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IHT Query.

including wills and probate
ten0rman
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IHT Query.

#463521

Postby ten0rman » December 6th, 2021, 2:55 pm

I’m going round in circles, so a quick & I hope, simple, question.

I have in excess of £400K in various savings. My wife has almost £325K in various savings. It is likely, due to age and illness, that I shall probably depart this mortal coil long before my wife. I am considering an amendment to my will to leave £324K to be shared between our three children with the remainder, the house and other tangible assets all being passed to my wife.

In terms of gifts, provided I live until next August, the only gift applicable will fall out of any IHT timimg, and amounts to £4500. There are also some small payments made to our grandchildren which have been made completely from excess income, hence should not be considered.

What will be the effect on IHT? And when might it have to be paid?

FWIW, my wife will receive about 50% of our current joint income following my death. Whilst this is not sufficient to maintain our current standard of living, there are various payments which will be ceased and which will help, so with a little bit of care, she should be ok. We have no debts other than normal living expenses, eg electricity, telephone etc. and these are up to date being paid by direct debit.

ten0rman

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Re: IHT Query.

#463524

Postby bluedonkey » December 6th, 2021, 3:01 pm

Not a complete answer (and you probably know this already), but whatever your wife inherits from you will not be subject to IHT. There is no monetary limit to this.

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Re: IHT Query.

#463552

Postby Dod101 » December 6th, 2021, 4:20 pm

ten0rman wrote:I’m going round in circles, so a quick & I hope, simple, question.

I have in excess of £400K in various savings. My wife has almost £325K in various savings. It is likely, due to age and illness, that I shall probably depart this mortal coil long before my wife. I am considering an amendment to my will to leave £324K to be shared between our three children with the remainder, the house and other tangible assets all being passed to my wife.

In terms of gifts, provided I live until next August, the only gift applicable will fall out of any IHT timimg, and amounts to £4500. There are also some small payments made to our grandchildren which have been made completely from excess income, hence should not be considered.

What will be the effect on IHT? And when might it have to be paid?

FWIW, my wife will receive about 50% of our current joint income following my death. Whilst this is not sufficient to maintain our current standard of living, there are various payments which will be ceased and which will help, so with a little bit of care, she should be ok. We have no debts other than normal living expenses, eg electricity, telephone etc. and these are up to date being paid by direct debit.

ten0rman


If you leave £324K to your children that should fall within the Nil Rate Band which is £325,000 and as anything left to your wife is free of IHT it looks as though that would be a good arrangement as it will not attract any IHT overall.

Dod

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Re: IHT Query.

#463553

Postby genou » December 6th, 2021, 4:26 pm

ten0rman wrote:What will be the effect on IHT? And when might it have to be paid?

ten0rman


Your exempt amount is 325k, so you will essentially use it all up leaving the assets to your children. The rest, left to your wife, is also exempt, so there will be no tax to pay at all, if your 4.5k PET become exempt.

On your wife's death she will have her own exempt amount ( on current form likely to be frozen at 325k ) plus her Residence Nil Rate Band ( 175k ) , and she will inherit your RNRB ( another 175k ) - with a cap on those RNRB amounts that they can't together exceed the value of the house. The RNRB is tapered if the total estate exceeds 2m.

She may also inherit some small percentage of your exempt amount ( 1/325th), but I suspect that's a typo.

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Re: IHT Query.

#463579

Postby Adamski » December 6th, 2021, 5:43 pm

There may be a way to reduce future tax bill for your children. If the total estate is over £1m, they'll be an inheritance tax bill to pay after the 2nd death.

The way to reduce this is instead of putting the gift to your children in your will, you make a joint gift, whilst you're alive. It would simply mean paying the gift to your children from a joint bank account. If prepared to do and trust children to spend wisely.

Then only half is included on your probate value. Half is included in your wife's estate, but if she lives a further 7 years, it drops out.

My parents made some joint gifts over 7 years ago for house purchases, these were included 50% in my Dad's estate when he sadly passed. As 7 years have passed so drop off the list of my Mum's gifts.

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Re: IHT Query.

#463593

Postby genou » December 6th, 2021, 6:17 pm

Adamski wrote:There may be a way to reduce future tax bill for your children. If the total estate is over £1m, they'll be an inheritance tax bill to pay after the 2nd death.

