Help Please Re Poa And Inheritance Tax

[lady-janine]

my OH has POA over his sister's estate (she still has mental capacity) and is also executor of her will. checking the possible total sum of her estate would seem to entail inheritance tax. is it possible for her to gift him the total sum allowable under law each year without it affecting the POA and inheritance tax? Could she also gift some to me? OH and i are not married and have different surnames.

[factor-fiction]

I don't see why there would be a problem with gifting money to whoever she wants

[lady-janine]

thanks ff but we are questioning the POA ability and receiving gifted money.

[factor-fiction]

Sorry, but i'm not understanding what the concern is. Your OH's sister has mental capacity and can gift money to anyone she wants. Are you thinking that she may not be allowed to gift money to an executor or someone who has been given POA for when it might be needed later?

[FredPuli43]

She has mental capacity. The POA is entirely irrelevant. The executorship is entirely irrelevant. She can give whatever she likes to whomsoever she likes, but has to be mindful of limits and rules if she wishes to have no effect on subsequent inheritance tax liability.There's no rule against such gifts to an executor or attorney. A person with power of attorney who uses it to give himself money which the donor would never have given is another matter, but that doesn't arise here.

It is,in any case, perfectly natural for a donor to give to someone she likes; just the kind of person she would choose as executor or attorney! And she may give some to you,or to anyone, as well.

[lady-janine]

yes that's it. OH is concerned that as he has POA and is an excutor can he be gifted money from her?

also she needs to lower her financial assests or he will have to pay considerable inheritance tax. is there a way - legally - this can be reduced?

[lady-janine]

Thanks fred. that clears some things up. she has mental capacity and could quite easily deal with everything herself but has just decided to retreat from the world and prefers that he sees to everything.

[factor-fiction]

The impact of Inheritance Tax is often not as great as people fear. I'm sure you know this but the threshold is something like £325000. (If the person is widowed the deceased's allowance can be carried over, doubling it to £650000.)
If the estate is valued at £400000 then IHT is only levied (at 40%) on the bit over £325000, ie the tax payable is 40% of £75000= £30000.
So the net value of the estate will fall from £400000 to £370000.
If that is shared between, say, 4 people it means they get £92500 rather than the hoped for £100,000 - but it's still a substantial amount.

[factor-fiction]

>"he will have to pay considerable inheritance tax. "

It's the Estate (the deceased) that pays it, although I accept it means the net amount left for beneficiaries will be less than they might have got if IHT had been avoided

[buildersmate]

I guess you are aware that gifting money doesn't result in the full reduction of the gifts for IHT purposes until 7 years after the date of the gift? There is a sliding scale reduction in the proportion that the gift adds back into IHT until the full 7 years are up.

I appreciate that this is not the thrust of your main question, but it seems relevant.

[lady-janine]

she never married and he is the sole inheritor.

[factor-fiction]

Thanks lady-janine. So what is the expected approximate value of the estate?
Of course all these plans for IHT planning sometimes go awry either because unforeseen care home costs are incurred, the beneficiaries die first or the person dies within the 7 year period.

[lady-janine]

don't know the full value of her estate but realise that it is liable for IHT. we were mainly concerned about OH being able to receive a gift and also being sole executor and having POA. many thanks for all your answers. will be in touch if i think of anything else.

[FredPuli43]

She wants things done but can't be bothered with the paperwork or the general faff of doing it herself? Then she can appoint anyone her agent, simply by writing and signing a document saying that they are that for the purpose in hand, but a power of attorney is generally required if the transaction involves land.

. If the present POA is dependent on her being no longer of mental capacity before it becomes operative, then she'll have to make a specific power of attorney while she has capacity now, empowering the attorney (the person named) to act, in her stead, in whatever way she authorises.

Reducing liability to inheritance tax is a big area of study. Simplest is giving the estate away, thereby reducing what's left to below the limit for IHT, whilst ensuring the testator retains no interest in, or benefit from, what's given, and then for the testator to live 7 years. Other ways are buy or have a farm which the testator actively farms for a sufficient period to death (that is directs; being an absentee who leaves everything to contractors won't do) and have a trading business company which the testator controls and passes on in the will. Farms and their farmhouses and trading businesses attract 100 per cent relief against IHT

[lady-janine]

thanks fred that is really helpful. unfortunately i don't think she has enough to buy a farm. the estate is somewhere just below half M.

[factor-fiction]

There may be some scope for some charitable giving as well which might have some tax advantages

[tonywiltshire]

My agreement is with Fred the POA is irrelevant and the sister of your partner can give money to anyone she pleases, try to ensure you and your partner leave a will reflecting your wishes and that the survivor knows the location of the will and remember a divorce, marriage or civil partnership made or declared void after the date of your will may render your existing will automatically cancelled.
It may be wise for your partner’s sister to consult a solicitor to make sure steps are taken in her lifetime to ensure the best disposition of her estate.