My brother-in-law has just died leaving my wife and their brother as the closest relatives. He made no will and his estate is below the threshold for inheritance tax (IHT). The two siblings have applied for a letter of probate.
When probate is granted, are they automatically both beneficiaries of the estate? Or can they jointly make decisions to appoint other beneficiaries such as their children? We want to avoid any future IHT liability that could arise if the siblings inherit and pass the money to their children as a gift.
Divah Shah, Associate in the private client team at Kingsley, replies:
Since your brother-in-law died without a will, intestacy rules will set out who can apply to administer the estate. There is a specific order of who can apply: spouse, children, parents, siblings, half-brothers or half-sisters, grandparents, aunts and uncles and half-aunts and half-uncles. Your wife and her brother, as the administrators of the estate, are responsible for distributing the estate.
The pecking order of who inherits where there is no surviving spouse is the same as who can apply for the letters of administration. In this situation, your wife and her brother would be considered as beneficiaries of the estate and would inherit in equal shares. Therefore, they are both administrators and beneficiaries.
It is possible for them to rearrange the way the estate is shared out, by a deed of variation, provided this is done within two years of the death and meets the other necessary requirements. A deed of variation can be effective to redirect the benefit down a generation to children.
If your wife and her brother plan to leave money in their wills to their respective children, then it may indeed be tax-advantageous to vary the inheritance now, rather than adding it to their own estate which may result in a larger IHT bill after their respective deaths.
The deed of variation must be made by the beneficiaries who are giving up that benefit. They only have the power to change their own share of the estate and therefore they can either vary their own entitlement or both agree to vary the entire estate.
Beneficiaries – in this case your wife and brother-in-law – must be over 18 and must not receive any benefit or payment from outside the estate in return for giving up their entitlement. The deed must contain a statement of intent and the correct tax declarations in relation to IHT and CGT.
Divah Sha is an associate at law firm Kingsley Napley.
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