Question on Will re IHT

cici71

Hi, I’m amending my Will with Which that I did back in 2016. I only intended on changing my executors around due to a death. They’ve sent me the form to edit but in the last 10yrs, they’ve said there’s some extra questions. I’ve been fine with them all except this one. Do you want the shares to be in your chosen percentages before or after inheritance tax. I’m baffled. Surely, I just want what’s best but no idea if answering incorrectly could be a problem. Just a bit of info I case this helps answer. I have put 50% to my husband and 25% each to my sons (my husband is not their biological father) and they have both left home. My home (in my name as had it before I met my husband) is probably worth £500,000 with an interest only mortgage of £137,000 which ends in 5yrs and a life insurance policy in trust payable to my husband if I die of £137000 so mortgage can be totally paid off. No savings currently. Would appreciate any help/advice as to whether I tick before or after for that question. Thanks

Keep_pedalling

I would strongly recommend you make a new will but using a STEP qualified solicitor because you really need to include an immediate post death interest (IPDI) trust in your will.

An IPDI trust protects both your children’s inheritance and your husband’s long term security and it is also tax efficient as it avoids any CGT liability for your children. Rather than split the house share how it is currently you would leave it entirely to your children but with a life interest for your husband. Legal ownership would be held in trust but beneficial ownership lies with your husband until his death or he no longer needs it.

Don’t attempt to do this on the cheap, you need a professional who can advise on trusts and draft an appropriate will for you.

poseidon1

Ordinarily, the answer would be after IHT, to avoid a process called 'grossing up', if the total estate is liable to IHT, which yours clearly is not.,

However, I have a more significant concern with regard to the mortgage on the house. You say it is interest only and ends in 5 years time, but you currently have no savings. What is the plan to pay back the £137,000 at the end of the term?

An additional question, you are leaving 50% of your home to your husband outright. Does he have children of his own or other family he would leave his own estate to when he eventually dies? I ask this because the house belongs to you, and it would be normal for you to leave it to your own children, but with a restriction that your Husband be entitled to occupy for life.

Such an arrangement safeguards his rights of occupation but also ensures your most valuable asset ultimately ends up with your own family, rather than potentially partially end up with his family or even another spouse if he remarries after your death. This is the IPDI arrangement referred to by @Keep_pedalling.

Seems to me the simple Will arrangement you have with Which, is not sophisticated enough to deal with your particular family dynamics, so rather than just tick boxes as requested give this entire matter more considered thought as to whether it really reflects what you would want to happen to your primary asset, if you predeceased your husband.

I am sure if you survived your husband you would be leaving your house entirely to your children, so why would you want a potentially different outcome if your husband survived you?

Of course my responses would be different, if it were planned that your husband would be paying off the interest only only mortgage in years to come from his own resources and so acquire significant equity in your home.

SiliconChip

I'm pretty sure that Which! use will writers rather than solicitors, which is generally not something that this forum would recommend unless the Will is very straightforward, which yours isn't.

cici71

https://forums.moneysavingexpert.com/discussion/comment/81889794#Comment_81889794

Hi, wow some really helpful points and I think you are right, I had better get some advice. My mortgage is 137,000 so the plan is in the next few years is to sell up, pay the mortgage off and buy somewhere out of London either outright or have a very small mortgage. That was always the plan. The interest only mortgage at the time was the only way I could get on the property ladder back then.
my husband and I have been together 21yrs and to be honest, it’s only because of his additional income and take over of some of the bills that enable d me to pay the mortgage. I guess that’s why I am leaving him half. Just out of interest, if I leave it that he has occupancy for life - it’s very likely he could live til he’s 85 and my children would not inherit the house til their 60’s. A lot to think about thank you but I’d also be interested in your take on it now you’ve had a bit more information.

Keep_pedalling

What sort of assets does he hold? Could he afford to buy his own place if required? Does he have any children of his own?

cici71

https://forums.moneysavingexpert.com/discussion/comment/81890208#Comment_81890208

Hi, he doesn’t have any. He moved in with me when I had this just for a few years so 21yrs later it’s just stayed as is. Not sure if you saw my comment above but I wouldn’t have been able to stay here and keep this house if it wasn’t for his income paying the other bills. He has a poor credit history unfortunately so no he wouldn’t be able to buy anywhere easily with normal mortgage rates. He has 1 child of his own who is also an adult, like mine.

poseidon1

Additional information useful in identifying some issues.

Firstly you queried the delay your children would face if you left the house to them on the basis of your husband having a lifetime right of occupation.

However, under the terms of your current will, unless you anticipated that your children would force a sale of the home on your husband to release their 50% share, thereby leaving him to face the arduous task of finding an even smaller home at his advanced age, surely your children would in any event face a long delay to access an inheritance of only 50% of the house value as presently provided in your will? ( we can assume your husband would leave his half to his own child).

So something else to contemplate here, if rethinking the terms of your will

As regards the downsizing plan, you might find that harder than you think as a Londoner.

Firstly you may once you are retired, become accustomed to the many varied free public transport options available via the 60 plus Oyster card and eventually as Freedom Card holders. This is not replicated anywhere else in the UK, where you will largely be restricted to bus travel only on a free basis. A future downsize move may therefore require budgeting for ongoing car ownership.

Secondly your budget of around £350k ( currently) net of stamp duty and fees may limit your future options if considering South East England, especially if you desire a house rather than a flat. I would certainly be conducting an extensive search of target areas now rather than later, to determine your viable options and likely compromises when you are ready to make the move.

With little liquid savings avaliable, your eventual exit from London will require more than a little advanced planning.

This has been a bit of a divergence from your original question, but hopefully some useful observations nonetheless.

RAS

When searching locations, research each transport authority. Mine offers free bus travel after 9.30am, an adjoining authority starts at 9am.

But mine includes half price rail travel after 9.30am, valid on the return journey even in peak hours. So within the county, my OP pass is more use than the OP rail pass. It only took a year for someone to mention it.