Inheritance and gifting

[DancingHat]

My MIL is having a dilemma I'd like to help her with.

Sadly my PILs are separating in their 70s. Divorce is not on the cards at the moment. Neither wants to buy a new house and their home is being sold mortgage free for £1 million. My FIL has a substantial pension and continues to work with both parts of his income totalling around £100,000 a year.

My DH is an only child and sole heir. His DM would like to gift us money to buy a bigger house. We are looking at a self build plot. As she will have no property of her own how would that money best be given to us? Her current thought it to give us £325,000 & hope she outlives the 7 year limit. She has type 2 diabetes and it's probably 75:25 she will make it to 7 years. Is there a better way to invest in our property and minimise the chance of being hit with a bill for inheritance tax should the worst happen? Is there another way we haven't thought of?

She may be able to buy a life policy to cover the inheritance tax. It would be costly and maybe not possible but if it is it my give you peace of mind

FIL did that and cashed it in 8 years ago as it got too expensive but thank you for coming up with a suggestion.

what about care costs? is this coming out of mil share of the house? if so, have a think about deprivation of assets.

It is risky for her financial well-being if she only has the £500,000 from the house. What other money does she have? What will her renting costs be? Where is her income coming from? I assume she would get a share of the pension but she needs to take advice on what she can afford to do and not rush into anything. It seems a bit hasty to give money away at this stage. However if she has plenty of money, then do it sooner, rather than later.

As they are still married, the inheritance tax rules won’t come until the second spouse dies, assuming they have left their assets to each other. Therefore it should be a joint decision at the moment. They (as a couple) could gift to you and split the residue equally between them. They both need financial advice on the options. If they divorce, they become single and do not pass money to a spouse for tax relief if they are first to die. Is DF involved in any of these plans?

You also should be involved with the decision making. Do they really have enough to gift and what happens when DF stops work?

Thanks for the responses.

Care costs she'd live with us and then yes we might have to pay for carers out of her half of FILs pension. She's well enough at the moment but given she's psychologically on her own for the first time in 50+ years that's what I worry about most. It wouldn't be a deliberate deprivation of assets. It's more the fact she's living with a fellow widow for peppercorn rent and doesn't want the psychological burden of owning and maintaining a property. FIL ran everything. Presumably selling the family home due to separation and moving in with a friend say 6 years previous wouldn't look suspicious (honestly it's not. I hadn't even thought of that but of course the LA might)

Her FA is advising her to give away her money because it's more than she can spend. FIL has earnt millions over the years and will continue to do so from ongoing income (e.g. patents) so if they don't divorce she'll keep getting half of that. She's changed her will so DH inherits. She's worried if she dies and FIL gets it then OW would get her hands on it... So FIL will continue to earn even when he stops working.

DF is very stingy (aren't the rich often?) so wouldn't be interested in a joint gift. I honestly have no idea of his investments but I know they have the maximum in Premium Bonds as MIL mentioned it once.

If she hasn’t left her estate to her husband, then I believe she (DH) will pay 40% on all her assets above the non taxable limit. She needs to know how her assets will be assessed for IH purposes. What is she actually worth, in other words?

Obviously she can do what she wants with her money and if she lives for 7 years after a gift, then her estate won’t pay IH on the gift and she’s not depriving the council of care income as she’s not spending all her assets.

Is she and FIL drawing up a financial arrangement about who is getting what and what payments will continue? And for how long? I would expect her to have watertight info before she gives money away. What happens if FIL gets difficult and says she’s not getting half of anything? If he eventually wants a divorce, it will have to be sorted out. Does she own the parents too?

gosh
that seems bad advice. she had seperated from her dh but doesnt intend to divorce (but he could any time). she is staying with someone at the moment and not paying market rent and someone has suggested she give away 325000 of her 500000 because she cant spend it????
i think she needs to put her needs and security first. fil may well be a wealthy man but there is no knowing what will happen.

why not help her to buy a suitable property? she doesnt have to live in it now. but surely her security is the most important.

I did think about encouraging her to buy a new home but she really couldn't cope with the maintenance. She tried a 6 month rental house and didn't pay any of the bills because she's never been minded to and didn't have FIL doing it for her. She won't be moving out of her friend's house. It's her best friend who is widowed so they're very happily living together.

I don't believe FIL would get difficult as he's in the wrong and he dotes on my DH so wouldn't want to hurt his mother IYKWIM. They don't have a financial arrangement in place but that might help so she knows where she is financially.

It's not just £500k she has. They have lots of joint savings things like ISAs etc. I just don't know all the details.

You do need to know the details. Isas and premium bonds are hardly providing a generous income. The FIL could be difficult if the new woman wants more. You are all far too trusting. My best friend was left nothing by her father upon his death. It all went to the new wife! Several £m.

Your Mil may not be able to stay with her friend indefinitely. What would happen if the friend suddenly died? Her relatives would inherit the house. Then what? This is remarkably short-sighted by all of you. Why not help Mil pay her bills. Direct debit isn’t that complex.

I think your mil sounds like someone who has never had to do anything and is now being persuaded to do stupid things by people she trusts. Not having a property and giving a large percentage of your capital away whilst not being certain you have an ongoing income is being controlled by those around you. None of the advice sounds sensible or in her best interests to me.