Step children and inheritance tax and property

GuitarNeb

Hi All

My husband and I have been together for just over 30 years but we just got married this Jan. He was divorced when we met and has three children. There is a 24 year age gap between us so I am closer to his kids age then his. When we bought the house it was in my name only as it was easier to get a mortgage for just me because of his age at the time. So now we have just married we need new wills which we are currently doing and a couple of issues have cropped up. Our total estate at the moment is worth about £1 million most of it in my name - the house and shares (which were awarded through my then job) and savings etc.

In all likelihood my husband, who is now 76 and unfortunately suffering with ill-health, would die first and in so many decades from now I would die and there probably wouldn't be much estate left if it was all spent on care home fees (grr). However that may not happen and taking the estate at its current value I want to ensure my stepchildren or their children (step-grandchildren) get my inheritance tax allowance.

With some research, I see that

• "If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500,000."
• "Make a valid Will that explicitly includes stepchildren by name or clear description."

Therefore to be sure, I need to name my stepchildren as stepchildren in my Will. My Will includes inheritance to their children if they die first.

So, my questions are:

1. Is it enough to name my stepchildren specifically as stepchildren in my Will to ensure my inheritance tax allowance of £500k is applied?
2. Are their children just seen as grandchildren in law and therefore again would my inheritance tax allowance of £500k be applied?
3. Do I need to change the property ownership with Land Registry to Tenants in Common with my husband? I assume that if the answers to 1 & 2 are Yes then I don't need to change the Land Registry.

Normally I would have changed the ownership of the house to both of us but my husband has been very sick this last year and has now developed some more medical issues this year and its all very severe and serious. I'm now a full time carer and I don't want to do more paperwork than I have to. Time is very precious. We only just made the wedding as the marriage notice expired the next day. We had to move the wedding so many times due to his illness and spells in hospital. In a horrible way to change the ownership now if I don't need to is pointless as I may have to change it again. Right, now I've explained that I can have a quick cry and leave you guys to come up with the answers.

Thanks in advance

Keep_pedalling

Forget giving your home away it is a really dumb thing to do. It does not reduce your IHT liability as it would be a gift with reservation and it does not avoid card costs as it would be considered as deliberate deprivation of assets. it also creates a potential CGT liability for your step children.

You are in the fortunate position to be able afford card if you ever need it to throw that away and depend on a cash strapped LA to fund your care is crazy.

I would suggest you and your husband make an appointment with a STEP solicitor to sort your wills out. An immediate post death interest trust clause in both wills is something that should be considered which is why you need a solicitor who is qualified to advise on trusts.

lincroft1710

The problem is that by the time you pass, which could easily be 30 or mire years hence, IHT rates and allowances will no doubt have changed. So the £500K may no longer be applicable and also the value of your home will probably have increased.

Keep_pedalling

Under current rules the OP’s estate would get £1M in exemptions if the inherit everything (or are the beneficiary of a IPDI trust) from their spouse and intend leaving the bulk of their estate to their step children, but Bering in mind they are likely to be a relatively young widow so remarrying would complicate things somewhat.

silvercar

if your question is on the definition of a step child. The fact that you are married makes his children your step children.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46013

silvercar

Here is a better page, you fit example 4.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46034

Albermarle

and in so many decades from now I would die and there probably wouldn't be much estate left if it was all spent on care home fees (grr). However that may not happen 

The majority of people never end up in a care home and for those that do, the stay is not usually that long for obvious reasons.

There are cases where people end up spending all their money, selling their home to pay care fees, but these are very much a minority, despite media attempts to make us all think it happens to almost every older person.

doodling

Hi,

If you had the time I would suggest that two questions for both of you to think about are (a) what will be left to the step children - is it whatever is left after you have lived your life, or should it be some proportion of everything which you owned together at the time your husband passes away, or something else? and (b) if and how your step children should be protected if your husband passes away.

If you leave things as the are then on his death you will be left owning the house and your husband's will will determine what happens to his assets which your post implies are minimal. You can then do whatever you want with the house you own and any other assets, potentially ignoring the step children (not that I'm suggesting you will).

In the worst case for your stepchildren, you might remarry and on your death, if you hadn't made an updated will with provision for them, all your money and the house could end up with your new partner leaving them with nothing. This is not a problem if your husband trusts you and you intend to do the right thing by the step children (basically make a will including them) to avoid that outcome.

