CONTESTED WILLS & INHERITANCE TAX PROBLEMS

Question: What are the most common problems that arises from a Will. Relatives that have been disinherited including Children, Grandchildren, Ex wives, Girlfriends Aunts, Uncles Nieces, Nephews, and friends, claiming they should not have been left out of the Will or were promised something by the deceased.

We have handled cases whereby the relatives started to argue and disagree about the contents of the Will, instructed legal advice, and incurred extensive costs. The result was they lost any claim to the estate as ordered by the Court and ended up with legal costs of £85,000. 

The beneficiaries named in the Will had to wait for over three years before they could receive what had been bequeathed to them. You will be amazed what a potential payout from a Will can do to a person’s outlook on life and reasoning. 

If you believe a family is united after a loved one has deceased, wait until the Will is published and certain members of the family and friends are left out of the inheritance. If you want to see the worst in people you will see it here. 

Creditors: All creditors with a viable claim against the deceased estate, including mortgages, bank loans, overdrafts, secured loans, unsecured loans, credit cards, personal loans, and many other types of loans have a priority to be paid first from the estate. Debts have the effect of reducing any inheritance tax due by the estate. 

Inheritance Tax. (The catch twenty-two problem). Before probate can be granted any inheritance tax due on the estate has to be paid. Forms IHT422 (Application for an Inheritance tax reference number) and IHT400 (Tax return and amount due from the estate) must be completed and sent to HMRC. Once payment is received by HMRC they will send the documentation to the Court to allow them to provide the probate certificate to the Executor of the Will. 

What happens if you cannot pay the tax due: If the estate lacks sufficient liquid assets, executors may seek short-term loans or other financial solutions to cover the IHT bill. It is crucial for executors to manage their IHT obligations carefully to avoid delays in the probate process.

Over payment of inheritance tax. This occurs when a non-professional completes the Inheritance tax submission and does not fully understand the allowances and exemptions that might apply to the estate. We have recovered substantial refunds from HMRC for our clients in relation to overpaid inheritance tax. In all cases the calculations were completed by someone who was not qualified to carry out the task. 

Under payment of inheritance tax: Occurs when again the person submitting the IHT400 has calculated the amount due incorrectly. 

Private pensions: Defined Contribution Pensions: These are based on the amount you and your employer have contributed over time. Upon your death, the remaining pension pot can usually be inherited by your nominated beneficiaries. They can choose to take the money as a lump sum, use it for income drawdown, or purchase an annuity. If you die before age 75, this inheritance is tax-free. If you die after age 75, your beneficiaries will pay income tax on withdrawals. 

Defined Benefit Pensions: These pensions provide a guaranteed income based on your salary and years of service. If you die before taking your pension, a lump sum may be paid to your spouse or civil partner. If you have already started receiving your pension, your spouse or partner may receive a percentage of your pension as a survivor benefit.

Inheritance Tax Considerations: Currently, pensions are exempt from inheritance tax (IHT). However, from April 2027, changes are expected that may subject pensions to IHT if the total value of your estate exceeds the tax-free allowance. This means that if you die after this date, your beneficiaries may have to pay IHT on the pension amount. 

Nominating Beneficiaries: It is essential to keep your beneficiary nominations up to date. You can fill out an 'expression of wish' form with your pension provider to specify who should inherit your pension. This can include anyone, not just relatives. 

Summary: In summary, what happens to your private pension when you die depends on the type of pension scheme you have and the decisions you have made regarding beneficiaries. It is advisable to review your pension arrangements regularly and consult with a financial advisor to ensure your wishes are clearly documented and understood. 

For specific details, always check with your pension provider or scheme administrator.

If you have a question in relation to Inheritance tax and how you can reduce the amount owed please contact us for a free consultation.