I am dealing with the intestacy of a late Mr M.Mr M died unmarried with no children but with two sisters and a long term girlfriend. Mr M’s estate is worth around £100,000. Mr M’s two sisters (X and Y) are the administrators and two beneficiaries who would receive an estate in equal shares. X and Y gave power of attorney to X’s daughter for the purposes of dealing with the administration of the estate. X’s daughter has stated that X and Y would like to vary Mr M’s estate via a Deed of Variation so that Mr M’s estate gives a £5000 legacy to charity and the residue is split three ways equally between X, Y and Mr M’s long term girlfriend. I then sent a letter out to X, Y and X’s daughter explaining the Deed of Variation and consequences of signing it enclosing a draft Deed. X’s daughter calls me a few days later to say that X has died and therefore no Deed of Variation has been signed.
X’s estate is worth around £6,000 and she has seven children. They are not looking to obtain probate because of the small amount of money that X had. I am however concerned that they may have to still obtain probate so that I can pay out X’s share of Mr M’s estate to her personal representatives.
X’s daughter is still keen to vary the estate of Mr M so that the charities and Mr M’s long term girlfriend can inherit some monies. She was happy to relinquish her share but I am not sure how her other 6 siblings feel about this.
M questions are:
Do I need probate for X’s estate to distribute the estate of the late Mr M to the personal representatives of X?
Is there a way that I can still vary the estate as per X and Y’s initial wishes?
Technically, you do not “need” probate to distribute to X’s estate. However, if you distribute without sight of a grant to X’s estate and someone later obtains a grant, you will be liable to account to them for X’s entitlement and then try and recover the monies from the parties to whom you made the payments. There is also the possibility that by paying directly to those who you consider are entitled to X’s estate, there is insufficient left in the estate to satisfy creditors or any other financial obligations X had committed to and of which you may have no knowledge. Personally, I would want to see a grant to X’s estate before making any distribution.
X’s personal representative(s) would need to be party to the variation for it to be binding on her estate. In addition, HMRC generally expects the beneficiaries also to be party to the variation, to signify their consent to being deprived of benefit (although I consider the wording of s.142 IHTA and s,62(6) TCGA does not require this). If there is to be no grant to X’s estate, then her beneficiaries would all need to be party to the variation, and for the recitals to explain that no grant is being obtained and setting out the understanding that the beneficiaries are, between themselves, the only persons entitled to her estate. If any of the beneficiaries are under a legal incapacity (e.g. lack of mental capacity or a minor) this could derail achieving the intended goal. If there is no grant, my concerns in 1 apply to any distribution made in reliance upon any such variation.
Thank you very much Paul. I agree that the safest way forward is to see a grant and to make sure that all of the beneficiaries of X’s estate consent to varying their inheritance from Mr M’s estate. X’s estate is also an intestacy so her personal representatives will be administrators. Am I right in thinking that there is no problem in the administrators of X’s estate signing the Deed of Variation for Mr M’s estate.?
Unless there is additional IHT to pay as a result of the variation, I do not consider it necessary for the personal representatives (PRs) of M’s estate to be party to the deed (in that capacity). However, if it is appropriate for M’s PRs to join in then, as the sole surviving PR, this would be Y on their own.
I am aware that some draftsmen will include the PRs of the estate, the dispositions of which are being varied, so as to receive notice of the variation, but I am awry of this as if (additional) IHT arises in the estate at any time in the future HMRC may argue that by joining in the deed they have accepted liability for all or part of that tax , citing the provisions of s.142 IHTA 1984.
The administrators of X’s estate would execute the variation only as the beneficiary entitled on M’s death.
In response to Paul Saunders’ point about the PRs of the estate executing a Deed of Variation, if additional IHT would be payable by virtue of the variation then PRs MUST join in the election. If they don’t then the variation will not qualify as an IoV for IHT purposes. This should mean that the estate does not suffer the additional IHT but also the donor beneficiary must then survive his gift by 7 years.
Graham Lindop is correct in situations where the PRs have sufficient assets under their control to pay any additional IHT that might arise by virtue of the variation.
s.142(2A)(b) carries the rider: Personal representatives may decline to make a statement under subsection (2) above only if no, or no sufficient, assets are held by them in that capacity for discharging the additional tax.
Accordingly, if they have no, or insufficient, assets left in the estate to pay the additional IHT, the PRs are not required to be a party to the variation (and I suggest should never be in such circumstances) and, therefore, to the declaration under s.142 IHTA. If they do join in the variation they are effectively confirming to HMRC that they will pay the additional IHT.