Wife dies first (testate, estate value £1.3m) leaving some non-exempt cash legacies, and the residue as to 90% to husband and as to 10% to charity.
Husband dies a few months later (testate, estate value £1.4m) leaving some non-exempt cash legacies, a cash legacy of 10% of his estate to charity, and the residue to their two children equally.
The executors of the husband’s estate wish to vary his 90% entitlement under the first estate in favour of the children, in order to avoid the taper on the Residence Nil Rate Bands. However, by varying the husband’s entitlement under his wife’s Will, the cash legacy of 10% of his estate to charity is reduced (because the baseline is lower).
Will the charity, which is to benefit from the 10% cash legacy under the husband’s Will, need to agree to the proposed variation? It seems wrong that the executors of the husband’s estate should be limited in how they can vary his entitlement under his wife’s estate.
If the charity needs to agree, I appreciate that it will not be able to agree to a reduction of the original value of the cash legacy unless, maybe, an additional payment is made as part of the variation to the charity from the wife’s estate so that, in total, the charity will have received no less than was originally calculated.
In these circumstances, I believe that the charity’s entitlement is fixed as at the date of death – I do not see that it can be reduced by the making of a post-death gift by another beneficiary. Whilst the amount of its entitlement is not certain at that time, it is not affected by any subsequent variation under s.142 IHTA 1984.
When distributing the estate, the executors will need to establish the amount the charity is to receive by reference to the “baseline amount” without regard to the subsequent variation.
In my mind, the situation is no different from where a testator gives a nil rate band legacy to their children with residue to the surviving spouse (of a second marriage). If the spouse enters into a variation, passing the whole of residue to their own children, this does not reduce the NRB gift to the testator’s children.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thanks Paul. Your example with the NRB legacy assumes that the same estate is varied. In my case it is a variation of the first estate that feeds into the second estate, which affects the base line of the second estate.
Even where you have 2 estates, it is the beneficiaries of the second estate who are making the post-death gift (albeit it may be circular in that it passes to them via the variation).
The property (or the right to the property) is still in the second estate and is only “removed” only for the purposes of s.142 IHTA and not for any other purpose.
I remain of the view that the charity’s entitlement is calculated by reference to the “baseline amount” before the variation/post-death gift.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals