Deed of Variation - Beneficiary died

I am having a blank moment and would be appreciative of some help.

I am dealing with the estate of a lady who died in December. She left just over the IHT threshold so IHT of a small amount paid. Her entire estate passes to her elderly sister. That sister died in February.

The Executors of the first estate are two of four nephews. The Executors of the second estate are the other two brothers. They are also the beneficiaries of the second estate.

The second estate is over the double IHT limit that the sister has so tax will be due. If the first estate could be re-directed to the nephews, no IHT will be payable. But as the sister has died, is this still even a possibility?

Jaki Fairbrother
Fairbrother & Darlow

Yes, Jaki, the variation can and should be done, by the second sister-to-die’s executors, with all of the beneficiaries of the second sister’s residuary estate preferably joining in (and s. 142 being applied!).

Thomas Dumont
Radcliffe Chambers

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Following on from Tom Dumont’s answer we have estates of two elderly spinsters who died last May and a few weeks ago. First sister after leaving a number of cash legacies and her half share of the jointly owned house on discretionary trusts left the residue of her estate to her sister for life remainder to 10 national charities. Second sister has left all the residue of her estate to the same 10 charities. We are the executors of both wills. Can we do a deed of variation by second sister’s executors with all the charities joining in to extinguish the life interest? This should save a substantial amount of IHT.

Nicholas Sewell
Bevirs

HMRC will routinely deny s.142 relief on an attempt to extinguish a life interest after the death of the income beneficiary.

James Kessler has been successful in putting forward arrangements that can overcome HMRC’s objections.

However, did the surviving sister receive any benefit from the life interest trust during her lifetime? If not, her executors can retrospectively disclaim the life interest, relying upon either s.93 or s.142 IHTA.

As the second sister has died within 2 years of the first, and provided no appointment of the share in the house has been made, it should be possible to rely upon s.144 IHTA to exempt the interest in the house from IHT if the same charities are within the discretionary class.

Paul Saunders

Thank you for your answer Paul. The surviving sister did not receive any benefit from the life interest as the administration of first sister’s estate is still ongoing. Can the executors make a disclaimer purely on their own or do the charities need to be parties?

Nicholas Sewell
Bevirs

It should be sufficient for the executors alone to execute the disclaimer.

Paul Saunders