Is there an IPDI?


(DAVID KEYWORTH) #1

I am attempting to deal with Probate in relation to my mother’s estate.
She recently died aged 87, just 11 months after the death of her husband. They married when she was 60. Her husband already owned his own home, which after about 5 years was sold and he bought another home again as the new matrimonial home, but in his sole name. He wrote a will in 2004, the usual nil rate band type which left all his property to his 4 adult children but allowed for his wife to live in the house until she died – see Will wording below. This will was not revisited following 2006 law changes. No IHT was paid on his £650,000 (house £550,000) estate, relying on about 90% unused tax allowance from his first wife, his own £325k allowance and some spousal exemption. My mother was nominated as a joint Executor and Trustee.
My mother’s personal estate is approximately £70,000, the remainder of capital from the sale of her own home in 2000. The whole of his estate passed to my mother (a small semi-detached and heavily mortgaged house, the mortgage being redeemed by a joint mortgage protection policy).
Now we are extremely worried that the full value of her second husband’s estate will be added to her own small estate, because of the possible IPDI and Trust situation under his Will.
My mother knew that he intended to leave his whole estate to his children but felt unable to challenge him during the marriage as by the time the Will was written she was 74 and only in receipt of state retirement pension and a very small occupational pension. She would not have been aware of the implications of the 2006 legal changes. When her second husband died we took legal advice (including Counsel’s opinion) on the implications of her husband’s Will, and decided to challenge it on the basis of inadequate provision. The solicitor advised that a challenge was justified, adding that it was reasonable that my mother would want to pass on her estate and any inheritance to which she is entitled (bearing in mind the divorce fiction etc.) to her children; we children however were particularly concerned about her advancing dementia and the likely costs of imminent residential care. Neither the solicitor nor Counsel mentioned anything about a possible IPDI and the effect of that on her own estate.
In March we had to move her into permanent residential care, although this wasn’t communicated to the other Trustees, as we needed time to remove her belongings etc. , and knowledge of which would have weakened what little negotiating power we had in the challenge.

It would be greatly appreciated if anyone can give an opinion about whether her husband’s estate does need to be added for tax calculation to her own relatively small estate.

Will wording:

Clause 4. “the Trust Fund” means the maximum sum I can bequeath … without incurring a charge for Inheritance at my death … “the Trust Period”… eighty years … “the Accumulation Period” … twenty one years. “the Beneficiaries” … my wife, my said children (4 no.), the children and remoter issue of my said children
I give the Trust Fund to my Trustees who shall hold upon such trusts and with and subject to such powers and provisions for the benefit of any one or more of the Beneficiaries on such terms as my Trustees shall … appoint provided that and appointment may create and provisions and in particular a) discretionary trusts … My Trustees may accept in satisfaction of the Trust Fund or part thereof a promise by my widow to pay money on demand to my Trustees. This promise may include such other terms as my Trustees shall think fit…
My Trustees may charge all or any part of my residuary estate with the payment of all or part of the Trust Fund on demand by my Trustees … and may include ant terms my Trustees think fit …
My Trustees may refrain from calling in the Trust Fund … for as long as they see fit
My wife shall not be a sole Trustee … The provisions of this clause shall not be exercisable so as to give any person an interest in possession in the Trust Fund … My Trustees may pay or apply all or part of the Trust Fund for the advancement or benefit of any Beneficiary
Clause 5. (after funeral/testamentary expenses and taxes) I give the remainder of my real and personal property (my Residuary Estate) to my Trustees to hold the same upon trust to pay the income thereof to my Wife during her lifetime with power to permit her to occupy and enjoy … any property (she paying the outgoings and insurance thereof)
the provisions of TLATA S11(1) (consultation with beneficiaries) shall not apply to the trusts of this Will or to the exercise by my Trustees of any powers or discretions relation to said trusts
Clause 7. (Trustees’ powers in their absolute private discretion) invest any trust monies, allow any beneficiary to occupy any dwelling … upon terms as my Trustees think fit to appropriate any assets to any beneficiary without statutory consents …

DAVID KEYWORTH


(andrew.goodman) #2

No, I don’t think that would create an IPDI in the vast majority of the estate although I suspect you have left out some parts of clause 4 dealing with the default trusts for the discretionary trust - they presumably say that income can be distributed or accumulated during the Accumulation/Trust Period.

HMRC can argue that an interest in possession has been impliedly created by allowing her to remain in the property but it seems very unlikely they could try to argue that the interest was created ab initio, which is necessary to create an IPDI and bring it within her estate.

Andrew Goodman
Osborne Clarke LLP


(Paul Saunders) #3

This looks a fairly standard form in which subject to a nil rate band discretionary trust, the surviving spouse is given a life interest (an Immediate Post Death Interest – IPDI).

Looking at the wording quoted from clause 4, as no inheritance tax liability arose on the husband’s death it seems the whole of the estate will be within the nil rate band discretionary trust.

Unless the executors or trustees exercised any power to grant the widow a life interest, no IPDI will have arisen. If the executors or trustees, however, within 2 years of the husband’s death had exercised any powers to give the widow a right to reside, s.144 Inheritance Tax Act 1984 would have treated this as being backdated to the date of death and an IPDI would then have come into being.

On the information provided, no IPDI should have arisen.

The fact that the widow continued to live in the property for a while after her husband’s death on its own would not give rise to an IPDI.

Paul Saunders