Tenants in Common and IHT

Spendless

A while back when making new (mirror)  wills my parents (married) changed their owned outright (no mortgage) property from joint tenants to TIC on the advice of their solicitor.

Their wills say that any cash etc will go the surviving spouse, their portion of the house (50% each) is left to direct descendants (children/grandchildren - all over 18) with the surviving parent having a life interest to remain there.

I had a chance conersation about this recently with someone who is a FA, who thought it had been a bad idea because they said by doing this on the death of parent 1 then spouse/direct dependants aren't inheriting,  a trust is (I assume this is the immediate post death trust) which means the amount of estate that can be passed on IHT free is reduced as they only have £325k not the £175k for a property to add to it. Is this correct? Now I don't think that either parents estate would get to quite £325k anyway - due to living in a cheaper part of England, but I am mindful that they do live in a sought after property (due to style) and the house value can go up whilst IHT amounts remain the same and both have had a parent that has lived to late 90s/3 figures.


I'm aware parents haven't always made the best choices financial wise - due to not understanding rather than anything else, but I'd rather be sure in what I'm saying before flagging any concerns, because I'm also wondering if FA has got this  correct?. 

Keep_pedalling

No he is wrong. On the death of the first spouse legal ownership of their half of the house passes into trust but beneficial ownership sits with the surviving spouse. For IHT purposes it is beneficial ownership that is important so effectively the whole estate goes to the spouse and spousal exemption still applies to the house so none of the NRB or RNRB is used. On the death of the second spouse IHT is calculated on the sole assets of the spouse plus the trust, but the estate will be able to claim both transferable NRBs.

There are other reasons you might want to opt for joint tenancy but IHT (at least for a married couple) is not one of them. 

Spendless

Thank you so much for the clarification Keep_pedalling 

RAS

It is really important that the "children" understand that they will not inherit until the second death. This prevents problems with first time buyer status, SDLT, benefits and avoids CGT liabilities. 

The trust protects the half portion from remarriage and care fees. 

Do the trusts define who the trustees are? HMRC now requires these trusts to be registered and if you read poseidon1's posts you'll understand the value of putting a revised Form A restriction Land Registry.

Spendless

RAS said:

It is really important that the "children" understand that they will not inherit until the second death. This prevents problems with first time buyer status, SDLT, benefits and avoids CGT liabilities. 

The trust protects the half portion from remarriage and care fees. 

Do the trusts define who the trustees are? HMRC now requires these trusts to be registered and if you read poseidon1's posts you'll understand the value of putting a revised Form A restriction Land Registry.

Taking each of your paragrapjhs in turn.

- I am aware of this (don't inherit till 2nd death) as are the beneficaries I am in touch with (because I've explained to them). However without going into too many details on an open forum there is an estrangement within the faimly and this includes beneficaries where my parents are taking the view 'still of flesh and blood' and including them  even though there's no contact  and hasn't been for many years (entirely parents perogative, it's their money)  .  So is there any obligation to tell the estranged relatives of my parents wills and if so when and by who? Estranged relatives are estranged from every family member (their choice).

- This is exactly what solicitor said to parents hence recommendation to change how property was owned.

- I don't know tbh, that is a question to ask parents. HMRC requires it registering when? Now or on the death of parent1? I'll look up those posts

Yorkie1

You have 2 years from the date of parent 1 to register the trust with HMRC

RAS

As above.

If you get on well with your parents, you might want to ask them who is appointed as trustee(s) on their death (it may not be the same person(s). Usually it includes the other parent, but may be silent about other trustees. At least one other can be added.

And check what the wills say about the deceased parent's share if the survivor down-sizes or sells to fund care. Often the survivor benefits from the interest but not the capital.

Savvy_Sue

And you / your parents are under no obligation to notify anyone of what's in the wills. After all, they could change their wills tomorrow. Or next year. Or anytime. 

Executors can wait until distribution, after probate has been granted, before contacting beneficiaries, and since there won't be any distribution until after the second death, you can wait for that.