How to logically explain to an 89 year old stubborn man not to give almost half a million to hiss adult grandchildren

[Rictasmorticia]

i have been approached my his DIL for help in how to explain to him why this is a bad idea.

He is a self made man, a widower and lives in luxury apartment on a complex with facilities . Presently he is almost fully independent but fears he may have the beginnings of dementia. 5 years ago, on the death of his wife he gave £100,000 to his DD and DS and £50,000 to each of his 4 GC. They were all in their 20s at the time and each of them have been extremely sensible with the money.

This money represents every thing he has except for the property. The son and daughter want him to keep the money for himself. Their view is that if he does need care it will buy him the very best.

He has always acted the Patriarch and thinks he knows best and can be quite pig headed.

What they are looking for is facts and figures that they can present to him.

Honestly, I'd let him give it away, have each of the beneficiaries put it into an investment account where it can be easily accessed if necessary and keep it there until he dies. If he needs it, they can pay the care for him, if he doesn't they can pay the inheritance tax that is due (if any) and then spend the rest.

It will make him feel good to give the money.

This is what I have done with money my mother in her 80s has insisted on giving me.

@Rictasmorticia one thing I discovered watching my nan deteriorate is you get the same care wether you pay for it or not.

Giving this money away at his age and stage of life could also be seen as deprivation of assets if the state is then expected to pay for his care as a result of him giving his money away.

IHT will be less of an issue if he lives another 2 years. Even now its less. 7 year rule.

If he gave away 500k 5 years ago I assume his current assests are under 1 million, if so then IHT won't apply after 2 years.

As for care. He's 89. When you say he's in early stages of dementia. At 89 this is more likely old age decline than true dementia, that usually shows earlier. If he's living independently and happy let him do what he wants. If they're sensible with the money and that worried then accept it and put it in seperate savings accounts until such a day comes when he's no longer here. Then if he does need care the money is there to pay for it. He also has property that will pay for care. Personally think they're over thinking it.

How much is his house worth?
If it’s less than £500k then he’s not in IHT territory as he has his Wifes NRB and RNRB taking the threshold to £1 million.
If the house is worth more then his gifts will be PET ( potentially exempt transfers) and if he doesn’t survive 7 years will go back into his estate, apart from a bit of taper relief on the gifted amount over £325k.

Where it all falls apart is when his house goes in care home fees and the Grandkids have to fork out for the IHT liability.

He should speak to a financial advisor. Neither giving it all away now or simply saving it in case he needs a care home are the most sensible choices.

But the recipients wouldn't have to give it back if the estate had insufficient funds to pay the IHT, because the money had been given away.

Exactly what I was going to say.

Sometimes it's best not to argue.
Just find a work around. As trying to tell him what to do may annoy and upset him. Esp as a self made man. Perhaps shew respect by not contradicting but each recipient to open a special account and then if when it's needed for his care etc they can quietly chip in

Sure - the beneficiaries would then receive the post tax amounts (which given nil rate bands etc would be a fair chunk of it)

It would be prudent - from an IHT perspective - not to spend the whole gift, but they could spend 60% without thinking about it and more if they do some calculations.

Where I am, the only care home with a CQC rating of excellent for dementia care is £2,500 per week. Full time care at home is roughly about the same. He'll need upwards of £100k per annum. Of course, if he goes into residential care, then the flat can be sold and those proceeds used. He could always downsize to release funds.

If he's worried about dementia, he should go to his GP and ask to be tested with an onward referral to the memory clinic and MRI as a first step.

He could do a combination of things.
Firstly depends on the value of his property, and how many years of care he may need.
Secondary I think he can give something like 2000 pounds a year away without scrutiny although I'm not sure if that's to each person.
Thirdly he could set up a trust where the 10-year lifespan would exclude it from the seven year rule even though that tapers down.
The most tax efficient method would be to buy a house worth about million pounds and then use the combined inheritance tax calculation on primary residence which he will inherit from his ex partner.
Then the main property is not subject to any inheritance tax and he can divvie out in the will.
Ultimately he needs a very good financial advisor.
It's awful how governments come after people who have paid tax all their lives on earnings, spending, saving.
It sticks the boot in when the tax liability doesn't stop after you've passed away.
Just get a good financial advisor who knows about trusts and acceptable gifts and the best way to manage tax minimization. Tax avoidance is okay, tax evasion is not.
If the sale of his main home (if it's a retirement village type thing then they can be very hard to sell and have punitive annual management fees) will cover a reasonable number of years of care for him then why not?

AI does have its users if you know how to use it correctly..
Component Amount / Description

Nil-Rate Band (per person) £325,000
Residence Nil-Rate Band £175,000 (per person, if passed to direct descendants)
Combined Allowances Up to £650,000 (nil-rate) + up to £350,000 (residence) = ~£1 million total allowance for the surviving spouse
Property Value £1,000,000
Taxable Amount Property value minus combined allowances (if total estate exceeds allowances)
Inheritance Tax Rate 40% on the amount above the combined tax-free threshold
Potential Tax Due If estate is ≤ £1 million with both allowances, then potentially £0 inheritance tax on the property

---

So essentially, if the total estate including that £1 million property doesn’t exceed the combined allowances, the inheritance tax on the main home could be zero. If it does exceed, then only the amount over that threshold would be taxed at 40%.

