Intestacy, Joint Tenants & IHT Liabilities?

woodbine66

Keep_pedalling said:

woodbine66 said:

I think a re-cap is needed. Bearing in mind that father's intestate estate is total value approx £775,000, is the consensus that we have 3 choices to avoid/minimise IHT -

1) We do nothing and under the rules of intestacy my mother inherits an estate valued at £661,000 I get £57,000 and my brother gets £57,000

Based on yout numbers that is correct.

2) We disclaim our inheritance of £57,000 each and let the whole estate pass to our mother

3) We complete Deeds Of Variation so that my brother's £57,000 and my £57,000 are varied to our mother meaning the whole estate passes to our mother?

Will all of the above choices have the desired effect of either meaning no or minimal IHT? Is one method better than the other? Are there risks with any of the choices.

Practically speaking, option 1 would possibly be more difficult as it would either mean having to sell a property or alternatively leave my mother asset (ie. the houses) rich and cash poor. I think my brother and I can survive without the money for now.

Many thanks to everyone who has given their time to offer invaluable advice. It is much appreciate. Apologies if my replies are not always rapid. In the circumstances there's 1,000 and 1 things to do. I'm still here though and reading all replies.

If you make a deed of variation and everything goes to your mother, it does not really make much difference to her estate’s IHT liability, but I would do the deed of variation as as you quite rightly point out this would leave her cash poor if you and your siblings inheritance came out of his savings rather than you taking a share of the ownership of the rental property instead.

Her estate would only just be in IHT territory so the amount of IHT would be quite low. Gifting could potentially reduce this but your mother would have to survive 7 years for that to succeed.

There is no hurry in doing this as you have 2 years to do a DoV so I would concentrate on all the more important stuff first.

Does your mother have a financial lasting power of attorney in place? If not that is something that should be considered especially if she does not want to take on the responsibility of being a landlord. 

Again, thank you for your reply. I have a few questions. With a Deed Of Variation can you vary 100 % of the amount you would be inheriting, ie. in this case £57,000 for me and £57,000 for my brother? Who needs to sign the DOV, just my brother and me or mother as well?

How do we take a share of the rental property she would be inheriting instead of father's savings? Obviously  mine and my brother's combined share of the rental property would be £114,000, how would this work in practice? How do we work it that we inherit £114,000 of the rental property's value and mother has the rest of it's value?

Yes, my mother has both LPAs in place. She is 89, quite frail, and her dementia isn't too bad but it does slowly get worse. There is always the possibility she may need a care home in the future. My brother and I loked after the rental property for my father in his long illness, so will continue to do this for our mother. 

I have one last hypothetical question. If my brother and I did take our share of our father's estate (£114,000) in cash out of his savings and left our mother cash poor (although she would still have £11,000 cash from father's estate plus her own £70,000 savings) - if in future she went into care and used all the £81,000 could we lend her money for care home fees to be repaid out of her estate on death? Rather than selling property to fund care fees. Would this be complex and need something drawn up with a solicitor?

woodbine66

Daniel54 said:

The full value of their jointly owned house will pass to your mother, free of any tax.

You should work using the figures provided by Keep-pedalling

None of these three options will affect the ultimate IHT payable.But in any case the total value is currently very near to IHT territory but I would suggest not making decisions based on what could be only a minor amount of IHT payable.

I can't see any point in you and your brother not taking the inheritance now.All options 2 and 3 do is drop that money back into your mother's eventual estate

But I think you are right to be concerned that your mother will have so much of her asset wealth tied up in two properties

One option we used was to loan  some or all our inheritance ( from our father's will) back to my widowed mother.The loan agreements were written up by a solicitor and one  original copy of each letter kept with her original will.When she died the loans were straightforward liabilities to the estate and re-paid ,reducing the value of the estate for probate and IHT purposes.

I would add that you will all have a lot more financial flexibility if you sell the rental property and think of using capital and income from the proceeds to assist your mother in her future years.This might have the incidental by-product of reducing her final estate.Should she ever need residential care, then the money will also be freely available

I'm sorry for your loss and know this is a difficult time for everyone

Thanks for your reply and your kind wishes. After typing the above reply to Keep_pedalling I see you may have answered my question re lending the money to my mother for any future care needs. Was the process and paperwork from the solicitor needed for the loan arrangement quite straightforward?

We are unwilling to sell the propert due to aggro getting rid of good, long term tenants plus selling costs, and stress selling a property. My mother could use the income from them and either myself or brother would like to keep it for income/letting in future.

woodbine66

WillowLeaf said:

Not sure if the idea is to plan to minimise mother's IHT as well at this point, appreciate there is a lot going on, as well as looking after mother.

