How do I cut my troublesome sister-in-law out of grandma’s inheritance?

My grandmother is 95, healthy and sound in mind. Unfortunately, my mother passed away, so my grandmother’s wish is to leave 50 percent of her estate to me and my brother.

My brother is married to his wife, but she has significant mental health problems and their marriage is often shaky.

To prevent his wife from potentially being entitled to part of this inheritance in the future, we discussed the option of my grandmother leaving 100 percent to myself.

My brother and I have a very good and close relationship. This would keep the money safely under my control. I would then, when the time is right, use the money to provide things for my brother, such as a car, vacation, and so on.

My question is whether there are any tax implications for spending potentially large amounts of money on “gifts” for my brother?

Other information if relevant is that I have power of attorney for my grandmother. When my grandfather died he left everything to my grandmother so I understand his inheritance tax threshold goes to her.

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Heather Rogers replies: Many people want to protect their assets, both future and current, against potential claims from a partner.

When a couple divorces, the assets considered in a financial settlement are normally those classified as marital property.

These are assets acquired during the marriage and include property, business interests, personal property and pensions, investments and cash.

I’ll go through the rules regarding divorce and inheritance and then address your specific question.

How are inheritances dealt with during a divorce?

Inheritances are often a problem in divorce proceedings. Can a spouse who has inherited property keep it for himself? The answer to that question depends on several factors:

– When the inheritance is received

– Whether it was issued and used during the marriage

– What other assets the couple has

– When there is enough in the pot to share among themselves

– The duration of the marriage.

Depending on the circumstances, it can be argued that the property is not matrimonial property; in other words, it is not included in the pair’s assets and therefore remains out of the pot to be split.

However, if the couple’s finances are in a bad state and there are very few assets to divide, the court may consider the inheritance up for grabs, especially if it is deposited in a joint account and available to both. spouses to use.

What about legacies that have not yet passed to a spouse?

A judge is unlikely to pass judgment on a possible inheritance. After all, finances and wills can change.

Only if the person has recently died and the inheritance is due definitively and/or very soon, can the court consider it relevant. It should be declared if received before a financial settlement is agreed.

How do you protect estates in a divorce?

You can create a pre- or post-marital agreement, which can specify the assets and wishes of the parties.

Although they are not legally binding, they are usually ratified by the court, provided all conditions are met.

You can also keep the inheritance separate from the other matrimonial property and not use it during the marriage.

However, you must ensure that you place an inheritance in a trust.

If property, such as an inheritance received, is given for safekeeping and this is deemed to be to prevent the other party from making a claim against it, the court can challenge this under family law.

Legal advice should be obtained before any such action is taken in respect of trusts under consideration.

If you are getting divorced, always make sure you get a court order of consent as soon as your financial settlement is agreed to avoid future claims.

How could your brother protect his legacy?

First, you are right that when your grandfather died, any unused “zero rate brackets” related to estate taxes will pass into your grandmother’s estate. See the box below for more information on how inheritance tax works.

In your brother’s case, it sounds like divorce is a possibility. It is not yet final, and so the circumstances would depend on when the inheritance was received by your brother.

He and his wife could get a divorce and your grandmother might still be alive.

If that were the case, provided a warrant of consent had been obtained from the court, no further claim could be made against your brother if he then inherited.

With regard to inheriting the lot in case your sister-in-law has a claim on it in a divorce, you should take the following points into account.

1. The inheritance would be in your estate, meaning any gifts you give to your brother would fall under the seven-year rule.

My previous column on gift and inheritance tax goes into great detail.

However, the important rule to remember is that if you make gifts during your lifetime, they may become subject to inheritance tax on your death if they are made less than seven years before the date of your death.

2. Any gifts you give to your brother would probably be considered marital property if he were to divorce, so if you give him cash or buy him a car, he would be in the same situation as if he were to inherit himself.

3. Something may happen to you, or you and your brother may fall apart.

As for your further options if your grandmother left you everything, a deed of variation could be drawn up in favor of your brother within two years of your grandmother’s death.

An earlier column explains how deeds of variation work, but the main point here is that it would mean that any change to the beneficiaries would be deemed to have come from the original will and not as a gift from you.

However, it is important to be careful that a deed of variation cannot be seen as denying financial support to your brother’s wife.

Another option, if your grandmother chooses to do this, is for her to leave your brother’s share to him in a trust through her will.

This does not guarantee that his wife will not make a claim, especially if he takes advantage of the trust during their marriage.

However, a “letter of wish” left with her will may be specific as to your grandmother’s own intentions regarding this matter.

Whether a trust interest qualifies as a financial asset, and thus a marital property, in a divorce depends on a number of factors and is usually determined by the court.

Your grandmother can also leave a portion of her estate to any children of your brother and his wife, either wholly or in trust, or with them entitled to capital and your brother to income, although the income will most likely be taken into account in the one parting.

Trusts can be complex to manage and require tax returns. Periodic estate taxes may also be levied depending on the amount invested and the type of trust used.

In short, there is no way to fully guarantee the protection of a future legacy. You should seek advice from a lawyer before making any decisions, especially when setting up a trust.

Ask Heather Rogers a tax question

Tax expert Heather Rogers answers our readers’ questions

Heather Rogers, founder and owner of Aston Accountancy, is our tax columnist. She is ready to answer your questions on any tax topic – tax codes, estate tax, income tax, capital gains tax and much more.

If you would like to ask Heather a question about tax, please email her at taxquestions@thisismoney.co.uk.

Heather will do her best to answer your message in an upcoming monthly column, but she won’t be able to reply to everyone or correspond privately with readers. Nothing in her answers constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime telephone number with your message – this will be kept confidential and will not be used for marketing purposes.

If Heather can’t answer your question, so can you read more about help with tax matters here, including resources for free professional advice if you are older and/or on a low income.

You can also get in touch MoneyHelper, a government-backed organization that provides free assistance to the public in financial matters. The number is 0800 011 3797.

Here, Heather shares tips on how to find a good accountant, including when to seek help, hiring the right type of company, and typical costs.