Well the inheritance tax can come out of the inheritance - so that’s covered.
Why don’t they just invest it? Then they can give it back if he needs it?

Maybe he thinks money or no money he'll end up on the same ward as someone who has not worked hard their life anyway and therefore might aswell just spread the money to his nearest and dearest rather than paying for care that the next person will get for free anyway.

User: I'm trying to understand how inheritance tax and care home fees interact. Let's say someone’s spouse passed away and the remaining spouse lives in a home worth about £1 million. How does inheritance tax work on that main property when they pass away?

Assistant: In that scenario, the surviving spouse usually inherits everything tax-free from their partner. When the surviving spouse eventually passes away, both their own inheritance tax allowance and any unused allowance from their spouse can be combined. Right now, that combined total can reach about £1 million if you include the main residence allowance and leave the home to direct descendants. That means if the home’s value fits within that threshold, there may be no inheritance tax due on it.

User: And what about gifting money? I’ve heard you can give a certain amount each year without it counting for inheritance tax or being seen as deprivation of assets. Is that £2,000 per recipient or total?

Assistant: Actually, you have an annual gift allowance of £3,000 in total per tax year, not per recipient. You can split that among different people if you like, but the total is £3,000 a year. If you don’t use it one year, you can carry it forward one year. Anything beyond that might be looked at by HMRC if you pass away within seven years of the gift, and by local authorities if you need care.

User: So local authorities have different rules for care fees than HMRC does for inheritance tax?

Assistant: Exactly. HMRC uses a seven-year rule for gifts and inheritance tax. Local authorities don’t have a strict time limit like that. They look at whether you gave away assets deliberately to avoid care fees. If it’s been a decade since a gift and you’ve been self-funding care for many years, it’s less likely they’d see it as deprivation of assets. But if it was only three years ago and then you needed care soon after, they might look more closely.

User: And if someone gave away a large sum three years ago, then self-funded their care for six or seven years before needing local authority help, how would that be seen?

Assistant: In that case, it would probably be viewed more favorably. The fact that they self-funded for several years shows they didn’t give away the money just to avoid care costs. By the time they need local authority funding, it’s been nine or so years since the gift, so it’s less likely to be seen as deprivation. They’d usually consider that reasonable.

If he gives now he has to live for 7 years or there will be tax implications which could be costly. Plus if he goes into care they will say there was a deprivation of assets

Suggest he keeps some of it and gives say half to his GC now and the rest will be in his will. I don't see why you would stop him altogether, maybe just be a bit more conservative about it.

Yes and No

Within a care home, all residents receive same care and staff probably don't know who is (not) self funding

But, if you're self funding, you have a choice of care homes. If LA are paying, they choose the cheaper homes

@Rictasmorticia if the family all agree that they want him to keep the money but he insists on giving it to them, could they agree to keep it aside to pay for his care if needed in the future?

That would achieve the same outcome but relies on everyone being on the same page and not spending.

Is he trying to avoid IHT?

If the grand children don’t want it/are worried about inheritance tax, then take it and put it to one side. If he needs care they can choose to fund it for him if that’s what they’re worried about. Keep 40% aside for the first three years and then taper down the amount saved for inheritance tax until you get to year seven.

He can sell his house to fund care too so they only need to fund it when he has no more funds.

I don’t think it’s a bad idea…

He'll need financial advice on this matter. If he gifts the money and dies within 7 years, then they could be left with tax bills. The Local authority could also refuse care if they think that ye has given his money away to avoid care fees. The sensible thing would be for him to give it as a gift, ensure that the wording is clear and then for the adult grandchildren to not spend it until after his death in case they are then stuck unable to pay the tax on it or if he needs it.

If he’s determined to give away his money now (assuming it’s because he wants to do it in hope of having 7 years for Inheritance Tax)

Could you suggest a compromise- his son and daughter set up a joint account together. (You can have a joint account with a sibling.) the money is put in that. They only use the money for his needs/costs, and if he needs to pay for a good quality care home, it comes out of that pot. It’s agreed between the two children exactly how the money is divided up on his death- 4 way between the grandchildren.

This way he’s given it away now to start the 7 years and if he’s healthy and happy up to the end, great, but if he does need care, his dcs can organise it use some of this money, not have to worry about funding it.

@FancyBiscuitsLevel that would not count as a gift, because it is a gift with reservations ie the money is still available to the gentleman in question in some circumstances

If he gives it away and then dies within 7 years it will count as if it was in his will and still be subject to inheritance tax anyway!

I thought you could only gift £3000 per year.