IHT - Nil Rate Bands Abuse?

[JonE]

Mr E and his spouse were both always resident and domiciled in England with their properties held as joint beneficial tenants. He leaves all of his million-quid estate to his spouse in his Will and predeceased her (and their adult daughter who is their only offspring) in 2022.

As sole beneficiary Mrs E provides the executor with a timely letter of variation which redirects funds to Ms E up to the maximum level permitted without any IHT becoming payable. Since the original 'nil' IHT computation is undisturbed the executor does not notify HMRC of this valid instrument.

If Mrs E dies within a few years and leaves her sub-£2M estate to Ms E in her Will then is her executor (not the same party as Mr E's executor and having zero knowledge of family history) exposed to the risk of making false nil-rate claims?

If Ms E is uncommunicative and unhelpful then how would the executor of the widow's estate calculate the IHT payable? Mr E's Will shows she inherited all of Mr E's estate (although some part never actually formed part of her own estate and wasn't distributed to her) so I wonder what NRB and RNRB claims would - and/or should - be made by her executor. What mechanisms exist to prevent any unintentional over-claim?

Cheers!

[Lootman]

I cannot answer the specific question with precision but I have two thoughts that are related:

1) A DofV that is undisclosed, undocumented or otherwise done on the down low is not dissimilar to an undocumented gift made whilst alive, which has the effect of reducing the taxable estate, but which again is kept private. In both cases an Executor is unlikely to learn about it, the result being less tax paid and potentially a personal liability arising if it later comes to light. How serious that discovery would be might depend on whether this was a genuine accident or omission, or whether there was some kind of conspiracy to defraud behind it.

2)

If Ms E is uncommunicative and unhelpful then how would the executor of the widow's estate calculate the IHT payable?

One thing that struck me when acting as an Executor for someone not personally known to me was that I was 100% reliant on the next of kin and beneficiaries being cooperative and honest. I am personally liable without really having any powers of discovery, compulsion or investigation that enable me to see the whole picture.

Of course I can always renounce if suspicious, but that would not change the underlying situation. If the beneficiary is also the Executor then that is another potential problem in situations like this, although perhaps such probates are looked at more closely.

[didds]

which rather begs the question to a layman like me, why would you ever take on the role of executor for a will where the deceased and family etc are not known to you at all. You seem to be totally exposed to any lies/misinformation which you have no way of ascertaining the honesty of. ?

[Lootman]

which rather begs the question to a layman like me, why would you ever take on the role of executor for a will where the deceased and family etc are not known to you at all. You seem to be totally exposed to any lies/misinformation which you have no way of ascertaining the honesty of. ?

Good question. This was my wife's uncle, although I had never met him and my wife had not seen him for many years. The alternative was to use a solicitor but that would have proven to be expensive and my wife was the beneficiary. The estate was messy but I didn't feel there was anything dodgy about it so was willing to take the risk. I also kept hold of the assets for a long time, in case something arose later.

I would not hesitate to renounce the role now, if either there were substantial debts and liabilities, or if I felt that people were trying to deceive me. Risk without either power or gain is not a good deal.

[JonE]

A DofV that is undisclosed, undocumented or otherwise done on the down low is not dissimilar to an undocumented gift made whilst alive, which has the effect of reducing the taxable estate, but which again is kept private. In both cases an Executor is unlikely to learn about it, the result being less tax paid and potentially a personal liability arising if it later comes to light. How serious that discovery would be might depend on whether this was a genuine accident or omission, or whether there was some kind of conspiracy to defraud behind it.

A DoV does not need to be notified to HMRC if it has no effect on the IHT payable. It would be documented so Mr E's executor can act on it but there is no implication that it is 'done on the down low'. It is perfectly legitimate and I wouldn't be raising the matter if it wasn't.

However, it's not obvious to me how Mrs E's executor (let's assume it's a solicitor) would acquire knowledge of it if a copy isn't among Mrs E's records and a grieving Ms. E doesn't volunteer the information (perhaps not even realising that it has any relevance as that inheritance was from her father's estate which is all done & dusted). Given that the IHT calculation takes place before the application for Probate then I guess it's possible that Ms E might be asked about gifts inter vivos from Mrs E (despite there being no trace of such in the banking and similar records available to the executor) but I'm not sure that asking potential beneficiaries about inheritances received from other estates (Mr E's) would be normal conduct.

Cheers!

[scrumpyjack]

I'm not sure I understand the question here. A DOV in effect replaces the Will so the £325k was in effect left to the daughter by the deceased and is not a gift from the surviving spouse.