The way to reduce this is instead of putting the gift to your children in your will, you make a joint gift, whilst you're alive. It would simply mean paying the gift to your children from a joint bank account. If prepared to do and trust children to spend wisely.

Then only half is included on your probate value. Half is included in your wife's estate, but if she lives a further 7 years, it drops out.

My parents made some joint gifts over 7 years ago for house purchases, these were included 50% in my Dad's estate when he sadly passed. As 7 years have passed so drop off the list of my Mum's gifts.


If you are going to go down that route, the most tax efficient thing to do is for the first to die to donate everything inter vivos to the surviving spouse, who promptly donates 325k to the children. If that spouse lives 7 years, they get their 325k exempt amount back, and the first spouse's exempt amount has never been used, so your children are, at a max (325 * .4 ) up. Does require you that get a bit of notice that you are about to drop off the perch. It's a possibility for ten0rman. If the second spouse doesn't live long enough you are no worse off, you've just used a different parent's exempt amount.

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Re: IHT Query.

#463603

Postby DrFfybes » December 6th, 2021, 6:36 pm

The 2 replies above are both better solutions than you using your IHT allowance, now the allowance is transferrable there is little point using yours up if it leaves your wife paying IHT 10 years down the line, when she could gift the same amount the day after you pass and start the 7 year clock running. Having your assets in joint names will make this easier for her to access the funds and speed up the distribution.

Are you using all your allowances? Last time I looked you could both leave £3k/annum to your children (or anyone really), plus gifts of up to £250. Mum and Dad made use of their £3k each to me and my sister for a few years before Dad went (then mum left us £1500 each) and £250 to our spouses and the grandchildren. Easy way to remove £4k+ from the joint estate.

Bear in mind you can only use those limits, IIRC give a £3k gift and then give them another tenner and the entire £3010 fall back into the 7 year rule.

Paul

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Re: IHT Query.

#463652

Postby Lootman » December 6th, 2021, 9:18 pm

DrFfybes wrote:Bear in mind you can only use those limits, IIRC give a £3k gift and then give them another tenner and the entire £3010 fall back into the 7 year rule.l

In theory perhaps. But in practice when did any executor deem it worthwhile to declare a "gift" of £10? That is like buying 2 pints of beer in a pub.

Minor acts of generosity between family members were never intended to be considered material in IHT computations.

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Re: IHT Query.

#463663

Postby Dod101 » December 6th, 2021, 9:58 pm

The OP said he was going round the bend and so he asked a simple question., I therefore gave him a simple answer. Others cannot resist showing their knowledge and complicating things no end. All are correct of course but it sounded to me as if the OP just wanted a simple answer to a simple question, besides which, giving lifetime gifts is great if he can afford to do so but he may not or may not want to.

Dod

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Re: IHT Query.

#463776

Postby ten0rman » December 7th, 2021, 10:56 am

Hi all,

Thanks for the replies. DOD101 is quite correct, I was indeed going round the bend and trying to understand what I could & could not do. And the simple reply was indeed what I was looking for.

Anyway, since some of you have raised various possibilities, I will formulate a further reply explaining all the ins & outs of my situation, but formulating it is taking time. Watch this space!

Regards,

ten0rman

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Re: IHT Query.

#464143

Postby mutantpoodle » December 8th, 2021, 8:50 am

surely the 'extra £10' mentioned above...if ever actually noticed would be deemed an 'out of income' gift

if the suggestion is correct then its not possible to gift £3000 a year to someone as well as 'gifts out income' to same person

eg to son/daughter as we do

ten0rman
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Re: IHT Query.

#464279

Postby ten0rman » December 8th, 2021, 4:10 pm

Hello people,

Thanks for your comments.