So her estate will be £1M + £70k savings + £114k DoV total = £1.184M

£184k x 40% would be £73,600 IHT tax due when that time comes, assuming income or expenditure doesn't change that.

She could gift money, but that defeats the point of the DoV. It looks to my untrained eye that mother's cash needs keeps her above the IHT threshold, as you don't want to sell the rental property. Lesser of two evils really.

Also, could this service help? https://www.nationalwillregister.co.uk/  - I've never used it so can't vouch for it but it might be an option.

This service organises banks to search for lost bank accounts, quick and easy and free - https://www.mylostaccount.org.uk/

Thanks Willowleaf. Yes, trying to minimise mother's IHT in future, but equally not making any blunders now with father's estate that may increase IHT liabilities later on with mother's estate. Also mother's poss care needs in near future. Though now I understand spousal exemption plus NRB and RNRB and the fact that it can be transferred partially or wholly to mother's estate if not all used now - I think I'm virtually there. Just deciding the best route to get there.

I think I need to check your calculations for mother's future estate. 

Marital home                                                                        £450,000

Rental Property                                                                     £425,000

Savings inherited from father (£125,000 minus £114,000)   £11,000

DOV total                                                                              £114,000

Mother's own savings                                                           £70,000

TOTAL                                                                                  £1070,000    (= £28,000 IHT liability)

Unless I've missed something, I think the actual total may be a lot less.

I will also follow your recommendations and look at the will register and lost accounts.

Keep_pedalling

woodbine66 said:

Keep_pedalling said:

woodbine66 said:

I think a re-cap is needed. Bearing in mind that father's intestate estate is total value approx £775,000, is the consensus that we have 3 choices to avoid/minimise IHT -

1) We do nothing and under the rules of intestacy my mother inherits an estate valued at £661,000 I get £57,000 and my brother gets £57,000

Based on yout numbers that is correct.

2) We disclaim our inheritance of £57,000 each and let the whole estate pass to our mother

3) We complete Deeds Of Variation so that my brother's £57,000 and my £57,000 are varied to our mother meaning the whole estate passes to our mother?

Will all of the above choices have the desired effect of either meaning no or minimal IHT? Is one method better than the other? Are there risks with any of the choices.

Practically speaking, option 1 would possibly be more difficult as it would either mean having to sell a property or alternatively leave my mother asset (ie. the houses) rich and cash poor. I think my brother and I can survive without the money for now.

Many thanks to everyone who has given their time to offer invaluable advice. It is much appreciate. Apologies if my replies are not always rapid. In the circumstances there's 1,000 and 1 things to do. I'm still here though and reading all replies.

If you make a deed of variation and everything goes to your mother, it does not really make much difference to her estate’s IHT liability, but I would do the deed of variation as as you quite rightly point out this would leave her cash poor if you and your siblings inheritance came out of his savings rather than you taking a share of the ownership of the rental property instead.

Her estate would only just be in IHT territory so the amount of IHT would be quite low. Gifting could potentially reduce this but your mother would have to survive 7 years for that to succeed.

There is no hurry in doing this as you have 2 years to do a DoV so I would concentrate on all the more important stuff first.

Does your mother have a financial lasting power of attorney in place? If not that is something that should be considered especially if she does not want to take on the responsibility of being a landlord. 

Again, thank you for your reply. I have a few questions. With a Deed Of Variation can you vary 100 % of the amount you would be inheriting, ie. in this case £57,000 for me and £57,000 for my brother? Who needs to sign the DOV, just my brother and me or mother as well?

Just the losing beneficiaries, your mother does not need to sign this.

How do we take a share of the rental property she would be inheriting instead of father's savings? Obviously  mine and my brother's combined share of the rental property would be £114,000, how would this work in practice? How do we work it that we inherit £114,000 of the rental property's value and mother has the rest of its value?

You would set up ownership as tenants in common with uneven shares documented in a deed of trust. You would also need to spit the rental profits on the same basis.

Yes, my mother has both LPAs in place. She is 89, quite frail, and her dementia isn't too bad but it does slowly get worse. There is always the possibility she may need a care home in the future. My brother and I loked after the rental property for my father in his long illness, so will continue to do this for our mother. 

I have one last hypothetical question. If my brother and I did take our share of our father's estate (£114,000) in cash out of his savings and left our mother cash poor (although she would still have £11,000 cash from father's estate plus her own £70,000 savings) - if in future she went into care and used all the £81,000 could we lend her money for care home fees to be repaid out of her estate on death? Rather than selling property to fund care fees. Would this be complex and need something drawn up with a solicitor?