A common solution to this concern is for the house to be jointly owned as tenants in common with your husband's will leaving his half to his step children, with you having a right to live there until you die. This arrangement is known as an IPDI trust and is common in blended families, it also provides an element of protection for the step children against any future care costs for you (with the downside you no longer own half your house). An IPDI trust may not be suitable in your case however due to your age difference - the existence of an IPDI trust makes it more difficult (but not necessarily impossible) to move or downsize as you would only own half the house and flexibility might be important as you are relatively young.

From what you have said, your husband trusts you and you intend to do the right thing in providing for the step children when the time comes so in reality you don't need to do anything urgently except get a will in place - as I expect you understand, at the moment if you died after your husband but before making a will then the step children would get nothing, your assets would go to your (blood) family.

A discussion on these points with the solicitor producing the wills, preferably one who is STEP qualified, definitely not an unqualified "will writer", is recommended.

Technosaurus

Echo the comments above re: care - it's a massive myth that we all end up in one.

I'm in the "death industry" and from my personal perspective circa30% of the deceased people I deal with have lived in care. I appreciate it's more anecdotal than scientific but my sample size here is well over 1,000.

Most people who do need care die in the first 18 months, 2 years at best, with a very small handful over that: the longest I've ever seen was actually my own grandmother who lived in care for 9 years. I've only even seen one other person in "old-age" care for more than 6 (excluding people with long term care needs from before they are 65).

Assuming 2 years in care, accounting massively for inflation at £15k a month (ie well over treble the current cost) = £360k care bill, not including monthly 'income' from pensions etc which will pay this down. So your current estate can easily cover costs.. In that time the £1m estate would have increased substantially too… if it becomes a concern you can actually insure against it too. But as I say it's a 1 in 3 chance this will be needed..

As such, not something you need to worry about at all really - keep a third of your savings back so you can afford the luxury of choice if the time comes for care rather than doing any financial chicanery. And then if it does happen there's still hopefully another two thirds if you become a statistical outlier. And it's worth noting if care does go to £15k per month then I suspect the government will have intervened on maximum pricing long before then as the vast majority of people simply don't have that sort of cash liquid

Enjoy what time you have left with your other half, get appropriate legal advice to word the will properly and all will be fine

GuitarNeb

Thank you all for your input. Slight delay in answering as I dropped my glasses in a car park getting into a car. They didn't survive the u turn driving out. I now have expensive new ones and insurance for the first time…but I can read.

So thanks Silvercar for the legal definition of stepchildren. So they are as you say example 4. So all good there.

With a bit more research I think I need to change the house title deeds from my name only to Joint Tenants so that my Husband has residential NRB included when he passes. Tenants in Common will cause more work for me if I need to sell to downsize etc which I would certainly do at some point. We are ok using trust in terms of me remarrying and not changing the Will to exclude his kids. I wouldn't remarry anyway I've set my heart on being an unattached cougar😉

My expectation is upon his death, his Inheritance Tax allowance would include the residential component. My life would likely be downsizing, retiring and going into a home. When I die, whatever is left would go to the kids with both our full inheritance tax allowances (or whatever is around then). I do expect to pay for care as over a certain savings threshold you pay. If the funds run below then the local authority would step in. Its that boundary between saving and paying and then not being quite wealthy enough to pay for care and leave the sums behind we started with for our children. That's the grrr part. I still want to leave something of substance behind. My Nan lived to 97 with Dementia in a home for around a decade and that came out of her savings from selling her flat and some other savings so I could live to a long age or perhaps get taken out by the next double decker coming round the corner.

Unfortunately I live in an area where some people in the local pubs live their lives drinking in the pub from noon, working on the side, on benefits and having a council property spending more £ in a day on entertainment than the rest of us do in a week. Some boasting about never having paid NI or tax in their lives and I fully believe having known them for a while. That makes the grr more GRR when I think about wanting to leave something behind for the kids and rightly paying my way through to the end… but don't get me started.

With the cost of care homes and at the moment really thinking I don't want to be in one and even if the stats are most people wont go into a care home I do need to financially plan for it. Although I'm thinking of retirement on a cruise ship as long as they take pets. Sounds nicer.

Keep_pedalling

Your thinking about need to change the ownership is incorrect. If your husband dies without doing anything about the house ownership your estate does not lose the transferable `residential NRB from your husband’s estate. It is not dependant him owning a property at the time of his death just on the fact that it was never used.

There would be a risk however, if you make a will leaving the property to your step children and then unfortunately die before your husband as only one RNRB could be claimed and probable some of his standard NRB would also be lost because of the unequal split of your marital wealth.

The important thing for you is to make sure your will is properly drafted to cater for all risks however small.