It is common for retirement homes to have within the lease a deferred management fee (DMF). The argument is that this falls outside of the estate, hence being exempt from IHT. These DMFs are typically around thirty percent of the property sale price. So, for a £2 million pound property, £600,000 would fall outside the estate.
Could we do something similar with probate fees. Contract with the client at the time the Will is signed to charge a fee for the administration of the estate that is deferred and therefore reduces the value of the estate for inheritance tax purposes.
My understanding is that various firms already offer such an arrangement.
A number of such firms have ceased to exist and their clients have been severely out of pocket as a result. Also, I believe the arrangement is being looked at by various regulators.
As Sir Humphrey Appleby might say – it would be a brave person who, nowadays, ventured down this road.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you for your reply, Paul. My understanding would be that it would be a deferred fee that would not be payable unless we are instructed to administer to the estate. The only thing the deceased client agreed upon would be the level of the fee. If the executors choose not to instruct us, it would not be payable.
I would suggest that executors instructing the firm of solicitors would be entering into a contract at that time, and it would not therefore be possible to claim that their Charges for administering the estate was a deferred liability of the deceased and deductible for IHT purposes.
Patrick Moroney
Thank you, Patrick. That makes sense. I was wondering if there is anyone out there that has entered into such an agreement. Our firm has been practicing for over 60 years so I do not wish to do anything that would jeopardise that.