You could do that if you want to retain the family home. You would need to document the loan but I don’t think you need to use a solicitor.

gjcody

Keep_pedalling said:

gjcody said:

Keep_pedalling said:

gjcody said:

No, I am not talking nonsense, as I asked earlier; where did you read law?

I have no legal qualifications, but that applies to most of the regulars on this board we have learned through our own experiences and pass that knowledge on to others.

If you are a professional you should read rule 4 of the forum rules before posting.

Whilst she may be entitled to the Estate, nothing can be given away until the process of Probate is complete. Probate is required for all Intestate Estates; you cannot legally administer an Estate without the authority of the Probate Court.

I will say again in the case of a spouse this is nonsense. Some things have to be dealt with more urgently than that and such ridged rules would prevent you from disposing of the deceased car that  is illegally parked on a public road.

The IHT is irrelevant at this stage, and is not dealt with by the Probate Court? The Probate system merely authorizes an individual(s) to administer the Estate, to apply to the Land Registry to have property titles changed, to pay the deceased income tax, close their bank accounts,change a V5 at the DVLA, etc. The Chattels are not a lump sum and 50% of the household good must be attributed for the deceased IHT calculation, along with 50% of the family home given the Joint Tenancy. Early distribution is very much an issue; if the brothers take anything from the Estate they cannot claim to have a bean from it, what is it you do not understand about “disclaim”, if they take anything then the Intestate allocations will apply and they will have to pay the full amount of IHT!

It is common practice to lump the bulk of the chattels as one nominal some because the second hand value of most of these is going to be a pretty low value. I was also not talking about the OP disposing of any of this stuff but their mother has every right to do so. 

Any Executor who permits the releases of anything is in breach of their duties and personally legally and financially liable for any loss! Banks seldom release large sums without probate, particularly High Street banks, many only agree to cover funeral expenses.

Barclays released my mother’s savings of over £20k to me within 24 hours of me providing a copy of her will and proof of ID. It may be different for a professional administrator or someone not closely related to the deceased, but there are plenty of other cases on here where money has been released without fuss or undue delay.

No, the marital home is not 'covered' as it is a Joint property, with no Will, that others (the brothers) have a possible claim to, that share must be added to the IHT calculation; here is the extract for the website I point to, which you have clearly not read:

The children have no claim on the marital home it is not part of the inheritable estate.

“Joint tenants

You automatically inherit anything you owned as ‘joint tenants’.

You may have to pay Inheritance Tax if the whole of the deceased’s estate (all their money, property and possessions) is worth more than the Inheritance Tax threshold of £325,000 and the deceased’s estate does not pay.”

In this case it exceeds the threshold, by some amount. If the brothers disclaim of course everything falls under Spousal Exemption and no IHT will be due, which is rather the point of my post!

The last point is not relevant in this case even if the siblings claim their inheritance under intestacy rules the amount they will get is way under the NRB so nothing will be payable. The surviving spouse’s estate will have less in the way off exemptions but will also have less in the way of assets so overall there will be little or no impact on the eventual IHT liability of her estate whether the children take their share or pass it to their mother via a DoV.

I think this whole debate about chattels 

No, you don't have any qualification, that has been apparent throughout your posts. Passing on erroneous information does who any good?

As I said, I am not a professional, I retired over a decade ago. Hence my line that he sought advice from a current professional.

The case of the spouse is not nonsense, you clear are not grasping joint tenancy and intestate. The rules are rigid for a reason and many of what you call 'rules' are actually statuted law, Disclaiming for instance is covered by the 1984 Inheritance Act.

Common it may be in your mind, but HMRC require as near an accurate figure as the Executor can produce, along with the evidence to support his case. And they of course, as I pointed out are legally responsible for any loss, which includes taxes due to their negligence. This is one reason you can even insure yourself against such!

I don't see £20k are a large sum myself, and compared to the Estate of £1m it is a pittance. Though of course as you say, you had a Will which is sadly something that is lacking in this case, and it is that fact that is at the bottom of the whole issue, which is something you really are not grasping.

You are again missing the vital point, despite my posting the extract from the Joint Property page; the trouble arises if they do not included the monetary value of the property in the figures of the deceased possession, which you are convinced they don't need to some some odd reason; this will cause the IHT fight to be incorrect and therefore any tax levied on the Estate to be wrong, when, as the aforementioned document says “You may have to pay” IHT.

I suggest you spend sometime reading the HMRC Inheritance Tax Manual before you dispense advice that could cost people dearly.

I know I said I would not reply again but I can’t just let this go unanswered as I don’t believe you understand what I was trying to say.

