Is Deferred State Pension Lump Sum Income?

[JeffW55]

I have received my deferred state pension lump sum and paid tax at my marginal rate. May I use the residue for making gifts out of surplus income and avoid it counting against my inheritance tax allowance?
TIA, Jeff

[PinkDalek]

I have received my deferred state pension lump sum and paid tax at my marginal rate. May I use the residue for making gifts out of surplus income and avoid it counting against my inheritance tax allowance?
TIA, Jeff

Would the one-off (?) gifts qualify under the conditions listed here?:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231

In particular formed part of the transferor’s normal expenditure (IHTM14241) which leads to:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14241

Which commences:

The dictionary definition of ‘normal’ includes standard, regular, typical, habitual or usual. For the purpose of this exemption, ‘normal’ means normal for the transferor and not for the average person. In most cases, it will be clear whether or not there is a pattern of giving, but it is not always that simple. ...

[Gengulphus]

I have received my deferred state pension lump sum and paid tax at my marginal rate. May I use the residue for making gifts out of surplus income and avoid it counting against my inheritance tax allowance?

Would the one-off (?) gifts qualify under the conditions listed here?:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231

In particular formed part of the transferor’s normal expenditure (IHTM14241) which leads to:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14241

Which commences:

The dictionary definition of ‘normal’ includes standard, regular, typical, habitual or usual. For the purpose of this exemption, ‘normal’ means normal for the transferor and not for the average person. In most cases, it will be clear whether or not there is a pattern of giving, but it is not always that simple. ...

That's prompted a vague memory of having seen something relevant before, and I've chased it down to the following quote from IHTM14243:

You must test the whether a gift is ‘normal’ by considering all the relevant factors. These will include the frequency and amount, the nature of the gifts, the identity of those who received them and the reasons for the gifts.
...
Amount

The amount of the gift is an important factor. The gifts must be comparable in size although you do not need to query small differences. Sometimes, gifts may be made by reference to a source of income that is by its nature variable in amount, for example annual dividends from company shares. Similarly, gifts may relate to specific costs such as grandchildren’s school fees which may also vary in amount.

So a single, isolated, much-larger-than-usual gift seems unlikely to qualify, but that prompts the thought that the deferred state pension lump sum might be used to fund a series of gifts. Chasing that thought further finds the following in IHTM14242:

There is no set time span over which the taxpayer must show the pattern of giving. A reasonable span would normally be three to four years. However, you can consider a longer period if this helps the taxpayer to illustrate the gifts were ‘normal’ (IHTM14243).

and the following in IHTM14250:

You should initially look at the income of the year in which gifts were made to see if there was enough income available to make the gifts, before considering earlier years. Income from earlier years does not retain its character as income indefinitely. At some point it becomes capital but there are no hard and fast rules about when this point is. If there is no evidence to the contrary, we consider that income becomes capital after a period of two years. Evidence to the contrary could impact either way as income:

* may immediately be invested in a capital product and become capital or
* may be retained as income for more than two years with a specific purpose in mind.

The contrast between the "three to four years" time span over which one would normally be expected to show the pattern of giving and the "two years" over which HMRC consider that income becomes capital does put an obstacle in the way of funding the pattern of giving with the pension lump sum, but the final bullet gives a possible way of overcoming that obstacle (assuming that HMRC accepts "funding IHT-exempt gifts" as a suitable "specific purpose", which I'm by no means certain about!). If I wanted to try that approach, though, I would take care (a) to keep the as-yet-not-paid-out part of the lump sum as cash rather than investing it in anything offering a higher return, to avoid the preceding bullet point applying; (b) to clearly document what I was doing and what my intention was in doing it, and ensure that that documentation comes to the attention of my executors, to ensure that they do have "evidence to the contrary"; (c) to do my best to survive for 7 years after making the last gift, so that the whole exercise of making the gifts 'normal expenditure out of income' never needs to be tested by HMRC!

Gengulphus

[Lootman]

(a) to keep the as-yet-not-paid-out part of the lump sum as cash rather than investing it in anything offering a higher return, to avoid the preceding bullet point applying;

(b) to clearly document what I was doing and what my intention was in doing it, and ensure that that documentation comes to the attention of my executors, to ensure that they do have "evidence to the contrary";

(c) to do my best to survive for 7 years after making the last gift, so that the whole exercise of making the gifts 'normal expenditure out of income' never needs to be tested by HMRC!

