Solutions for Widow’s Right to Remain in Family Home

by Readers Question

9:05 AM, 23rd January 2020
About 9 months ago

Solutions for Widow’s Right to Remain in Family Home

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Solutions for Widow’s Right to Remain in Family Home

I have a very tragic scenario and would welcome any comments.

Background: My elderly mum has been married to her husband, Mr M, for 25 years. As both were on their second marriages and both have children from their first marriages, they have always maintained an element of independence with regards to their assets so as to ensure that their respective children from the first marriages eventually inherit their estates.

Mr M bought the home that they both live in 25 years ago with his own money. Although my mum has paid towards the bills and maintenance it is their wish that the house eventually passes to his children and not my mum’s children (i.e. me), and everyone is in agreement with this.

Sadly, Mr M was diagnosed with an aggressive cancer at Christmas and has just months to live so it has brought into urgent focus their Wills.

On his passing Mr M’s Will provides for my mum to remain in the house for as long as she wants and then when she dies or moves out it passes on to Mr M’s children.

Problem: This above scenario creates am Interest in Possession as my mum will be a Life Tenant. Unfortunately, and frustratingly, this means that the value of Mr M’s house is aggregable to my mum’s estate when she dies and so the IHT is payable by her estate before the house can pass to Mr M’s children. Therefore, I will pay IHT on an asset that neither I nor my mum own in order to pass it to Mr M’s children!

Within the Will we did try to mitigate this by including a clause that any IHT payable by my mum’s estate will be met by Mr M’s beneficiaries, but this still feels ‘clunky’ and is still problematic should my mum choose to move out which then creates a Chargeable Lifetime Transfer!

Solutions: What are the alternatives? Could Mr M gift 1% of the property to my mum now to hold as Tenants in Common which would then allow her to remain in the home? Although his beneficiaries could potentially seek a Court Order to force a sale I would like to think a judge would be able to exercise discretion as a judge would surely not want to make an elderly widow homeless from her home of 25 years to which she has paid to maintain, and that any request would be declined or postponed. Is this a possible solution and do judges have discretion in these matters?

I should make it clear that everyone is very amicable and I do not envisage any problems, but am just trying to cover all scenarios in seeking to balance my mum’s right to stay in her home of the last 25 years without compromising her IHT situation.

Many thanks

Paul


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Comments

Chris Wheelwright

9:52 AM, 23rd January 2020
About 9 months ago

Paul - I am not a family lawyer, but surely a life interest is exactly what it says, an interest for her lifetime. That possesses a value whilst she is living but on her death the right is extinguished and therefore the value must zero.
Or am I missing something ?

DParker

10:01 AM, 23rd January 2020
About 9 months ago

A life interest trust- (trustees need to be appointed) your mum will remain the beneficiary and can enjoy the asset for her lifetime but she does not (and therefore you will not) own the underlying capital because it belongs to Mr M’s children. Upon her death, she can not leave the asset to anyone else (or sell it during her lifetime) because the true beneficial owners are Mr M’s kids. They own the capital. As I understand it, upon her death the capital is then transferred to Mr M’s heirs and thus IHT will need to be paid by them.
Definitely and of course seek advice from IHT solicitors and/or good property accountants.

Jo Ramkissoon

17:28 PM, 23rd January 2020
About 9 months ago

Hello Paul

I have just completed a very similar arrangement and the will is clear in stating the conditions that the remaining partner can remain in the property e.g. until death or moves into a residential home or upon remarrying or moving anyone else in with them.

No issue has been raised about IHT for the family of the resident non-owner, so to speak.

I am assured that this is all legally correct. Would be great to hear if you receive any different legal advice.

Kind regards

Jo

Puzzler

11:51 AM, 26th January 2020
About 9 months ago

From redstonewills.com:
If the life interest is granted to a spouse, the initial gift will not be subject to inheritance tax due to spousal exemption; on the death of the surviving spouse, the Transferable Nil Rate Band allowance can be used up to the current inheritance tax allowance at that particular time and therefore may not be liable for inheritance tax depending on the value of the estate.

You don't pay the tax, your mother's estate does and she is the beneficial owner while she lives there. Whilst this means your legacy may be reduced it's not yours at that point. Will her estate amount to more than £650,000? She could take out an insurance policy. Without knowing more, I think you need a specialist to advise you as it will depend on her other assets.


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