Diva Shah answers a question in Moneywise: can an estate go direct to the children to avoid Inheritance Tax?

10 June 2020

Diva Shah, associate in our private client team, writes in Moneywise answering the question of can an estate go direct to the children to avoid IHT.

The reader's brother in law had just passed away leaving their wife and her second brother as the closest relatives. The brother-in-law made no will and the estate was below the threshold for Inheritance Tax. The siblings had applied for a letter of probate and the reader would like to know if this is granted, are they automatically both beneficiaries of the estate or can they appoint their children as beneficiaries instead? Doing so, thus preventing any possible future liability for Inheritance Tax should they inherit and pass the money on as a gift.

Diva comments that:

Since your brother-in-law passed without a will, he is intestate. Intestacy rules set out who can apply to administer the estate and obtain the letters of administration (the grant of probate). There is a specific order of who can apply; spouse, children, parents, siblings, half brothers / sisters, grandparents, aunts/uncles and half-aunts/uncles. The intestacy rules set out how the estate is to be distributed which will depend on whether the deceased passed with  spouse and children or without a spouse. In this situation your wife and her brother would automatically be considered as beneficiaries of the estate and would inherit in equal shares. Therefore, they are both administrators and beneficiaries.

It is possible for them to rearrange the way the estate is shared out, by a deed of variation, provided this is done within two years of the death and meets the other necessary requirements. A deed of variation can be effective to redirect the benefit down a generation to children.

Diva then explains the deed of variation must be made by the beneficiaries who are giving up that benefit and it must contain a statement of intent and the correct tax declarations in relation to inheritance tax and capital gain tax.

This article was first featured in May's 2020 issue of Moneywise. 

Further information

For more information on the issues raised in this news piece, please contact a member of our private client team.

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