Estate planning Flashcards
What are the 11 steps of estate planning?
- Up to date wills
- Existing trusts
- POA
- Deed of variation
- IHT reliefs
- IHT exemptions
- Loan trust
- Discounted gift trust
- Gifts into trusts
- Absolute gifts
- WOL policy
What is the purpose of a will? (2)
To distribute according to wishes of deceased
Ensure appropriate guardians for children
What are the 5 requirements of a will?
Witness x 2 (who arent beneficiaries)
Intention to make one
Legal capasity (of sound mind)
Legal document
Signed by testator
WILLS
What do you check in relation to existing trusts? (2)
-Are they up to date
-setup for right purpose eg. Spousal bypass to pass pension benefits tax free
What is the purpose of a spousal bypass trust? (6)
-is a discretionary trust setup to stop pension benefits falling into the surviving spouses estate on death
-only way to have certainty on who may benefit from your pension funds when you die is to use a trust (trustees of scheme still have final say)
-allow pension benefits to pass IHT free to the next generation
-for where a simple nomination of wishes does not suffice the situation
-taxed as beneficiaries income offset by tax already paid
-10 year anniversay and exit charges apply
What are the two types of poa?
Health and welfare
Property and financial affairs
Ensures affairs can be dealt with if lose mental capasity
What is the purpose of a deed of variation?(4)
-Allows inheritance received recently to be redirected
-must be done within two years
-must be a legal deed in writing
-stating whether it is for IHT reasons
Name two IHT reliefs
-Business property relief (shares in private/trading and AIM shares-min hold two years
-agricultural property relief-100% relief-not part of estate
What are the key four IHT exemptions (4)
-Intraspouse gifting
-Charity-when 10% total estate gifted-36% IHT applies
-Transferable NRB-unused from deceased spouse
-Annual exemptions £3000, small gifts, wedding exemptions
What is pre owned assets tax POAT (2)
-Someone who continues to have benefit of an asset removed from their estate
-Taxes the yearly benefit that the individual obtains from continued use
What is a loan trust? (4)
-for when want to start estate planning but not comfortable with gifting as many need it
-loan is repayable on demand-forms part of estate
-Growth in investment bond is outside of estate
-can waive the right to repayment and it be outside of estate after 7 years
What is a discounted gift trust? (5)
-Immediately reduces estate
-Regular Income (5% withdrawals from
Bond) must take this or its deemed further gift into trust
-the value of the estate IHT will be discounted by value of these retained payments
-if bare/absolute=pet
-if discretionary >£320k =clt
Downside of discretionary gift trust v loan trust
You lose access to capital in DGT, not in loan trust
How many years can you use gift allowance?
Current and previous year
Questions to ask around IHT (9)
Have you got Spare capital
IHT issues of concern
Any CLT’s Previously?
IHT gift allowance used
How much income need from available sum
Any liquid assets that could be used for IHT?
Any inheritances due?
Do we need an immediate reduction
How much could they afford to put away?
What are the three elements involved in a loan trust?
Settlor-establishes trust
The trust-settlor lend to trust, interest free, repayable on demand
The trustees-invest loan into inv bond on a medium/LT return, growth outside of estate
How is a spousal bypass trust taxed?
-@45% if die after age 75
-taxed on beneficiaries but with tax credit
What invalidates a will? (4)
Being revoked by testator
Marriage (unless specified)
A new will
Divorse removes ex spouse as beneficiary and executor
What happens to a will if couple divorse
Ex spouse is removed as beneficiary and executor of estate
What is the executor of a will and what do they do? (3)
Deals with estate after death
Has to apply for probate before dealing with estate
Pays taxes/debts
What are the laws of intestacy?(6)
For those without a will at death
Passes aitomstically to spouse
No specific funeral requests
Personal chattels to spouse
Wont have appointed a guardian for children
If passes to children it is kept in trust until 18
How is the estate divied up under the laws of intestacy?(4)
-First £270k to spouse
-+ 50% of remaining estate
-50% to children/grandchildren
-if none, the crown inherits
What order do assets go to under laws of intestacy (8)
Spouse
Children
Grandchildren
Parents
Brother/sister equally
Grandparents
Aunties/uncles
Crown
What happens to property under laws of intestacy? (2)
Joint tenance-spouse
Tenants in common-does not automatically inherit
How do you administer the estate under laws of intestacy and what does this allow then to do?(2)
Relative applies for grant of letters of administration
This authorises them to distribute fund
When is a letter of adminstration required?
When someone dies and does not leave a will
How do you setup a POA (6)
Lasting power of attorney health and welfare should be setup
Lasting power of attorney property and
Financial affairs
Attorneys setup (normally spouse and children)
Must register with office of public guardian/pay fee
Person must be consulted on all matters if has capasity
Can manage spouses bills/accounts /financial affairs
What are the legal requirements for POA (5)
Must be 18+ and of sound mind
Can have a named person (optional safeguard that gets notified)
Witness to donor signing
Solicitor confirms donor understands
lpa must be in writing
Risks of not having a will?(6)
Estate may not pass to who they want
May pay more tax
Delays in asministration
Funeral arrangements wont be known
More disputes
Someone will be appointed administrator (rather than picked)
What is the process for deed of variation? (6)
All beneficiaries must agree
Within 2 years
Name of beneficiry stated (>18/sound mind)
Cannot be for money/moneys worth
State effects on Cgt/IHT
In writing signed by all parties
What happens to assets when die without a will (12)
-laws on intestacy apply
-must apply for letters of administration
-survivor gets joint bank account
-survivor gets house
-survivor gets personal chattels
-survivor gets first £270k
-survivor gets 50% of remaining
-rest split between children
-dc pension passes to survivor (subject to trustee approval)
-DB passes to spouse
-pension dont form part of the estate
-survivor can apply for isa additional permitted subscriptions to protect tax wrapper
What should you put in a will (7)
Your appointed executor-to administer estate
Look after children <18. Appointed guardian for children/pets
List of assets and named beneficiaries
Identify beneficiaries
Split of estate
Setup of trusts/need for trustees/restrictions on gifts to children
Specific gifts/charity donations
