07 February 2001
Replies to Queries – 3
Estate poser
Uncle Fred lived to a good old age, and eventually died at 98 in November 2000. His wife Agnes had predeceased him in 1973.
Not only was Uncle Fred old, but so was his last will and testament. His assets at the date of death were:
(i) A life interest in his home (which had previously been the property of Agnes) valued at £300,000;
(ii) Other personally owned assets, such as stocks and shares, building society and bank accounts and other personalty valued at £350,000.
Estate poser
Uncle Fred lived to a good old age, and eventually died at 98 in November 2000. His wife Agnes had predeceased him in 1973.
Not only was Uncle Fred old, but so was his last will and testament. His assets at the date of death were:
(i) A life interest in his home (which had previously been the property of Agnes) valued at £300,000;
(ii) Other personally owned assets, such as stocks and shares, building society and bank accounts and other personalty valued at £350,000.
Replies to Queries – 3
Estate poser
Uncle Fred lived to a good old age, and eventually died at 98 in November 2000. His wife Agnes had predeceased him in 1973.
Not only was Uncle Fred old, but so was his last will and testament. His assets at the date of death were:
(i) A life interest in his home (which had previously been the property of Agnes) valued at £300,000;
(ii) Other personally owned assets, such as stocks and shares, building society and bank accounts and other personalty valued at £350,000.
Under the provisions of Agnes' will, the house is left in equal shares to the three 'remaindermen' children, Fred, Bert and Nancy. In his will Uncle Fred has stipulated that £50,000 should go to St Olave's Church 'free of all taxes'. The remainder of his estate is to be distributed equally among eight residuary beneficiaries, which include his three children.
Funeral and testamentary expenses are estimated at £15,000, and the costs of administering the estate £25,000. Can readers estimate the net amount that each legatee and beneficiary will receive?
(Query T15,750) – Two Step.
On the premise that Uncle Fred was 'not competent to dispose' of the house in which he enjoyed an interest in possession under his late wife's will, its value will escape inheritance tax because of the old estate duty exemption which has been preserved in paragraph 2 of Schedule 6 to the Inheritance Tax Act 1984.
The legacy of £50,000 to St Olave's Church will be exempt from inheritance tax by virtue of section 23, Inheritance Tax Act 1984. The executors do not have to consider the problems posed by a partly exempt residuary estate.
Reasonable funeral expenses are deductible before the inheritance tax is calculated by virtue of section 172 and perhaps £5,000 of the £15,000 quoted might relate to the funeral. Accordingly, the inheritance tax liability on Uncle Fred's free estate will be 40 per cent of £61,000 (£350,000 less £50,000 charitable legacy less £5,000 funeral expenses less £234,000 nil rate band) = £24,400.
We are not told whether the costs of £25,000 are wholly attributable to the free estate or whether part relates to the distribution of the trust. On the former assumption, the church will receive £50,000; the remaindermen under the trust who are also entitled to a share of residue will each receive a total of £129,450; and the other five residuary beneficiaries £29,450 each. – Lacuna.
Agnes died during the estate duty era leaving the home in trust for Uncle Fred for life. This attracted 'second death' relief under section 5(2), Finance Act 1984, which is preserved by paragraph 2 of Schedule 6 to the Inheritance Tax Act 1984. The property valued at £300,000 therefore passes free of inheritance tax and revalued for capital gains tax to Fred, Bert and Nancy in equal shares, entitling them (on sale) to £100,000 each.
Uncle Fred's free estate will be valued for inheritance tax at £300,000 after deducting the £50,000 legacy to the church, which is exempt under section 23, Inheritance Tax Act 1984. Assuming no lifetime transactions which fall back into charge, the nil rate band of £234,000 can be deducted, leaving £66,000 to be taxed at 40 per cent (£26,400).
The deductions from the gross estate of £350,000 are therefore the inheritance tax of £26,400, the legacy of £50,000, the funeral expenses of £15,000 and the administration expenses of £25,000, totalling £116,400, giving a net distributable estate of £233,600, or £29,200 each.