Regarding point (c), if you have stated that these are gifts from income, which is presumably the case given your point (b), then would the 7 year rule apply to them?

I would have thought that the 7 year rule applies only to gifts from capital. After all gifts from income, if they qualify as such, become IHT exempt immediately. And so if HMRC believe they have a reason to challenge the transfers as qualifying gifts from income, could they not do that after 7 years in any event? Or can you retrospectively reclassify them in some way?

[Gengulphus]

(a) to keep the as-yet-not-paid-out part of the lump sum as cash rather than investing it in anything offering a higher return, to avoid the preceding bullet point applying;

(b) to clearly document what I was doing and what my intention was in doing it, and ensure that that documentation comes to the attention of my executors, to ensure that they do have "evidence to the contrary";

(c) to do my best to survive for 7 years after making the last gift, so that the whole exercise of making the gifts 'normal expenditure out of income' never needs to be tested by HMRC!

Regarding point (c), if you have stated that these are gifts from income, which is presumably the case given your point (b), then would the 7 year rule apply to them?

I would have thought that the 7 year rule applies only to gifts from capital. After all gifts from income, if they qualify as such, become IHT exempt immediately. And so if HMRC believe they have a reason to challenge the transfers as qualifying gifts from income, could they not do that after 7 years in any event? Or can you retrospectively reclassify them in some way?

IHTM14511 contains the rule about potentially exempt transfers (PETs) becoming exempt if the transferor survives for 7 years, and refers to IHTM04057 for the definition of what a PET is. That definition contains nothing about whether the PET is capital or income, apart from mentioning a special case in its link to IHTM04061 of something of a capital nature that is specifically prohibited from being a PET. So no, coming from income does not AFAIAA prevent a gift from being a PET that the 7-year rule can apply to. And if you check out what the Inheritance Tax return pages dealing with gifts ask about, they only ask about gifts made in the 7 years before death and don't ask whether those gifts are made out of income or capital. What they do ask is what exemption (if any) is being claimed for them. If the 'normal expenditure out of income' exemption is claimed for any of them, those pages also ask for details of income and other expenditure in the relevant years - otherwise there's basically nothing about the income/capital distinction.

Point (b) is not about giving HMRC "evidence to the contrary" directly (they won't want it while I'm still alive!), but about making it available to my executors so that if HMRC query the claim for 'normal expenditure out of income' exemption, the executors are in a position to supply the evidence they want. If the gift was made more than 7 years before I die, then (with some exceptions for things like gifts with reservation) the executors won't mention it at all, including not making any claim for 'normal expenditure out of income' or indeed any other type of exemption about it, and so won't need any evidence to back up such a claim. (Note though that that doesn't necessarily mean that all evidence about gifts made more than 7 years before death is unwanted and can be destroyed. For example, if someone makes four gifts of similar amounts at yearly intervals and then dies 6.5 years after making the last of them, the gifts made 9.5, 8.5 and 7.5 years before death are not asked about on the Inheritance Tax form, but evidence of them may still be wanted to establish that the gift made 6.5 years before death was part of a pattern of giving.)

Gengulphus

[bluedonkey]

An often overlooked aspect of IHT is that each donor has an annual exemption of £3,000. So each donor can give away £3,000 each tax year (6 April to 5 April) without this being added to the value of their estate. Any unused annual exemption is carried forward to the next year but only for one year.

A husband and wife couple who had not used their previous year's exemptions could therefore give away £12,000 exempt from IHT.

[JeffW55]

Thank you for the feedback so far; it’s very encouraging.
My background explanation could have been better:
I am aware of the HMRC stuff about surplus income, but I would need a few OU courses to have a chance of understanding.

Both of us have been giving a good deal of our surplus income, as well as our annual £3K exempt gift amounts, to our children since we retired - 7 years ago and 5 years ago.
We have assumed the £3K tax-exempt gift amounts can be funded from capital.
It's my wife who deferred her state pension and it was for 10 years, so it's a very substantial amount that dwarfs her usually variable income.
She has given most of her variable surplus income - from 65% to 85% of the surplus each year - as gifts to the kids.
It appears to me she has established a pattern of giving over 5 years and, I would say, it's a pattern that involved most of her annual surplus income each year.

Surely, it's reasonable that:
- if she had taken her state pension from the start and given it away as surplus income, that would have been completely justifiable.
- if she had taken the deferral as an uplift to her state pension, treatment of her (doubled) state pension as surplus income would have been allowed.