As far as the joint property is concerned I agree, for IHT purposes 50% of the property needs to be included in the  gross and net IHT values, but excluded from probate valuations. Nothing needs to be reported to HMRC in this case because an IHT return is not required.

In this particular case it does not matter if the estate is distributed as per intestacy rules or the children let everything go to their mother the estate pays no IHT, so nothing that has been said on this thread is going to cause cost anyone dearly as you put it. 

No, again. The Widow receives £322k and 50% of the remainder, anything after that is deducted from the NRB. Here is the example quoted as normal from the .gov site:

Example 1

Carole dies leaving an estate worth £600,000. She leaves £130,000 to her children and the rest to her husband Simon. The threshold in use at the time was £325,000.

The £130,000 left to the children would use up 40% (£130,000 ÷ £325,000 x 100) of the threshold, leaving 60% unused.

When Simon dies, the threshold is still £325,000. His available threshold would increase by the unused percentage (60%) to £520,000 (£325,000 x 60% +£325,000).

If Simon’s estate is not worth more than £520,000 there’ll be no Inheritance Tax to pay when he dies. Inheritance Tax would be payable on anything above £520,000.

gjcody

woodbine66 said:

gjcody said:

woodbine66 said:

My father has just died without making a will. He is married to my mother and I have one brother. His assets are;

Marital home owned with mother as joint tenants - £450,000

Rental property owned in his sole name               - £425,000

Savings and cash in bank                                      - £125,000

TOTAL                                                                   - £1,000,000

My questions are;

As an intestacy, I understand that £322,000 of his estate plus 50 per cent of the remaining estate goes to our mother? As the marital home is owned by our parents as joint tenants, is it's total value excluded from this calculation?

Can anyone tell me what the immediate IHT liability will be on this estate please? What reliefs and exemptions are available?

Also, if the estate is divided between the three of us according to the intestacy rules (ie. £322,000 plus 50% to mother, rest to us), what will the IHT liability be when our mother passes away? Is there anything we can do before or after the administration of our father's estate to lessen IHT liabilities due when our mother passes away?

Final question - by not making a will, has our father inadvertently increased our IHT liabilities?

I hope all of the above makes sense and hope I'm not asking too much. If any futher info is needed please ask. Thanks in advance of any help.

I will make 2 posts to keep things simple. 

If you are looking for a route with no IHT I would suggest you and your brother "disclaim" your inheritance. That will leave your mother as the only person with a right of inheritance, and she will pay no IHT as a Spouse.  This would also enable her Executor to claim your father's Allowances when dealing with her Estate, giving an Allowance of £1m.  

You cannot though take as much as a dirty sock from your father's Estate.

Thanks, that's an interesting answer. So even with my updated figures in my op (meaning father's estate is only really approx £775,000), do you still advise to disclaim our inheritance from father and let it all pass to our mother? Can I ask what we need to do to diaclaim the inheritance? 

As an alternative, could my brother and I use Deeds Of Variation to allow our mother to keep 100% of father's intestate estate?

I certainly do; it solves all you issues in one go and it no more than a 2 line letter to the Executor which will not require a Solicitor, I can give you the verbiage here. . It will also provide your mother with £1m to pass on tax free when she passes away, as the NRB is fully intact

You cannot use a Deed of Variation as there is no Will to make a variation too.

As you have seen there has been great debate about the figures, so I am aware you are working with, but they are sort of irrelevant using a disclaimer, as mother is able to inherit everything free and gratis and retains all your father's allowance to carry forward. Many people are assuming the NRB will not be touched, this is very wrong indeed, here is an example for a ,gov webpage of what will happen if you do not disclaim:

Example 1

Carole dies leaving an estate worth £600,000. She leaves £130,000 to her children and the rest to her husband Simon. The threshold in use at the time was £325,000.

The £130,000 left to the children would use up 40% (£130,000 ÷ £325,000 x 100) of the threshold, leaving 60% unused.

When Simon dies, the threshold is still £325,000. His available threshold would increase by the unused percentage (60%) to £520,000 (£325,000 x 60% +£325,000).

If Simon’s estate is not worth more than £520,000 there’ll be no Inheritance Tax to pay when he dies. Inheritance Tax would be payable on anything above £520,000.

Keep_pedalling

gjcody said:

woodbine66 said:

gjcody said:

woodbine66 said:

My father has just died without making a will. He is married to my mother and I have one brother. His assets are;

Marital home owned with mother as joint tenants - £450,000

Rental property owned in his sole name               - £425,000

Savings and cash in bank                                      - £125,000

TOTAL                                                                   - £1,000,000

My questions are;

As an intestacy, I understand that £322,000 of his estate plus 50 per cent of the remaining estate goes to our mother? As the marital home is owned by our parents as joint tenants, is it's total value excluded from this calculation?

