I have been instructed to apply for letters of administration where the deceased died in 2004 intestate and the estate has not been administered. The deceased was survived by a spouse and adult children all of whom are still alive.
I am trying to establish whether the residuary estate will be mostly absorbed by the statutory legacy payable to the surviving spouse. Both Tristram & Cootes and Practical Law suggest that to determine this, the value of the estate at the date of payment or appropriation should be used as opposed to the value at the date of death. I have not, however, been able to find any legislative authority or case law to support this position.
In 2004 the value of the estate marginally exceeded the £125,000 statutory legacy so the children would have received a relatively small interest in the estate.
Due to a significant increase in property values the estate now exceeds £450,000. If the 2004 intestacy rules must be applied to the current values, the spouse will receive a much smaller share of the estate simply because they delayed administering the estate. This seems quite a harsh punishment for their delay.
I would be grateful if anyone can provide a source to justify the position outlined in Tristram & Cootes (31st ed p280) or clarification as to why this treatment is correct.
Oh dear – what a mess! Yes it does seem unfair to apply current valuation against historic statutory legacy value but I agree with Paul Saunders that that is what must be done. The estate would have been held on statutory trust for sale and, following a sale, the proceeds distributed in accordance with the entitlements under intestacy rules. Had this been done timeously, the costs of the sale may well have reduced the value of the estate below the value of the statutory legacy and the widow would only have received the available amount. Of course, that did not happen and you are now forced to look at the current value. Interest on the statutory legacy will reduce the problem but I doubt if it will eliminate it.
Because this is an intestacy, no-one has the authority to assent to the vesting of the property in the names of beneficiaries until after the administrators have been appointed by the granting of letters of administration.
You will also have to consider Capital Gains Tax because the shares of the property now being acquired by the widow and the children will be acquired at the historic Probate value. Private Residence Relief may help but it is difficult to see how the widow is occupying the shares of the children as a beneficiary
I appreciate that after all this time a deed of variation would have no varying effect for taxation, but if the children are in agreement could a deed be entered into which would redirect a small portion of the estate – say £10 / £100 to a different beneficiary. This would of course be a PET by the varying party but if it was of a small amount it shouldn’t be a large risk. The deed could then also be used to introduce additional admin powers for the administrator – perhaps including the addition of an express power to appropriate assets at probate value?
You don’t say anywhere that there is a dispute between the parties, but of course if there is then this option wouldn’t be available.
I’d be interested to hear if others consider that this wouldn’t be possible.
Unfortunately, if the intention is divert assets to the spouse, I do not see how the propose variation is any more helpful than a direct gift.
After all, if I grant someone (the administrator) the power to deal with my assets, and they use that power to give those assets to a third party, is HMRC really going to accept that no PET was made? And if the exercise of the administrator’s powers is going to be a PET anyway, why not just make a normal gift?
Whilst the STEP provisions can enable the distribution of assets at
"probate" value, HMRC has given notice that it considers such an action
potentially to create a transfer of value between the beneficiaries
involved.
Where introduced as suggested, I suspect HMRC would challenge it’s use.
However, has the delay been beneficial? Only a small part of the
husband’s NRB will have been used, and as the property value increases,
the children receive a greater share of the estate effectively IHT free,
whilst much of their father’s TNRB remains intact for use on the widow’s
death.
Admittedly, a different scenario arises is the widow is not the mother
of his children and/or there is animosity between the parties.
It seems that this would still be at risk of being a PET by the children, so no worse than using a straightforward gift for IHT purposes, but would the variation and appropriation resolve the CGT liability issue?
I would not have thought so. Once again, you are simply appointing an agent to make a disposal of your assets that, if you were to make the disposal yourself, would clearly be taxable.
I do not think that empowering someone else to the dirty work, and then pretending to be shocked by their exercise of that power, will be a particularly compelling defence in the eyes of HMRC! Hyperbole, of course, but very much how I suspect HMRC would view it.
You may also need to consider the Income Tax position of the spouse when she receives the interest on the statutory legacy. If I remember correctly the interest rate was 6% until a few years ago so the interest figure could be sizeable as could the resulting tax liability. If the interest is settled by a further share in the property where will the tax be paid from?
I know this has been discussed before and looking at a previous thread NatWest were supposed to be a good source of help. However, a call to them today revealed that they only consider IHT loans where the deceased was a customer. Do any Forum members have any recent experience of anyone who makes loans to estates where the deceased had no connection with them?
I understand that HMRC do, in very limited circumstances, consider a “credit grant” where they will issue IHT421 without any tax being paid on the basis of a signed undertaking to pay from the executors. This will only be considered where proof can be shown that all possible avenues for borrowing have been explored without success.
I am grateful to forum members for their thoughts on this question.
Since the original post, submitted during the forum summer hiatus, we have found the case of Robinson v Collins [1975] 1 WLR 309 which confirms that valuation is at the point of appropriation and not the date of death. The case applied Re Charteris as referred to in Paul Saunders’ response.
There does not seem to be a dispute between the widower and his children (yet) but the tax issues resulting from the delay are going to cause quite a headache, hence the original request for a case or authority to confirm why the estate has to be administered in this way.