Married couple both previously widowed, no IHT allowances used on the deaths of their previous spouses.
Unequal liquid assets which are held separately. Mrs £200K, Mr £1.2M, plus property in his name alone (£500K)
On the marriage, her property was sold and assets distributed to her children. Her current will distributes her assets to her children.
His will similarly distributes to his children, and if he pre- deceases his wife then she has the right to stay in the property (with safeguards about re-marriage etc) with the property being sold on her death and reverting to his family, so Interest in Possession. Both families are aware of, and comfortable with this.
It had been assumed that if he pre deceases her, IHT on the value of the property would become part of HIS estate and payable upon HIS death by his children.
However, because of her Interest in Possession, it seems there is every likelihood there will be an IHT liability for HER estate purely because the value of the property will bring it into IHT territory (despite allowances and exemptions), whereas without the property, IHT would not have been payable. So her estate will be liable to some IHT upon HER death payable by HER children, although the property will be sold by HIS children IHT free.
It was always intended for HIS children to be liable for the IHT for the property (because they would enjoy the value of the asset upon its sale). HER family are entitled to certainty that they will not have to bear the IHT cost caused by the addition of the property's value being added to HER estate. It has been suggested that HIS will should have a condition that a specific sum should be but aside by HIS children for that liability. The sentiment is acceptable, but what figure should be shown? It could never be the actual figure, because we are dealing with future values (and tax rules). Regular codicils, but never the actual figure. Not ideal at all.
A wording along the lines of........"My estate is liable for any IHT liability upon HER estate purely due to the property value......." would seem to satisfy that intention completely. However, it is suggested that that is too loose, and subject to ambiguity/challenge. There is also the point that HER family's only assurance is in their step-father's will, held by HIS children who they may lose touch with over time.(Although they could get copies). Quite possibly the sale process of the property on HER death will work in concert with and mean that they can be assured that any IHT liability will be met by HIS estate.
Views please.
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