Can anyone tell me what the immediate IHT liability will be on this estate please? What reliefs and exemptions are available?

Also, if the estate is divided between the three of us according to the intestacy rules (ie. £322,000 plus 50% to mother, rest to us), what will the IHT liability be when our mother passes away? Is there anything we can do before or after the administration of our father's estate to lessen IHT liabilities due when our mother passes away?

Final question - by not making a will, has our father inadvertently increased our IHT liabilities?

I hope all of the above makes sense and hope I'm not asking too much. If any futher info is needed please ask. Thanks in advance of any help.

I will make 2 posts to keep things simple. 

If you are looking for a route with no IHT I would suggest you and your brother "disclaim" your inheritance. That will leave your mother as the only person with a right of inheritance, and she will pay no IHT as a Spouse.  This would also enable her Executor to claim your father's Allowances when dealing with her Estate, giving an Allowance of £1m.  

You cannot though take as much as a dirty sock from your father's Estate.

Thanks, that's an interesting answer. So even with my updated figures in my op (meaning father's estate is only really approx £775,000), do you still advise to disclaim our inheritance from father and let it all pass to our mother? Can I ask what we need to do to diaclaim the inheritance? 

As an alternative, could my brother and I use Deeds Of Variation to allow our mother to keep 100% of father's intestate estate?

I certainly do; it solves all you issues in one go and it no more than a 2 line letter to the Executor which will not require a Solicitor, I can give you the verbiage here. . It will also provide your mother with £1m to pass on tax free when she passes away, as the NRB is fully intact

You cannot use a Deed of Variation as there is no Will to make a variation too.

As you have seen there has been great debate about the figures, so I am aware you are working with, but they are sort of irrelevant using a disclaimer, as mother is able to inherit everything free and gratis and retains all your father's allowance to carry forward. Many people are assuming the NRB will not be touched, this is very wrong indeed, here is an example for a ,gov webpage of what will happen if you do not disclaim:

Example 1

Carole dies leaving an estate worth £600,000. She leaves £130,000 to her children and the rest to her husband Simon. The threshold in use at the time was £325,000.

The £130,000 left to the children would use up 40% (£130,000 ÷ £325,000 x 100) of the threshold, leaving 60% unused.

When Simon dies, the threshold is still £325,000. His available threshold would increase by the unused percentage (60%) to £520,000 (£325,000 x 60% +£325,000).

If Simon’s estate is not worth more than £520,000 there’ll be no Inheritance Tax to pay when he dies. Inheritance Tax would be payable on anything above £520,000.

You are not taking into account two things here. The first is that although Simon’s estate allowances would be higher if Carol had left every thing to him, his estate would have also £130k of additional assets so the net effect is neutral. This is exactly the same situation that the OP currently has. 

Secondly estates of this size usually have two lots of RNRB to claim so Simon’s estate would need to exceed £870k before IHT would be do.

Please make sure of your facts before posting any more replies on this board, you are not helping anyone by posting misleading info.

WillowLeaf

woodbine66 said:

I think I need to check your calculations for mother's future estate. 

Marital home                                                                        £450,000

Rental Property                                                                     £425,000

Savings inherited from father (£125,000 minus £114,000)   £11,000

DOV total                                                                              £114,000

Mother's own savings                                                           £70,000

TOTAL                                                                                  £1070,000    (= £28,000 IHT liability)

Unless I've missed something, I think the actual total may be a lot less.

I will also follow your recommendations and look at the will register and lost accounts.

I think I double-counted the DoV £114k. I saw previous mention of £1M, I added the DoV on top of this but looks like it was already included.

Definitely go with your figures 👍

Savvy_Sue

gjcody said:

You cannot use a Deed of Variation as there is no Will to make a variation too.

You CAN use a Deed of Variation to redirect where assets would go in an intestacy situation. Google provides various reputable links. 

I won't comment on whether that's a sensible thing for the OP to do, but clearly adults cannot be FORCED to accept a legacy, whether that's via a bequest in a will, or via intestacy. And they can choose who should receive that legacy in their stead. 

Keep_pedalling

Savvy_Sue said:

gjcody said:

You cannot use a Deed of Variation as there is no Will to make a variation too.

You CAN use a Deed of Variation to redirect where assets would go in an intestacy situation. Google provides various reputable links. 

Absolutely correct, and I am now concerned that we now have a poster on this board dishing out misinformation that is highly misleading to anyone looking for advice on this board.