Therefore, if her deferred state pension lump sum (taxed at her marginal rate, as it was) is considered income, shouldn't it be possible to include it in this year's surplus income calculation?

Tours, ignorantly but optimistically …

[JeffW55]

And I should have said: I apologise for wasting your time by not giving a fuller statement of the background.

[Gengulphus]

Thank you for the feedback so far; it’s very encouraging.
My background explanation could have been better:
I am aware of the HMRC stuff about surplus income, but I would need a few OU courses to have a chance of understanding.

Both of us have been giving a good deal of our surplus income, as well as our annual £3K exempt gift amounts, to our children since we retired - 7 years ago and 5 years ago.
We have assumed the £3K tax-exempt gift amounts can be funded from capital.
It's my wife who deferred her state pension and it was for 10 years, so it's a very substantial amount that dwarfs her usually variable income.
She has given most of her variable surplus income - from 65% to 85% of the surplus each year - as gifts to the kids.
It appears to me she has established a pattern of giving over 5 years and, I would say, it's a pattern that involved most of her annual surplus income each year.

Surely, it's reasonable that:
- if she had taken her state pension from the start and given it away as surplus income, that would have been completely justifiable.
- if she had taken the deferral as an uplift to her state pension, treatment of her (doubled) state pension as surplus income would have been allowed.

Therefore, if her deferred state pension lump sum (taxed at her marginal rate, as it was) is considered income, shouldn't it be possible to include it in this year's surplus income calculation?

That sounds reasonable - but I'm afraid sounding reasonable is by no means a guarantee that taxation rules allow it. But even supposing that taxation rules do allow it to be included in this year's surplus income calculation, that only says that the gifts qualify for the 'out of income' aspect of the 'normal out of income' exemption, still leaving the question of whether they qualify for the 'normal' aspect. And that's something I'm very unclear about - basically, if I understand you correctly the size of the proposed gifts is definitely not normal, but how you calculate that size is normal. And it seems to me that the HMRC manual quote:

The amount of the gift is an important factor. The gifts must be comparable in size although you do not need to query small differences. Sometimes, gifts may be made by reference to a source of income that is by its nature variable in amount, for example annual dividends from company shares. Similarly, gifts may relate to specific costs such as grandchildren’s school fees which may also vary in amount.

is rather ambiguous guidance on the issue: the proposed gifts are presumably quite a long way from being "comparable in size" with a normal year's gifts, but the implication of the third sentence is that at least sometimes, it's OK for their size to be determined in a formulaic manner from something about the gift-giver's income that varies from year to year. But that something is variation in the amount of income from a normal source; their income varying because a large one-off source of income appears in one year might be a different matter... In short, your case is in a very grey area of my understanding about 'normal out of income' gifts, so I cannot come to any clear opinion either way on it.

I would also guess that to do much better than that level of uncertainty, you'll need an answer from someone with reasonably extensive experience of actual HMRC practice about such gifts - which probably means employing a suitably specialised tax adviser (who will probably be a member of STEP, the Society of Trust and Estate Practitioners) unless you're lucky enough to find such a person here. Note that even such a person won't be able to give you a totally definitive answer, because it will be tax law and HMRC practice when your wife dies that will determine the answer, and either or both might change between now and then.

Whether it's worth the cost of employing such a tax adviser (I doubt they'll be cheap!) is a matter of how much money is involved and how likely it is that the question will end up being relevant. In particular, if your wife is in a good state of health and should have a good chance of surviving 7 years, it might be worth just making gifts calculated on her normal 65-85% of surplus income basis now, and only employing a specialist tax advisor for advice about whether the exemption can reasonably be claimed if she doesn't survive 7 years. On the other hand, employing a specialist tax advisor now would mean that you could get advice about how to make the gifts now so as to maximise the chances of successfully claim the exemption when the time comes.

If you come to the conclusion that it's best not to employ a specialist tax adviser now, my personal inclination would be to make gifts as suggested in the last paragraph, i.e. calculated on her normal 65%-85% of surplus income and given now, and hope that the whole question of whether they qualify for the 'normal out of income' exemption is rendered moot by her surviving at least another 7 years. There is the possible alternative of spreading the gifts out over three to four years, which probably increases the chance of them being treated as part of a normal pattern of giving - but has the drawbacks of (a) making it less certain that the later gifts will still count as 'out of income'; (b) meaning that she has to survive for around 10 years to render the question of qualifying for the exemption moot rather than just 7. I do emphasise though that that's my personal inclination, probably quite strongly influenced by a personal preference for keeping tax matters as simple as reasonably possible, and not an opinion about which is the better course of action in any objective sense.

Gengulphus

[PinkDalek]

... And if you check out what the Inheritance Tax return pages dealing with gifts ask about, they only ask about gifts made in the 7 years before death and don't ask whether those gifts are made out of income or capital. What they do ask is what exemption (if any) is being claimed for them. If the 'normal expenditure out of income' exemption is claimed for any of them, those pages also ask for details of income and other expenditure in the relevant years - otherwise there's basically nothing about the income/capital distinction.

... For example, if someone makes four gifts of similar amounts at yearly intervals and then dies 6.5 years after making the last of them, the gifts made 9.5, 8.5 and 7.5 years before death are not asked about on the Inheritance Tax form, but evidence of them may still be wanted to establish that the gift made 6.5 years before death was part of a pattern of giving.)

A minor point but HMRC's template table on page 8 entitled Gifts made as part of normal expenditure out of income https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/917890/IHT403-05-20.pdf caters for the last 8 tax years (the last of which is likely to be a partial year) and I've never established if the first column is supposed to be for a full tax year (but I do on my own version of an amended IHT403 fwiiw).

The Guide to completing your Inheritance Tax Account https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/864520/Guide_to_completing_your_Inheritance_Tax_account__IHT400_notes__-_English.pdf includes further instructions on page 22 (yet erroneously refer to page 6!):

Gifts made as part of normal expenditure out of income

The table on page 6 of the IHT403 is a guide to the information you must
provide if you want to show that the regular gifts made by the deceased
formed part of their normal expenditure out of income and were
therefore exempt. ...

etc

[JeffW55]

Thank you.
Crumbs! Quite fascinating and no easy answer.
My wife's family, especially the women's side, do seem to be long lived. Perhaps she'll just 'go for it' before Rishi announces changes.
J

[Gengulphus]

My wife's family, especially the women's side, do seem to be long lived. Perhaps she'll just 'go for it' before Rishi announces changes.

Note that for gifts to individuals, the event which causes Inheritance Tax to be assessed is not in general the giving of the gift, but the death of the person who gave it, so it's the state of Inheritance Tax law at the time of your wife's death that will determine the treatment of gifts she's made, not the state of Inheritance Tax law now - and so the measures needed to avoid being affected by any changes the Chancellor makes to Inheritance Tax law are far too drastic to contemplate!

That said, I think it's pretty unlikely that he'll change Inheritance Tax law to lengthen the 7-year period: checking back over the final 7 years of someone's life for any substantial gifts they have made is already quite a major burden on executors if they haven't been keeping good records of such things, and lengthening the period would make that problem a lot worse, which would doubtless produce a lot of opposition to any such change. And it also seems unlikely to me that it would actually result in the Inheritance Tax take increasing all that much, simply because while it would probably bring a lot of gifts made more than 7 years before death into the Inheritance Tax net, many of them will be beyond the ability of either executors or HMRC to identify due to records no longer existing. It is however possible that he'll change Inheritance Tax law in other ways that could be relevant, of course.

One other point that mention of the burden on executors has reminded me of: one of the problems with relying on the 'normal out of income' exemption is that it does rely on the executor making the claim and being reasonably persistent about it if HMRC question it and ask for evidence. Not making the claim involves the least work for the executor, and while making it but not persisting with it if HMRC question it is more work than that, it's likely to be quite a lot less work than persisting with it. So especially for executors with busy lives of their own, there is a strong temptation either not to make the claim or not persist with it. That's of course not a problem if you act as your wife's executor, but there are various obvious reasons why you might not be able to do so...

Gengulphus

[Lootman]

That said, I think it's pretty unlikely that he'll change Inheritance Tax law to lengthen the 7-year period: checking back over the final 7 years of someone's life for any substantial gifts they have made is already quite a major burden on executors if they haven't been keeping good records of such things, and lengthening the period would make that problem a lot worse, which would doubtless produce a lot of opposition to any such change. And it also seems unlikely to me that it would actually result in the Inheritance Tax take increasing all that much, simply because while it would probably bring a lot of gifts made more than 7 years before death into the Inheritance Tax net, many of them will be beyond the ability of either executors or HMRC to identify due to records no longer existing. It is however possible that he'll change Inheritance Tax law in other ways that could be relevant, of course.

