DM 'spending the inheritance' and giving things away, what would happen care fees/tax wise

[ChangingHistory]

DM 75 and doing OK. She's not rich but downsized a few years back and probably has 150k in the bank.

She's not overly mobile so spends her money on things that give her joy, mainly art and jewelry. My adult DD shares her love of art and DM has gifted her a few costly pieces over the years but recently this has ramped up to pretty much her whole collection to give her room to buy more, I don't know prices but I'll guess £100k. She's also given older paintings, sculptures and jewelry to friends.

There are 5 grandkids, I don't think anyone is overly grabby about a potential inheritance and no one seems to care that DD has recieved all these gifts. Worth noting that DD displays them and has rejected any not to her taste or that don't fit, she's not taking them to sell.

So if DM was to go into a care home her bungalow and most possessions could be sold to fund it. What would they do about the gifts? I think DD doesn't really consider them all hers but there are a few special pieces she'd hate to hand back but couldn't afford to buy. What about the things she's given to friends? To my knowledge these run to maybe 10-20k. Would we be able to ask for them back to sell? Would we have to find the money because DM would be deemed to have purposefully deprived herself of assets?

Similar question for IHT. If shes given 100k of things away what happens? Are we entitled to reclaim them or does the tax on them come out of her remaining estate? I'm also aware that she's paid WAY over the odds for some recent pieces she's bought to support a few local artists, I'd say that was really more of a cash gift but I'm sure they couldn't prove it?

I realise all of this sounds like we're a rich family, we are not and the GC could really do with a nice bit of inheritance but I think DM is the first person in a long time who might be able to provide this and the kids haven't realised or recognise that their other grandparents homes were sold for care fees so expect the same to happen here. Its her money and she's had a tough life so no hard feelings at all, a lot of what she buys is commissioned pieces so means many visits with the creators and I think this is part of the joy.

I will be the executor of her estate and would like a heads up on whether I need to keep track of where everything has gone!

Paying over the odds for something does not count as a gift.

There could be potential capital gains tax implications for disposals she makes to other people depending on the value of the items when bought and disposed off.

If there is inheritance tax to pay and not enough in the estate, the person who received the gift will need to pay.

Thank you for your reply, that's interesting. What do you do if you know DM gave away eg a 20k ring but have no idea who to? I can't insist she tells me.

I actually thought paying over the odds for art would have been the more concerning part. DD paints a little, could DM commission a painting of her dog and pay 50k for it? That seems like an easy way to avoid IHT or care home fees for those inclined to do so.

I had not considers cgt at all, some of the paintings DD has have gone up thousands. That's actually quite scary, might be better to make it clear they are a loan not a gift.

If she's given away physical things that were bought many years ago then TBH I would just pretend they didn't exist. She doesn't own them anymore so don't include them in any list of assets, if the council or HMRC investigated there's not going to be any evidence because they're not cash gifts.

Why would you tell anyone if you don’t know anything. For what it’s worth, she could have been scammed out of it or lost it.

Also, any transactions between connected parties would have to be at arm’s length. So unless your DD is usually selling her drawings for £50k ‘on the market’, she couldn’t sell one to her grandmother for that amount.

Our tax system has been around longer than most countries have existed. Do you honestly think you can punk them with scams like "selling fake paintings for 50k" or giving away the money as art?

They're not stupid.

It is only deprivation of assets if she has given them away knowing that she might have to go into care. if there are no indications that she will need care in the near future, it is fine.

What would concern me is inheritance tax. When applying for probate you have to list the value of any gifts over a certain limit given in the last 7 years as they are liable for inheritance tax.

Gov.uk website is a good place to get information.

You will be better checking there, rather than getting comments from Mumsnet.

Will there even be any iht to pay? Are you expecting her to die or need care imminently?

Read on here

www.gov.uk/inheritance-tax

Very few estates are over the inheritance tax limit. When my father died quite soon after my mother we had IHT to pay based on a gift my father gave up from my mother's estate when she had died. it all pretty straight forward with some taper relief as it was a few years since the gift. Solicitors rightly advise people to keep records of gifts particularly from older people but the rules are something on which people need proper advice, not to try to find out on MN as there are lots of exceptions - gifts out of income, gifts you can make if a wedding and much else.

Physical paintings bought years ago with presumably no evidence of existence - I would forget the exist as executor but probably encourage fairer distribution.

She can give £7k cash to each grandchild & child per year I believe.

The main point ignoring the exceptions is the 7 year rule. I helped all 5 children substantially with a sum of money to buy a first home never mind paying their university fees. It does not matter how big that sum was as I had from that point at least 20 if not 30 more years to live so there is no way it is within the 7 year rule. Even the very last of the houses is almost outside the 7 year rule now and hopefully I still have 20 years to live.

Care fees: it is not deprivation of assets to give away items at a time you did not know you needed care (i.e are fit and well) and did not do it specifically to avoid care fees. Age UK have a very good page on this. Also, who would know about a painting or other artwork? I dare say if your Mum did have to go into a home (most people don’t) and the proceeds of her house and savings ran out and she was put in a bargain basement workhouse, your Dd would want better for her gran and sell a painting or two to pay!

IHT: If your Mum is leaving her main residence to direct descendants (children and or grandchildren) her IHT-free threshold is £500k. So IHT is only an issue if her eventual estate is more than this. She is allowed to give gifts as specified on the gov.uk website, and anything she gives 7 years or more before her death doesn’t count. No one comes and checks paintings.

She could live another 20 years (everyone in my family does). She might need a new roof, new boiler in that time. She’s still at an age to be enjoying her retirement. Tell her to calm down and stop giving stuff away!