I think that this can be seen as analogous to the position of one of two joint tenants. Whilst alive, he has a chance of receiving the other joint tenant’s share; at the moment immediately before
his death the chance evaporates. His estate is deemed for IHT to include the share he had immediately before his death, but the value of the chance to acquire the other has gone.
If that is correct, the value of your deceased client’s interest would be nil
The other possibility which occurs to me is that the agreement, if made before March 2006, might have created a settlement under which your late client had a life interest, which would result in
the capital being part of the death estate. Sec 43 IHTA gives the definition of a settlement for IHT (note that it is different for CGT and Income tax) which requires a ‘disposition’ of property, so a mere agreement would not I think qualify.
An inter vivos settlement made after March 2006 could not have this effect.