One other point that mention of the burden on executors has reminded me of: one of the problems with relying on the 'normal out of income' exemption is that it does rely on the executor making the claim and being reasonably persistent about it if HMRC question it and ask for evidence. Not making the claim involves the least work for the executor, and while making it but not persisting with it if HMRC question it is more work than that, it's likely to be quite a lot less work than persisting with it. So especially for executors with busy lives of their own, there is a strong temptation either not to make the claim or not persist with it. That's of course not a problem if you act as your wife's executor, but there are various obvious reasons why you might not be able to do so...

Not only might extending the 7 years to more not increase the IHT take very much, it could even reduce it. The key being what you observe, that an executor's job is already quite difficult. If you make it even harder then an executor might just decide to not open a can of worms with gifts at all, and perform only a cursory investigation into them. This would result in fewer gifts being reported and therefore less IHT being collected. And although an executor can be held personally liable for any shortfall there, if it is discovered, in practice the vast majority of probate filings are rubber stamped and processed with only minimal HMRC scrutiny. So unless HMRC also greatly upgrades its investigation of estates submitted for probate, it will not achieve the desired result. Executors are really unpaid agents of HMRC and should not be demotivated.

More generally this task is becoming harder for an executor anyway, given the far greater choice of methods of making gifts now than used to be the case. So for example when I acted as an executor in 1990, it was sufficient to look through 7 years worth of bank statements and cheque book stubs and flick through 7 years worth of statements of the one credit card the deceased had (which fortunately the deceased had retained). Job done.

Now you would have to look for paypal, venmo or cashapp accounts, Scour online shopping portals like Amazon, try and make sense of thousands of contactless or other debit card transactions, let alone speculate about closed credit card accounts, pre-loaded cards, bitcoin accounts and who knows what else. Meanwhile you cannot necessarily rely on the word of the next of kin, since they are probably also the beneficiaries and have a motivation to perhaps "forget" gifts. Clitheroekid recently expressed this well:

If inheritance tax may be an issue it’s also a good idea to place a written note to your executors (and the copy bank statement) with your original Will. This will ensure the executors can ensure the gift is properly recorded when completing the inheritance tax return. A major difficulty for executors who aren’t closely related to the deceased is that they simply don’t know whether any gifts were ever made.

Having said that, it can often be better from a purely financial point of view if executors are not aware of gifts, as declaring them can often create or increase an inheritance tax liability - where ignorance is bliss etc!

https://lemonfool.co.uk/viewtopic.php?f ... 81#p372213

[Clitheroekid]

I've been giving this some further thought, and it occurred to me that it would be an excellent idea for a testator to put a note with his Will saying something like the following:

I, Joseph Bloggs, of Madoff Manor, Anytown, Loamshire, am making this declaration for the benefit of my executors so as to assist them in the administration of my estate in accordance with my Will dated 4 January 2021.

1. I am aware of the rules regarding Potentially Exempt Transfers and the need for my executors to declare any gifts made within the 7 years preceding my death.

2. At the time of making this declaration I have not made any such gifts.

3. Should I make any such gifts in the future I will place a written record of those gifts with my Will, so that if there is no such record at the time of my death my executors may safely assume that I have not made any gifts between now and the date of my death.

Signed ............................ Dated 4 January 2021

If the testator wanted to add more weight he could add a formal statement of truth as paragraph 4, which reads:

4. I believe that the facts stated in this declaration are true. I understand that proceedings for contempt of court may be brought against anyone who makes, or causes to be made, a false statement in a document verified by a statement of truth without an honest belief in its truth.

The effect of a statement of truth is to make the declaration the legal equivalent of sworn evidence.

Of course it's always possible that the declaration may be untrue, but (1) the executors would be entitled to rely on its veracity without any further enquiry (unless there was clear evidence that it was blatantly untrue) thereby saving them a lot of trouble and worry; (2) in the event of a HMRC enquiry it would provide them with an effective defence to a claim that they had not made adequate investigations; and (3) a dead man can't be prosecuted for perjury!

[Lootman]

The effect of a statement of truth is to make the declaration the legal equivalent of sworn evidence.

Of course it's always possible that the declaration may be untrue, but (1) the executors would be entitled to rely on its veracity without any further enquiry (unless there was clear evidence that it was blatantly untrue) thereby saving them a lot of trouble and worry; (2) in the event of a HMRC enquiry it would provide them with an effective defence to a claim that they had not made adequate investigations; and (3) a dead man can't be prosecuted for perjury!

I really like your idea and might do something like that myself.

However I do worry that such a device might be used as an instrument of fraud. Imagine that the will maker creates a document like this, and the document declares no gifts. But now suppose that he secretly makes gifts to a beneficiary anyway. Upon death the following will hold:

1) The deceased cannot be prosecuted for perjury or fraud, as you note.

2) The beneficiary and/or next of kin have no legal obligation to cooperate with an executor anyway, and the executor has no authority to compel them. In fact the gift beneficiary may not be known to the executor.

3) The executor can hold up this document and claim that he did nothing wrong because, as you state, he was "entitled to rely on its veracity without any further enquiry". And so makes no further enquiry.

It almost looks like the perfect crime because none of the parties can be blamed for wrongdoing. Which makes me worry that such a device may be deemed suspect, perhaps.

[Gengulphus]

The effect of a statement of truth is to make the declaration the legal equivalent of sworn evidence.

Of course it's always possible that the declaration may be untrue, but (1) the executors would be entitled to rely on its veracity without any further enquiry (unless there was clear evidence that it was blatantly untrue) thereby saving them a lot of trouble and worry; (2) in the event of a HMRC enquiry it would provide them with an effective defence to a claim that they had not made adequate investigations; and (3) a dead man can't be prosecuted for perjury!

I really like your idea and might do something like that myself.

However I do worry that such a device might be used as an instrument of fraud. Imagine that the will maker creates a document like this, and the document declares no gifts. But now suppose that he secretly makes gifts to a beneficiary anyway. Upon death the following will hold:

1) The deceased cannot be prosecuted for perjury or fraud, as you note.

2) The beneficiary and/or next of kin have no legal obligation to cooperate with an executor anyway, and the executor has no authority to compel them. In fact the gift beneficiary may not be known to the executor.

3) The executor can hold up this document and claim that he did nothing wrong because, as you state, he was "entitled to rely on its veracity without any further enquiry". And so makes no further enquiry.

The executor has other duties besides declaring any gifts the will maker has made in the 7 years before death. One of them is to track down all assets owned by the deceased when he or she died, and part of looking for them is to look for any large sums having disappeared from the deceased's estate and finding out what they were used for - because it might have been to buy an as-yet-untracked-down asset. If it turns out that it went to someone the deceased might reasonably have given a gift to, and no other explanation is forthcoming, then Clitheroekid's exclusion "(unless there was clear evidence that it was blatantly untrue)" is at least close to applying...

Of course, if the fraudulent will maker puts enough effort into it, they can probably conceal the disappearance of a large sum from their estate, and as a second line of defence if that concealment fails, make it very difficult to track down what happened to it. I'm not saying that the fraud you suggest cannot be committed - just that it isn't as simple a matter as just writing a statement of the form Clitheroekid suggests and making the gifts.

Edit: This has drifted quite a way from the thread's topic - it's about the legal use of the 'normal out of income' exemption, not about illegal ways to use statements of truth. So I won't pursue this particular strand of the thread any further.

Gengulphus

[Lootman]

The executor has other duties besides declaring any gifts the will maker has made in the 7 years before death. One of them is to track down all assets owned by the deceased when he or she died, and part of looking for them is to look for any large sums having disappeared from the deceased's estate and finding out what they were used for - because it might have been to buy an as-yet-untracked-down asset. If it turns out that it went to someone the deceased might reasonably have given a gift to, and no other explanation is forthcoming, then Clitheroekid's exclusion "(unless there was clear evidence that it was blatantly untrue)" is at least close to applying...

Of course, if the fraudulent will maker puts enough effort into it, they can probably conceal the disappearance of a large sum from their estate, and as a second line of defence if that concealment fails, make it very difficult to track down what happened to it. I'm not saying that the fraud you suggest cannot be committed - just that it isn't as simple a matter as just writing a statement of the form Clitheroekid suggests and making the gifts.

Yes, I was not suggesting that CK was suggesting that such a document is in any way a passport to successful fraud. Rather that the idea that such a document could confer de facto immunity on an executor seems rather fanciful. As you say, the requirements for an executor to perform due diligence cannot so easily be dismissed.