Now, it has been suggested that there is an alternative, and better, way to pass on money to our children. That would be fair enough, but I do have a suspicious mind when it comes to finances and my wife. What it boils down is this:

a) All our savings have been earned by me one way or another, my wife not having contributed any money to the marriage other than Child Allowance & nowadays, her State Retirement Pension (SRP). Just to clarify that, her savings as outlined above are included in that, ie supplied by me and placed in ISA’s in her name, and yes, she did indeed sign the relevant forms. Plus I paid extra to ensure that she retained the right to her full SRP;

b) My wife, in all the years we have been married, has shown very little interest in how much we have, or where it came from, preferring instead to leave all the arrangements to me as long as she had enough for her needs, eg shopping. This included the making of our mirror image wills some years ago. That is, until comparatively recently when she made some comment about wills whereupon I reminded her that we both had wills. However, it does seem that the fact of my illness (lung cancer) and the age difference between us (I’m eight years older) has finally sunk in, in that she is now passing comments about how she will manage on my death;

c) Unfortunately, my wife has been involved with certain religious cults for a long time, some of which are American based, and this leads me to wonder if she has been “got at” by one or other of these organisations with a view to persuading her to change her will in favour of the organisation. As you might expect, I’m not going to ask her about in case it plants a seed;

d) When our wills were prepared back in 2005, the question of IHT was, in effect, something that only applied to other people! However, about two years ago, I suddenly realised that my savings were about to breach the IHT allowance limit, and that my wife’s savings were not too far behind.

The result is that I wish to ensure that I bequeath as much as I can to our three children without the complication of IHT, hence the apparently odd value of £324K when the allowance is £325K. The logic here is that £324K divided by 3 (the number of our children) is £108K. £325K does not easily divide by 3.

It has also been mentioned about the £3k annual amount, or from both of us, and including last year’s unused allowance, £12K. This is something I am pondering as well, but in reality, it’s peanuts compared to the £324K for our three children.

Another consideration is the need to make my probate etc as simple and as easy as possible for our three children. Our eldest who lives 14 miles away, following a nasty accident, is now confined to a wheelchair, whilst our two youngest live 80 & 100 miles away. It will be bad enough for them as it is once they start attempting to put a value on my hobby equipment, but if there are then problems caused by gifts, I doubt that I will be “father of the month”!

ten0rman

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Re: IHT Query.

#464361

Postby genou » December 8th, 2021, 9:22 pm

ten0rman wrote:Hello people,

Thanks for your comments.

Now, it has been suggested that there is an alternative, and better, way to pass on money to our children. That would be fair enough, but I do have a suspicious mind when it comes to finances and my wife. What it boils down is this:

a) All our savings have been earned by me one way or another

A gift is a gift. Water under the bridge.
ten0rman wrote:b) However, it does seem that the fact of my illness (lung cancer) and the age difference between us (I’m eight years older) has finally sunk in, in that she is now passing comments about how she will manage on my death;

I am sorry to hear of your health issues. I wish you the best of outcomes.
ten0rman wrote:c) Unfortunately, my wife has been involved with certain religious cults for a long time, some of which are American based, and this leads me to wonder if she has been “got at” by one or other of these organisations with a view to persuading her to change her will in favour of the organisation. As you might expect, I’m not going to ask her about in case it plants a seed;


Bugger. Clearly any idea of being "cute" with IHT/assets goes out the window. Harshly put, who owns your house? If it is not 100% in your name, is it joint or common tenancy? If it is joint, your wife will take complete ownership on your death regardless of your will. You may no longer want that, in which case you can fill out the appropriate forms and sever the tenancy, so that your share can pass via your will. I believe ( but check this ) that this can be done without your wife becoming aware of what you have done. It's between you and the Land Registry. That does not mean that you cannot make provision that your wife can live in the house until her death, just that she doesn't get full ownership of it.

ten0rman wrote:d) When our wills were prepared back in 2005, the question of IHT was, in effect, something that only applied to other people! However, about two years ago, I suddenly realised that my savings were about to breach the IHT allowance limit, and that my wife’s savings were not too far behind.

The result is that I wish to ensure that I bequeath as much as I can to our three children without the complication of IHT, hence the apparently odd value of £324K when the allowance is £325K. The logic here is that £324K divided by 3 (the number of our children) is £108K. £325K does not easily divide by 3.


