Understanding probate (cont'd)

Understanding probate (cont'd)

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Still getting to grips, sorry:

An English domiciled family comprise a husband, a (younger) wife, and a son.

The parents' wills each state
"Should I predecease my spouse by more than 28 days, everything goes to my spouse.  Otherwise everything goes to my son, unless he predeceases me, in which case everything goes to the society for the preservation of the Klingon language."

The parents' assets valued at £1m are all held in joint names.  To keep it simple, there is no residence in the estate.

The parents die simultaneously in a train crash leaving the surviving son and having made no chargeable or potentially exempt transfers in the previous 7 years.

I am confident that by whatever route, the total IhT nil rate band deductible will be 2 x £325K = £650K.  What I am not clear about is whether that all goes on the wife's estate return (together with 100% of their joint assets) or whether everything (assets and nil rate band) get split down the middle.

Option 1:

Husband is deemed to die first by reason of age. His estate passes to his son per the will, because his wife dies within 28 days.  However his estate is £nil because it is all tied up in joint assets and survivorship rules trump wills.  Thus everything goes on wife's return, but since husband has used none of the nil rate band wife gets double.

Option 2:

Half of the joint assets go on husband's return because in practice his share of joint assets pass to son under the terms of the will without transfer to the other joint owner. He gets his own (full) nil rate band to deduct.  Wife likewise.

As I say, same bottom line, but the paper trail differs.  Which is right?

With kind regards

Clint Westwood

Replies (9)

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Portia profile image
By Portia Nina Levin
08th Dec 2016 10:21

We're all obviously going to have to wait for that clever Tim Good and that clever Giles Mooney to answer this one on TaxTV, I think. According to Robert Lovell the rest of us simply are not worthy.

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RLI
By lionofludesch
08th Dec 2016 10:27

That Klingon language thing suggests there might be insanity invalidating the wills.

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Replying to lionofludesch:
Portia profile image
By Portia Nina Levin
08th Dec 2016 10:32

Mr Literal's turned up!

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Replying to Portia Nina Levin:
RLI
By lionofludesch
08th Dec 2016 10:44

[chuckle]

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Portia profile image
By Portia Nina Levin
08th Dec 2016 10:38

Oh sod it, let Tim and Giles plagiarise.

Forget all this "this is actually a question about probate" b*llocks. This is a question about IHT.

The effectof of IHTA 1984 of section 4(2), and the only effect, is that for the purposes of working out what passes to whom, we deem (contrary to the assumption in law referred to below) both spouses to have died simultaneously.

That means that both spouses estates are assumed to pass to the son for IHT purposes.

For the purposes of the nil rate bands, we go with the normal legal assumption (in England) that the eldests spouse dies first. Thus the eldest spouse's unused proportion of their nil rate band then goes to the youngest spouse.

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Out of my mind
By runningmate
08th Dec 2016 10:41

The Klingons take everything & pay no taxes. That's Klingons for you!
RM

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By gbuckell
08th Dec 2016 11:08

Option 3
Agree with Portia's comments but I believe there is an extra twist! In practical terms
1. Half the assets go on the husband's return - the survivorship rule does not trump IHT rules.
2. Survivorship means everything goes to the wife leaving nothing for the son.
so no IHT by reason of spouse exemption.
3. Only half of the assets go on the wife's return as the assets inherited from her husband were not in her estate immediately before death [IHTA 1984 s4(1)]
4. Therefore no IHT as estate below two nil rate bands.
Moral of the story - reconsider any survivorship clauses in wills - at minimum remove them in cases where death is simultaneous.

Mor

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Replying to gbuckell:
avatar
By nogammonsinanundoubledgame
09th Dec 2016 06:49

gbuckell wrote:

Option 3
Agree with Portia's comments but I believe there is an extra twist! In practical terms
1. Half the assets go on the husband's return - the survivorship rule does not trump IHT rules.
2. Survivorship means everything goes to the wife leaving nothing for the son.
so no IHT by reason of spouse exemption.
3. Only half of the assets go on the wife's return as the assets inherited from her husband were not in her estate immediately before death [IHTA 1984 s4(1)]
4. Therefore no IHT as estate below two nil rate bands.
Moral of the story - reconsider any survivorship clauses in wills - at minimum remove them in cases where death is simultaneous.

Mor


Thanks, but having difficulty reconciling the moral of the story in your final sentence with the preceding paragraphs. Given that overall the two nil rate bands are preserved, how can that result be improved upon by removing survivorship clauses in the event of simultaneous death? Sorry if being dense. Maybe it is a misunderstanding of the definition of "survivorship clause".

With kind regards

Clint Westwood

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By gbuckell
09th Dec 2016 10:22

Apologies for not making it clearer. In this particular situation, i.e. assets held jointly and so disregarding the terms of the will, no problem was caused. My point is that the will was badly drafted by not allowing for the possibility of simultaneous death.

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