Accordingly the church will receive £50,000, and the three remaindermen (Fred, Bert and Nancy) £129,200, and the other five beneficiaries £29,200. – WJdeS.
Editorial note. A number of readers failed to spot that Agnes had died during the estate duty régime, and therefore the life interest on the home occupied by Fred passed to the children free of duty on his death. As pointed out by 'Lacuna', 'reasonable funeral expenses' are indeed a valid deduction for inheritance tax purposes.
Estate poser
Uncle Fred lived to a good old age, and eventually died at 98 in November 2000. His wife Agnes had predeceased him in 1973.
Not only was Uncle Fred old, but so was his last will and testament. His assets at the date of death were:
(i) A life interest in his home (which had previously been the property of Agnes) valued at £300,000;
(ii) Other personally owned assets, such as stocks and shares, building society and bank accounts and other personalty valued at £350,000.
Under the provisions of Agnes' will, the house is left in equal shares to the three 'remaindermen' children, Fred, Bert and Nancy. In his will Uncle Fred has stipulated that £50,000 should go to St Olave's Church 'free of all taxes'. The remainder of his estate is to be distributed equally among eight residuary beneficiaries, which include his three children.
Funeral and testamentary expenses are estimated at £15,000, and the costs of administering the estate £25,000. Can readers estimate the net amount that each legatee and beneficiary will receive?
(Query T15,750) – Two Step.
On the premise that Uncle Fred was 'not competent to dispose' of the house in which he enjoyed an interest in possession under his late wife's will, its value will escape inheritance tax because of the old estate duty exemption which has been preserved in paragraph 2 of Schedule 6 to the Inheritance Tax Act 1984.
The legacy of £50,000 to St Olave's Church will be exempt from inheritance tax by virtue of section 23, Inheritance Tax Act 1984. The executors do not have to consider the problems posed by a partly exempt residuary estate.
Reasonable funeral expenses are deductible before the inheritance tax is calculated by virtue of section 172 and perhaps £5,000 of the £15,000 quoted might relate to the funeral. Accordingly, the inheritance tax liability on Uncle Fred's free estate will be 40 per cent of £61,000 (£350,000 less £50,000 charitable legacy less £5,000 funeral expenses less £234,000 nil rate band) = £24,400.
We are not told whether the costs of £25,000 are wholly attributable to the free estate or whether part relates to the distribution of the trust. On the former assumption, the church will receive £50,000; the remaindermen under the trust who are also entitled to a share of residue will each receive a total of £129,450; and the other five residuary beneficiaries £29,450 each. – Lacuna.
Agnes died during the estate duty era leaving the home in trust for Uncle Fred for life. This attracted 'second death' relief under section 5(2), Finance Act 1984, which is preserved by paragraph 2 of Schedule 6 to the Inheritance Tax Act 1984. The property valued at £300,000 therefore passes free of inheritance tax and revalued for capital gains tax to Fred, Bert and Nancy in equal shares, entitling them (on sale) to £100,000 each.
Uncle Fred's free estate will be valued for inheritance tax at £300,000 after deducting the £50,000 legacy to the church, which is exempt under section 23, Inheritance Tax Act 1984. Assuming no lifetime transactions which fall back into charge, the nil rate band of £234,000 can be deducted, leaving £66,000 to be taxed at 40 per cent (£26,400).
The deductions from the gross estate of £350,000 are therefore the inheritance tax of £26,400, the legacy of £50,000, the funeral expenses of £15,000 and the administration expenses of £25,000, totalling £116,400, giving a net distributable estate of £233,600, or £29,200 each.
Accordingly the church will receive £50,000, and the three remaindermen (Fred, Bert and Nancy) £129,200, and the other five beneficiaries £29,200. – WJdeS.
Editorial note. A number of readers failed to spot that Agnes had died during the estate duty régime, and therefore the life interest on the home occupied by Fred passed to the children free of duty on his death. As pointed out by 'Lacuna', 'reasonable funeral expenses' are indeed a valid deduction for inheritance tax purposes.
