new flat, how much is he wanting to give away, and what will he leave himself with? 

If he’s an older gentleman in poor health with the potential of needing care in the future, then he does need to have deliberate deprivation of assets on his radar to at least look into and rule out if it’s not relevant. 

Marcon

turquoisespiff said:

Hi.
My mother-in-law died at Easter. She had cancer but till shortly before she died there was always an assumption that my father-in-law would died first as he'd been in poor health for many years. Everything was set up so she could stay in the marital home. 
Father-in-law decided immediately that he wanted to move to a small flat. He's desperate to do this as soon as possible. The house was last valued at £700k (London, not large) and they have £100k in premium bonds and about £400k in savings in various forms. Mother-in-law managed all the finances and I'm concerned he doesn't really understand what's going on but he won't see a financial advisor or be advised by us.
Father-in-law is convinced that he needs to do a deed of variation to the will to release some money to their kids at this stage and avoid paying inheritance tax. I'm less convinced that it's worth the effort but don't know enough about such matters to be sure. His health isn't great and although he seems to be coping surprisingly well superficially, his wife would just have wanted him to do what caused him least stress. That said, he does seem remarkably unstressed (or numb) so maybe I'm worrying unnecessarily. 
I dealt with probate for my Dad when he died a few years ago, having long outlived my Mum, but I'd been managing his money for a couple of years and the sums involved were much, much smaller. Plus we'd sold the house when he moved into a nursing home. 

Can anyone advise please on deeds of variation and inheritance tax. I believe it isn't payable if everything transfers to surviving spouse but is otherwise?

If the surviving spouse (FIL)  inherits everything, there is no IHT payable. When FIL dies, he will have both his own nil rate band (currently £325K) + the whole of the unused nil rate band from his late wife. If he leaves his home to his children or other 'direct descendant' when he dies, there is a further nil rate residence band of £175K x 2 (again, he can use his late wife's), making a grand total of £1m under current legislation. https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band

If he wants to do a deed of variation to leave the children some cash now, let him if that's what he wants to do (obviously you can't actually stop him, but maybe for your own sanity as much as anything just stay out of it if you can). 

sheenas

It would be simpler to sell some of the bonds and back date 1 year tax free

Keep_pedalling

A deed of variation from a surviving spouse is totally pointless with regard to saving inheritance tax. Assuming he inherits everything from his wife his estate is currently worth £1.1M and he has £1M of exemptions so a potential IHT liability of £40k. If he did a DoV sending £100k to his children then his estate would be reduced to £1M but the DoV would use up £100k of the transferable NRB from his wife so his available exemptions would fall to £900k and his estate would still have an IHT liability of £40k.

If he simply makes cash gifts then there is a chance that he survives another 7 and those gifts will fall out of his estate, so even if that is only an outside chance this is still the best option. 

turquoisespiff

Thank you all for those very helpful comments. He's 83 and intends to spend about £300k on a flat and have enough to live comfortably for however long he has left. It sounds like the deed of variation would be pointless, but I hadn't thought about the deliberate deprivation of assets aspect if he needs care in the future. Much to ponder :-(

Keep_pedalling

turquoisespiff said:

Thank you all for those very helpful comments. He's 83 and intends to spend about £300k on a flat and have enough to live comfortably for however long he has left. It sounds like the deed of variation would be pointless, but I hadn't thought about the deliberate deprivation of assets aspect if he needs care in the future. Much to ponder :-(

I don’t think deprivation of assets will need to be considered as long as he hangs on to a reasonable amount of his cash savings. Even if he gave away £500k he will still have a £300k property and £300k of savings to fall back on.