One Property for Each of Two Beneficiaries, One Sold, One Transferred - Timing Differences Query

numbersrule

The Deceased's Will left their Main Residence to Beneficiary B1 and left a second home to another Beneficiary B2 who had lived in it for 10 years and will continue to live there going forward.

The two beneficiaries will also split the residuary estate cash between them.

A Letter of Wishes was attached to the Will which says that valuations of the two properties should be obtained and an adjustment should be made to the split of the residuary estate with the aim of ensuring that the two beneficiaries have an equal share made up of their respective property + adjusted residuary.

The two properties had different values based on RICS Surveyors Reports.

The Probate Value for Main Residence was £MR.

Probate Value for Second Home was £SH = £MR + £40,000.

The Second Home is just a Transfer of Title (in progress) so Date of Distribution is Date of Death.

The Main Residence has sold 3 weeks after Probate was granted for £MR + £15,000.

What are the normal protocols regarding accounting for differences between valuations, when one property has had the benefit of going to market, whereas the other property has been in the family for nearly a century and will not go to market.

It seems that one property has gained in value but there is no means of allowing for the same effect on the other property because it is not up for sale.

The problem here is that B1 sees this as unfair, because B2 shares in the gain on the Main Residence.  B1 wants to see a Market Correction applied to the value of the Second Home so that the differential between the two properties is the same in the Final Estate Accounts as was the  differential at the time of Probate.

B2 thinks £SH + £15,000 is not a fair value.  This would falsely increase the Distribution Value.

What are the correct procedures for this scenario? Is there any guidance to refer to?

RAS

Since the properties are of similar value and presumably in similar markets, it is likely that B2's property has also increased in value by a similar amount?

Just B2 hasn't crystalised the increase. 
Nor incurred the sale costs or CGT liability? That needs paying within 60 days of sale. 

Keep_pedalling

A letter of wishes has no legal standing, so unless both beneficiaries agree to an uneven split of the residuary estate, the  split has to be 50/50. 

Was this will drafted by a solicitor?if it was they should have pointed out to the testator the dangers in drafting such a risky will. Had the testator had to move into care one of those houses may no longer have been in their ownership at the time of death which would have seen one of the beneficiaries seeing a much reduced legacy and possibly no legacy at all. 

silvercar

Presumably the discussions are happening because the beneficiaries want to remain on speaking terms at least, so are concerned with following the spirit of the letter of wishes.

I would say that they each inherited a property and what they then do with it is a matter for them alone. The fact that B1 sold the property soon afterwards is not relevant. If they’d held on to it for a year or two, no one would then be querying its value when sold. B2 has the option of selling their inherited home if they want to realise the gain it has made. So I would only consider the probate values, what happens afterwards is not relevant to the inheritance equalising wishes.

numbersrule

Hi RAS
The Second Home has not increased in value by 15k in 3 months.  The Halifax House Price Index would suggest it has increased by about £500.

numbersrule

silvercar said:

Presumably the discussions are happening because the beneficiaries want to remain on speaking terms at least, so are concerned with following the spirit of the letter of wishes.

I would say that they each inherited a property and what they then do with it is a matter for them alone. The fact that B1 sold the property soon afterwards is not relevant. If they’d held on to it for a year or two, no one would then be querying its value when sold. B2 has the option of selling their inherited home if they want to realise the gain it has made. So I would only consider the probate values, what happens afterwards is not relevant to the inheritance equalising wishes.

HI silvercar
What has happened after probate is relevant to the inheritance equalising wishes because there is 15k of Estate Income from the Gain that will increase the Sale Proceeds and increase the Distributable Estate and this has to be accounted for when adjusting the two respective Shares of the Residue because one Property has increased in value whereas the other hasn't.

'Fixing Everything at Probate' does not solve this.

The fundamental principle here is that the Estate shall be divided equally.

This means that as Main Residence has increased in value then B1's Share of the residue shall be reduced by 50% of the increase in the Main Residence.  That way B1 gains 50% of the increase in Main Residence.

B2's share of the residue increases by 50% of the increase in the Main Residence.

The gain is therefore shared.

Keep_pedalling

numbersrule said:

silvercar said:

Presumably the discussions are happening because the beneficiaries want to remain on speaking terms at least, so are concerned with following the spirit of the letter of wishes.

I would say that they each inherited a property and what they then do with it is a matter for them alone. The fact that B1 sold the property soon afterwards is not relevant. If they’d held on to it for a year or two, no one would then be querying its value when sold. B2 has the option of selling their inherited home if they want to realise the gain it has made. So I would only consider the probate values, what happens afterwards is not relevant to the inheritance equalising wishes.

The fundamental principle here is that the Estate shall be divided equally.

This means that as Main Residence has increased in value then B1's Share of the residue shall be reduced by 50% of the increase in the Main Residence.  That way B1 gains 50% of the increase in Main Residence.

B2's share of the residue increases by 50% of the increase in the Main Residence.

The gain is therefore shared.

I don’t think it is. The will leaves each a property and 50% of the residual. If the testators wanted the residual split differently they should have made a new will or made a codicil to that effect or better still simply split the estate 50 /50. A letter of wishes provides no legal authority to the executor to do anything differently.

Unless the beneficiary getting the larger share agrees to give up some of their inheritance then that the LOW can’t be followed. If they do agree but based on the probate valuations then again that is the way it will have to be. In both cases the CGT liability should be deducted from their share alone.