I would add that an executor's due diligence goes beyond merely looking for "large sums". After all a large number of small sums can easily equal a single large sum. It is more about looking for patterns of unexplained expenditure. But also bear in mind that an executor is required to perform reasonable efforts, but not unreasonable efforts, in detecting such things. Quite where that line is drawn could be debated.

Anyway I like CK's idea because it potentially makes it easier for an executor in an area where executors are likely to otherwise struggle to obtain complete information. It may not remove the need for diligence on the part of an executor, but it does lower the burden.

[Charlottesquare]

The executor has other duties besides declaring any gifts the will maker has made in the 7 years before death. One of them is to track down all assets owned by the deceased when he or she died, and part of looking for them is to look for any large sums having disappeared from the deceased's estate and finding out what they were used for - because it might have been to buy an as-yet-untracked-down asset. If it turns out that it went to someone the deceased might reasonably have given a gift to, and no other explanation is forthcoming, then Clitheroekid's exclusion "(unless there was clear evidence that it was blatantly untrue)" is at least close to applying...

Of course, if the fraudulent will maker puts enough effort into it, they can probably conceal the disappearance of a large sum from their estate, and as a second line of defence if that concealment fails, make it very difficult to track down what happened to it. I'm not saying that the fraud you suggest cannot be committed - just that it isn't as simple a matter as just writing a statement of the form Clitheroekid suggests and making the gifts.

Yes, I was not suggesting that CK was suggesting that such a document is in any way a passport to successful fraud. Rather that the idea that such a document could confer de facto immunity on an executor seems rather fanciful. As you say, the requirements for an executor to perform due diligence cannot so easily be dismissed.

I would add that an executor's due diligence goes beyond merely looking for "large sums". After all a large number of small sums can easily equal a single large sum. It is more about looking for patterns of unexplained expenditure. But also bear in mind that an executor is required to perform reasonable efforts, but not unreasonable efforts, in detecting such things. Quite where that line is drawn could be debated.

Anyway I like CK's idea because it potentially makes it easier for an executor in an area where executors are likely to otherwise struggle to obtain complete information. It may not remove the need for diligence on the part of an executor, but it does lower the burden.

So, it looks like moving bank once a year and keeping no prior account bank statements in the house is the way to go

[Gengulphus]

I would add that an executor's due diligence goes beyond merely looking for "large sums". After all a large number of small sums can easily equal a single large sum. ...

In that case, a large sum has left the estate, hasn't it? I didn't say anything about how it left the estate... But yes, you're right to clarify that both leaving the estate all in one go and leaving it in dribs and drabs are both things that the executor needs to look out for in doing the required due dilligence - and that just how much diligence is due isn't well-defined.

Gengulphus

[Gengulphus]

So, it looks like moving bank once a year and keeping no prior account bank statements in the house is the way to go

Smiley noted, but just in case anyone takes you seriously, for normal transfers from one bank account to another, part of an executor's due diligence is to find out where the money was transferred from, then contact that bank with a copy of the death certificate and ask about the account it came from (among other reasons, to establish whether it still has a balance, and whether the deceased held - and maybe still holds - any other accounts with the bank), including I think asking for copy statements of the account. And if the executor finds that that account was opened a year earlier with a transfer from a third bank, to repeat the exercise, and so on...

So basically, what that exercise is basically create work for one's executor. For lay executors, making the job unnecessarily difficult with such antics is not a nice thing to do to someone who is being asked to do you a final favour - and a cautious lay executor will take care not to 'intermeddle' with the estate (basically by carefully avoiding giving any instructions about it or actually doing anything with it, just gathering information about it) until it's become clear whether it's straightforward enough for them to be able to deal with it, and then decide to decline their appointment as executor if it's going to impose too much work on them. A less cautious lay executor might have already accepted the appointment by 'intermeddling', but can still turn it over to professionals to do all the work, and those professionals will charge more for more work. And of course, if one appoints a professional executor in the first place, they'll also charge more for more work.

In short, what one does by indulging in such antics is potentially getting any lay executor one appoints into trouble if they badly underestimate how much diligence is due from them and/or making the job harder than it need be, both of which are likely to sour their memories of you, and probably leaving a larger-than-necessary slice of one's estate to solicitors and other professionals.

Less usual ways of transferring the money from one bank account to another exist, of course, and some of them make it harder to trace the sources of the money - but that just makes the executor's job harder still, and probably more expensive as well...

Gengulphus