But what do you want to happen to the rest? It has to go somewhere - and 60% of 75k is enough to keep me in wine for a while, so I'll take it, if you don't just want to leave it to the children.

ten0rman wrote:
Another consideration is the need to make my probate etc as simple and as easy as possible for our three children. Our eldest who lives 14 miles away, following a nasty accident, is now confined to a wheelchair, whilst our two youngest live 80 & 100 miles away. It will be bad enough for them as it is once they start attempting to put a value on my hobby equipment, but if there are then problems caused by gifts, I doubt that I will be “father of the month”!

ten0rman


Probate is 90% trivial form filling, and 10% frustration with financial institutions. I feel your concern for your hobby gear, ( we all have favourite things ) but in the context of you not being there, what's the issue against the overall estate? Physical distance is about clearing houses, which does not sound an immediate need.

Your children are all grown up, and can hire a lawyer if they feel the need. But don't make a lawyer your executor - leave it up to the children as executors to hire and fire one if they want.

As a finale, who has Power of Attorney over your financial affairs? Is that something to address so that you are comfortable with what happens if you are hors de combat for a bit ?


Reprise:

ten0rman wrote: she is now passing comments about how she will manage on my death


I feel also for your wife. I've only addressed your worries about cash above, because TLF. Whatever your doubts, engage and be kind.

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Re: IHT Query.

#464486

Postby ten0rman » December 9th, 2021, 12:03 pm

Hi Genou,

Thanks for the comments.

Healthwise, I'm on chemotherapy by pill, and have been for over two years now. It seems that the cancer has shrunk considerably and then been static over the last 12 to 15 months. The oncologists are happy with what's going on. Apparently the present drug WILL stop working at some point, however I have been assured that there two alternative drugs available, plus there are others coming up all the time, and that's all before they start thinking about infusions (at least, that's what I think they said, even if it does sound like a pot of tea!). Anyway, I'm looking forward to a few more years yet.

As far as my wife is concerned, other than the religious mess, she has done ok for me, we have three good, healthy children who are very close to each other, and four grandchildren. Ok, our daughter has had a nasty accident which has left her wheelchair bound, but nevertheless she is managing to hold down a job, own's her own (adapted) bungalow, and has an adapted Volvo of some sort so is making the best of a bad job. She does have two mid-20's sons and a 15 year old daughter so in reality has plenty of assistance if required. Anyway, back to my wife. I have no worries, indeed I think it only right that she should have half of what I have managed to save, and if she wishes to give it away after my death, then that's her problem. My immediate problem is trying to ensure that our children get something. Naturally, if she does give it away on her death, then so be it, I will have done my best.

The house is actually in my name only. This was done to make life easier for us, in that I dealt with all the paper work without having to involve my wife. Same argument applies to the other big ticket items, car, caravan, etc, I dealt with all the paperwork. And again, I think it only right that my wife should have a half share in this, after all, she has stayed at home to provide a home for the children. I had wondered about house ownership, but fear that nice though it may be, the complications of giving say 1/6th to each of my children whilst leaving the remainder to my wife will cause more problems than enough. Even giving 1/3 to each child with a provision that my wife can live there until her death is, I believe, risky. My understanding is that if any one of our children gets into financial difficulties, then there is the possibility of a forced sale to allow that child access to their share of the funds. Also, I believe that my wife may (will?) have to pay commercial rent to the three children, and that in turn would involve the children in declaring this income to HMRC. In short, I cannot see any easy way of safeguarding the house that does not cause problems.

Any excess money can, at least initially, go to my wife. Depending on how long I may live, then it may be that in later years that monetary gifts may be a good idea and the inevitable consequences wrt IHT could be acceptable. It all depends on how the investments grow.

I'm also aware that the stock market may crash, and that I may need to go into care, both of which will have a drastic effect.

I'm well aware of the need to keep "officialdom" (solicitors, banks, whatever) out of my financial affairs: this is why our three children are our executors.

The hobby equipment isn't actually worth that much. Ideally, I should dispose of some of it, both on the grounds that it is faulty, and that it is obsolete. But whether I do or not, well, that's in the lap of the gods.

Many years ago, just before LPA's were introduced, our then solicitor, an old fashioned family type, recommended setting up EPA's on the grounds, I believe, that the EPA was so much simpler and easier to use than the LPA. I had no reason to doubt his opinion, so that was what we did. Again, our three children are the appointed attorneys.

