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The Life of Brian Riley, Epilogue

1. Brian and Judith should really have taken steps to divest themselves of some of their estate much earlier than this, by equalising the amounts held between them.Although Brian's death does not in itself cause an IHT problem (transfers between spouses being exempt) it has exacerbated the prospective IHT liability on Judith's death.Brian and Judith could also have taken steps to reduce their prospective IHT liability by divesting themselves of some of their estate and taking advantage of the annual IHT exemption/potentially exempt transfer provisions.

2. As mentioned above transfers between spouses are exempt, so there is no IHT liability in this situation.As a minimum it would have been (and still is) possible to use the nil rate band allowance of £263,000 (2004/05) by passing this to beneficiaries other than Judith and ensuring that the allowance is not lost completely.

3. As Judith is the only beneficiary of Brian's estate she may decide to make use of a Deed of Variation. If completed within two years of Brian's death, this will allow (at least a portion of) the estate to be passed to the grandchildren as if Judith had not been the only beneficiary. This procedure avoids a double IHT charge having to be paid before the grandchildren would receive any benefit (40% makes a significant inroad into any balance!) Her current condition places some urgency on taking some sort of action. The question of how much of Brian's estate Judith needs to retain is important to consider. Whilst her age and condition may mean that she does not live an active lifestyle, the family will wish to ensure that she's well cared for and that her remaining time comfortable.Judith may decide to retain, say, a further £300,000 to cover these aspects. This amount would not be chargeable to IHT. The remaining balance of £1,500,000 would be taxable on the excess over £263,000, leaving a tax bill of £494,8000 and the balance of £1,005,200 million to the grandchildren.Alternatively, if the cancer were to enter remission, Judith may decide to keep a greater portion and divest herself of her extra estate gradually, although this action will not necessarily reduce the overall IHT liability unless she survives for more than three years after the gift (preferably seven years to be fully exempt). Quick succession relief may however help reduce any liability if Judith were to die within a short time of Brian's death. Given her current condition this is likely.

4. Clearly, as the grandchildren are all below the age of 18, they will not be able to look after their inheritance individually and a trust should be set up.

   It may be that the trustees decide to pay each grandchild's portion out when they reach age 18 or some time later.

   Regarding the appointment of trustees to deal with the trust, there are a number of considerations to be taken into account:

   1. Judith is in poor heath and in need of constant medical care.

   2. The family does not trust Bruce.

   3. There will be signatory problems if Phylis is appointed as Trustee.

   4. What will happen if any more grandchildren are subsequently born?

   Concerning points i. and ii. Clearly they should not be trustees. The logistical problems mentioned in iii. above may be overcome if either Phylis is willing to let say Steven and Andrew be trustees or perhaps the family solicitor acts as a trustee (assuming costs are not prohibitive). This will ensure that all the beneficiaries are represented and acts as a safeguard to ensure that the trustees act fairly and responsibly (which they are obliged to do anyway).

   Point iv. is a tricky area but if all were agreed that future grandchildren should be provided for, it may be that no capital is paid out, immediately the trustees using their discretion to provide for education/maintenance as appropriate.

   The situation outlined does depend on Judith consenting to the deed of variation, and the proposed way forward as regards the grandchildren.

REMEMBER You should not use any information contained on this page as the basis of any action until you have discussed matters with your financial adviser.