Could a past cash gift cause legal issues after the donor died

[A2J]

We were gifted a fairly large sum of money 4 years ago. Not inheritance tax amount though. No one else has claim to this. The person died last year.

We're worried as there wasn't a letter proving it was a gift. We're thinking of moving and could use this money to make the move smoother.
Is this likely to be a problem?
TIA

Who’s the beneficiary of the estate?

do you not have any texts, records of conversations, does the bank transaction have any notes?

it’s within the last 7 years so the executor would need to include it in their calculations. That is nothing that involves you though, it’s the estates problem.

My understanding is it would be on the estate to prove it was not a gift, that there was an expectation for it to be returned. If there’s no documentation it was a loan then they can’t argue it needs to be returned to the estate.

The only thing you may have to do is, if the executor asks, confirm the amount of the gift.

The executor needs to include gifts made within the last 7 years when calculating the total value of the estate. They may ask to confirm the value.

You can’t be forced to pay it back if that’s your concern. If it was a loan and the executor could prove it was a loan then they could make you repay it, but presumably there’s no evidence anywhere that would suggest it’s a loan. For now I’d make sure to look for and save any texts/emails/cards etc that reference it being a gift, just in case. But go ahead and spend it/use as you wish.

The value will need to be added to the estate when calculating IHT. It's not the size of the gift that matters but what the value of the estate is after the value of the gift is added back. Other than this I can't see a problem unless the beneficiaries of the estate accuse you if having taken it without consent or it being a loan rather than a gift. Are they likely to do that?

The estate was less than 250k

Dh is the executor and he recieved the gift.

In that case I'm not sure what problem you are thinking may occur? Even if it wasn't gifted to you before death sounds like you would be receiving it now?

the gift needs to be added to the value of the estate as it was less than 7 years ago. I think the amount you add changes depending on how many years ago. If the estate and gift added together take you over the tax threshold, then you will owe inheritance tax

Do you mean in terms of the estate or to finance the move? As long as it was taken into account during probate and the estate was within IHT limits it is yours to keep. Is someone challenging it?

It may be queried during the anti money laundering checks. As long as you can show where the funds came from i.e.it leaving the donors account and arriving in yours and that the donor is a relation, rather than some bloke you met in the pub who bought a load of charlie from you.

It’s their’s to keep even if the estate is over the IHT limit.

it’s the estate that pays IHT, not the gift recipient.

there are no tax issues for the o/p, probate and IHT aren’t anything they need to worry about.

they may be asked to confirm the gift so the executor can include it in the estate accounts.

the main worry is if the executor decides to challenge whether it is a gift, if it isn’t it will need to be returned to the estate. However even though o/p doesn’t have documentation of a gift, doesn’t sound like there’s any proof it isn’t.

No, the estate will owe IHT, not the o/p.

If the estate value including all gifts made in last seven years is under the inheritance tax threshold then there’s no tax to be paid by anyone.

If the executor is in agreement that it was a gift. No issues.

Which part of the UK are ypu in? Here there's a presumption against gift, so there may be an issue if another beneficiary queries it.

Yes, you are right. Although as OP’s DH is the beneficiary, it will reduce the lump sum she is hoping to inherit

I realise that, the value might be included in IHT assessment but the liability is the estate’s even so. However the op dh being executor (and beneficiary?)might make it confusing in terms of who makes the payment on estate’s behalf. If the estate still falls with the IHT allowance taking gifts into account, there is no liability on the estate and no payment, but if it were deemed a loan rather than a gift different rules apply and op might need to reimburse the estate.

Ah missed the post about the dh being the executor.

in which case it probably depends on who is the beneficiary. If it’s the dh as well and the estate + gift does not take them over the IHT limit then no issues. If it does the estate will owe the IHT.

but in that case no one to challenge the gift so it’s just the IHT issue.

if dh is not the beneficiary then in addition to the IHT issue it will depend on whether the beneficiary can/will challenge it. As it’s less than 7 years it will be included in the estate accounts so they will find out about it if they request the accounts.

Not strictly true, if the estate does not have enough money to pay the IHT, Gift beneficiaries will have to make up the shortfall, gifts are however subject to a sliding scale of IHT.

It depends, it can get quite complicated.

In the situation of the OP where the total estate is only £250k then it makes no difference.

However, if a potentially exempt transfer (PET) fails and there has been more than £325k in PETs during the seven years prior to death then the recipient of the gift is primarily responsible for paying any IHT due on the gift. This will be assessed on the total value exceeding £325k

It is only if the IHT is still outstanding after 12 months that the estate also becomes jointly liable. See sections 199 and 204(8), Inheritance Tax Act 1984.

If the recipient fails to pay the IHT and so it falls on the estate to pay then the executors may be able to recover the tax by bringing a court claim against the recipient.

This would be on the basis that they have been compelled by law to pay money which it was the primary obligation of the recipient to pay. It can all get quite nasty when there are large sums of money involved

.

Of course, if the total value of failed PETs is below £325k then this amount is simply taken out of the nil rate band.

IHT is a distraction - the estate is below threshold and that's not the OP's question.

She wants to know about proving souce of funds for buying a property.

Thanks. We haven't ended up needing to prove where that money came from as found somewhere that we have enough cash for minus that money.