And finally, I hope that through the above, I have managed to convey that I have indeed thought about my wife after my death. I cannot do anything to prevent her changing her will, but I would hope that good sense would prevail in her widowhood. In any event, she should have, on today's values, an income amounting to about 50% of our current income, over £300K in the bank, plus a paid for house, a four old caravan to sell, and an eight year old car which being a Toyota, may well have a good few more years in it. So in reality, she should be ok financially.

Hope this explains everything.

ten0rman

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Re: IHT Query.

#464507

Postby genou » December 9th, 2021, 1:17 pm

ten0rman wrote:Hi Genou,

The oncologists are happy with what's going on.


Good. Fingers crossed.

ten0rman wrote:The house is actually in my name only..... My understanding is that if any one of our children gets into financial difficulties, then there is the possibility of a forced sale to allow that child access to their share of the funds. Also, I believe that my wife may (will?) have to pay commercial rent to the three children, and that in turn would involve the children in declaring this income to HMRC. In short, I cannot see any easy way of safeguarding the house that does not cause problems.


I think you could use a little paid advice. If you leave the house in trust on the basis that your wife gets to live in until she dies, whereupon it passes to the children, there is no risk of a forced sale during her lifetime. There is no requirement to pay rent, but the trust has to address all the mundane stuff - who is responsible for upkeep of the house, what happens if your wife wants to downsize, and all the other details that have been thrashed out by lawyers over generations of dealing with this situation. I don't believe that you can access your wife's RNRB however you arrange things, short of gifting her a share in the house.

ten0rman wrote:Hope this explains everything.

ten0rman


It does indeed. Best of luck whatever you decide.

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Re: IHT Query.

#464582

Postby modellingman » December 9th, 2021, 5:23 pm

ten0rman wrote:Another consideration is the need to make my probate etc as simple and as easy as possible for our three children. Our eldest who lives 14 miles away, following a nasty accident, is now confined to a wheelchair, whilst our two youngest live 80 & 100 miles away. It will be bad enough for them as it is once they start attempting to put a value on my hobby equipment, but if there are then problems caused by gifts, I doubt that I will be “father of the month”!
ten0rman


I have dealt with 3 estates as an executor (two parents and father-in-law), so the practical things you can do to "make probate, as simple and as easy as possible, etc" based my experience is:

  • make sure your financial records are in good order and that your executors know where to find them - as an executor my biggest concern was always "is there some pot of money/something valuable somewhere which I'm not aware of"
  • if, like my mother, you insist on keeping records of closed accounts, cashed-in products, etc - mark them as such to save your executor chasing institutions that don't need chasing
  • document any gifts you make/have made - particularly significant sums of money - the 7 years for PET's could mean your executors locating and scrutinising 80+ statements per account you have
  • get rid of stuff you no longer want - either you do it now or your kids have the task when your gone or living in a home

I was 120 miles from 2 of the deceased involved. Distance wasn't a problem, but information was.

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Re: IHT Query.

#464607

Postby DrFfybes » December 9th, 2021, 7:18 pm

As modellingman says - Keep it simple.

If you have any old accounts with pennies in them, perhaps old Building Society ones you were hanging on to in case of canversion, close them and move the money. MrsF's parents had 50+ accounts with 17 institutions when we took over under PoA, many with literally pennies in them. My dad had paperwork for lots of closed accounts and transferred pensions.

Putting the house in Trust to your children seems a smart move, your wife continues to benefit until her death but the value stays in the family.

On the subject of IHT, you seem fixated on trying to maximise your NRB, but this merely means more goes to your wife, and IHT could well be due on her death (unless she spends it or gives it to charity/churches!). Providng you are comfortable with what you are leaving your wife, you can leae more to your children now.

If you leave your children (say) £115k each, this just means you are £20k over the Allowance (NRB), so there is 40% tax (£8k) to pay on the excess. This £8k comes from the cash you leave your wife. It complicates probate a bit, but then again so does putting a house in Trust.

And please please get a realistic valuation for your hobby stuff. Not an insurance valuation, something that the executors (or whoever disposes of it) can use to know what is realistic. I remember a friend of dad having a great train set. It eventually went to auction (for charity) when he died and fetched over £200k.

Paul


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