[JonE]

I'm not sure I understand the question here. A DOV in effect replaces the Will so the £325k was in effect left to the daughter by the deceased and is not a gift from the surviving spouse.

Exactly so. But the variation requires the utilisation of the whole of the NRB and still gives a nil IHT liability on Mr E's estate. However MrsE's executor may not become aware of the variation so, since the public record of Mr E's Will shows no usage of NRBs, could include 100% of Mr E's NRB (and RNRB) when calculating the IHT on Mrs E's estate - unless there's some mechanism that I haven't twigged.

Cheers!

[stevensfo]

which rather begs the question to a layman like me, why would you ever take on the role of executor for a will where the deceased and family etc are not known to you at all. You seem to be totally exposed to any lies/misinformation which you have no way of ascertaining the honesty of. ?

Good question. This was my wife's uncle, although I had never met him and my wife had not seen him for many years. The alternative was to use a solicitor but that would have proven to be expensive and my wife was the beneficiary. The estate was messy but I didn't feel there was anything dodgy about it so was willing to take the risk. I also kept hold of the assets for a long time, in case something arose later.

I would not hesitate to renounce the role now, if either there were substantial debts and liabilities, or if I felt that people were trying to deceive me. Risk without either power or gain is not a good deal.

One thing that struck me when acting as an Executor for someone not personally known to me was that I was 100% reliant on the next of kin and beneficiaries being cooperative and honest. I am personally liable without really having any powers of discovery, compulsion or investigation that enable me to see the whole picture.

I don't know how the courts work in such cases, but would one solution be to have every relative simply confirm any information in writing, either by email, or just confirming an email from you, summing up what you've been told.

That would surely put you in the clear were the smelly stuff to hit the fan somewhere down the line, when it's discovered that Auntie Mabel knew that the so-called painting-by-numbers Van Gogh had been genuine all the time?

Steve

[didds]

that would certainly hopefully CYA.

but there is still the thought of why put yourself in a position whereby you might end up having to have all those written, signed "affidavits" (in effect) to prove yourself "not guilty" ? Far easier to just not do the executing-thing in the first place

didds

[JonE]

As sole beneficiary Mrs E provides the executor with a timely letter of variation which redirects funds to Ms E up to the maximum level permitted without any IHT becoming payable. Since the original 'nil' IHT computation is undisturbed the executor does not notify HMRC of this valid instrument.

If Mrs E dies within a few years and leaves her sub-£2M estate to Ms E in her Will then is her executor (not the same party as Mr E's executor and having zero knowledge of family history) exposed to the risk of making false nil-rate claims?

So... reverting to the main question for the last time...

Is there any mechanism by which Mrs E's (professional) executor can or should be aware of the NRB having been (in effect) used by the variation on Mr E's estate such that his full NRBs are not 100% available to the estate of his spouse.

I can't see what would, in practice, trigger exhaustive investigations by the executor that would determine this and suspect that this is a circumstance that could fall through the cracks.

If it helps us to concentrate on the practical aspects of the general case, we could assume that the third party in whose favour the variation to Mr E's Will was made is wholly unconnected with, and unknown to, the sole beneficiary of Mrs E's estate.

Cheers!

[Lootman]

As sole beneficiary Mrs E provides the executor with a timely letter of variation which redirects funds to Ms E up to the maximum level permitted without any IHT becoming payable. Since the original 'nil' IHT computation is undisturbed the executor does not notify HMRC of this valid instrument.

If Mrs E dies within a few years and leaves her sub-£2M estate to Ms E in her Will then is her executor (not the same party as Mr E's executor and having zero knowledge of family history) exposed to the risk of making false nil-rate claims?

So... reverting to the main question for the last time...

Is there any mechanism by which Mrs E's (professional) executor can or should be aware of the NRB having been (in effect) used by the variation on Mr E's estate such that his full NRBs are not 100% available to the estate of his spouse.

I can't see what would, in practice, trigger exhaustive investigations by the executor that would determine this and suspect that this is a circumstance that could fall through the cracks.

If it helps us to concentrate on the practical aspects of the general case, we could assume that the third party in whose favour the variation to Mr E's Will was made is wholly unconnected with, and unknown to, the sole beneficiary of Mrs E's estate.

Based on the answers so far it would indeed appear that this is an example of a case that "could fall through the cracks". Executors often have to work with incomplete information.

This situation could arise completely by accident, so your use of the word "abuse" seems inappropriate. However it is possible that Mr E could set out to engineer this situation, say by having different executors and beneficiaries to Mrs E. And instructing someone to perform a DofV. That might almost be the perfect crime since nobody (alive) has to lie or mislead. It simply relies on the fact that some things are very hard to discover during probate.