My mother has been left living alone in her 300K house after her husband died recently. She has been advised to give it to her 3 sons (me being one). I presume to escape death duties. Is this a good idea? I confess to knowing nothing about the systems involved: I have never been involved with house owning or mortgages before. Could anyone advise on the pros and cons in simple terms or to point me towards the best websites to read about it. The papers are to be signed this week so I need to find out what I'm letting myself in for.
Before signing anything - check whether a Deed of Family Arrangement (assuming he died less than 2 years ago) may be beneficial for IHT purposes. Otherwise it could be a PET (Potentially Exempt Transfer), and she needs to survive for 7 years it to be fully exempt. You will need to charge her a market rent too, otherwise the gift with reservation rules could apply.
And, depending on her health, the house might still be considered an asset for nursing home fees by the local council.
Has not the solicitor explained all this to you and your mother?
Thanks for the information - one of my other brothers and mother have been dealing with the solicitor (and he had the impression that he was rather old and doddery and posiibly inebriated ). But he is going to get a lawyer friend to look over it anyway. They did mention about the 7 year rule (she seems quite fit and healthy at the moment (76 years and a family history of
90+)), but not about the rent having to be paid: I'll ask about that. I dont know what IHT is I'm afraid. Is there a useful website that describes all this?
OK. Arrange a deed of variation for his will and arrange for the joint tenancy of the house to be severed. The new will should leave a sum equivalent to the nil rate band for inheritance tax to a trust, the beneficiaries of which are yourself and siblings, whilst also leaving his share of the house to his wife. The will empowers the trustees to accept an IOU for a sum up to the nil rate band instead of his share of the house. It is important that his share of the house does not go to her via the trust. If we ignore the investments then the trust would hold an IOU from your mother for £150k and she would own the house outright but would have an unsecured debt to the trust for £150k. When she dies her net estate (after payment of the IOU) would be £150 and so no Inheritance Tax would be payable by either of their estates. As it stands at the moment, when she dies there will be Inheritance Tax payable on (300k-263k) x 40%. When she dies the IOU is paid to the trust and the dosh then comes to you, and her estate also comes to you.
Passing ownership to other people is fraught with danger. What happens if one of the new owners dies, gets divorced or goes bankrupt? (For e.g.)
If she is doing it to avoid Nursing Home fees then she shouldnt so it either. This would be the rainy day she and her deceased husband have been saving for and the house value will enable her to stay in a decent home, not a smelly council funded one.
Surely it's too late for that. You can't sever a JT posthumously, can you? If the house was owned under JT, the notional half has already passed on death, and *not* by will.
The 7 year rule also applies to any help the Benefits agency ( now the Department for work and Pensions ) might award to help towards nursing home costs. Usually assesments are done between them and the council and both look carefully at assets. However depending on how ill a pensioner is recent court cases suggest some nhs trusts should be funding more nursing costs in homes. Interesting article about this issue in this months "which" mag. My mum is looking into a suggestion from her solicitor to put some of the value of their property into trust for myself and my sister not sure of the exact details perhaps someone on her knows more about this sort of option? ali
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