Spouse holding in trust for child

[dabdab]

I have been asked for advice by a family member who is one half of a mature married couple. Each of the couple have adult children from their respective earlier marriages. Their solicitor established many years ago, mirror wills such that when one dies, the surviving spouse holds the deceased's estate in trust for the deceased's children, the surviving spouse having use of the deceased's estate, property and income. On the death of the surviving spouse, the original estate of each of the deceased passes to their respective children.

Each of their IHT estates will be larger than their personal allowance plus primary residential property allowance. In such circumstances, what happens to the first deceased's IHT personal allowance,residential property allowance and payment of IHT, as the estate passes into the trust of the surviving spouse and then again on to the deceased children from that trust?

[maths]

If the wills provide for the surviving spouse to take a life interest in the estate of the first spouse to die then on the first death no IHT is payable. This is because for IHT the first spouse is effectively treated as making an inter-spouse transfer to the surviving spouse (on which there is no IHT).

Neither the nil rate band (325K) nor the residential nil rate band (125K) will be utilised on the first death.

On the death of the surviving spouse (everything going to the various children) IHT will be payable (at 40%) on the excess of the value of the surviving spouse's estate plus the value of the assets in the trust over two nil rate bands (650K) plus two residential nil rate bands (250K). The aggregate IHT burden will then be divided between the value of estate of the surviving spouse and the value of the trust assets.

Generally speaking, for various reasons, mirror wills are not in my view particularly attractive and can lead to unforeseen issues. Perhaps the wills could be redone.