Estate planning

Question 1

What are the 11 steps of estate planning?

Answer 1

1. Up to date wills
2. Existing trusts
3. POA
4. Deed of variation
5. IHT reliefs
6. IHT exemptions
7. Loan trust
8. Discounted gift trust
9. Gifts into trusts
10. Absolute gifts
11. WOL policy

Question 2

What is the purpose of a will? (2)

Answer 2

To distribute according to wishes of deceased

Ensure appropriate guardians for children

Question 3

What are the 5 requirements of a will?

Answer 3

Witness x 2 (who arent beneficiaries)
Intention to make one
Legal capasity (of sound mind)
Legal document
Signed by testator

WILLS

Question 4

What do you check in relation to existing trusts? (2)

Answer 4

-Are they up to date
-setup for right purpose eg. Spousal bypass to pass pension benefits tax free

Question 5

What is the purpose of a spousal bypass trust? (6)

Answer 5

-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

Question 6

What are the two types of poa?

Answer 6

Health and welfare
Property and financial affairs

Ensures affairs can be dealt with if lose mental capasity

Question 7

What is the purpose of a deed of variation?(4)

Answer 7

-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

Question 8

Name two IHT reliefs

Answer 8

-Business property relief (shares in private/trading and AIM shares-min hold two years
-agricultural property relief-100% relief-not part of estate

Question 9

What are the key four IHT exemptions (4)

Answer 9

-Intraspouse gifting
-Charity-when 10% total estate gifted-36% IHT applies
-Transferable NRB-unused from deceased spouse
-Annual exemptions £3000, small gifts, wedding exemptions

Question 10

What is pre owned assets tax POAT (2)

Answer 10

-Someone who continues to have benefit of an asset removed from their estate
-Taxes the yearly benefit that the individual obtains from continued use

Question 11

What is a loan trust? (4)

Answer 11

-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

Question 12

What is a discounted gift trust? (5)

Answer 12

-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

Question 13

Downside of discretionary gift trust v loan trust

Answer 13

You lose access to capital in DGT, not in loan trust

Question 14

How many years can you use gift allowance?

Answer 14

Current and previous year

Question 15

Questions to ask around IHT (9)

Answer 15

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?

Question 16

What are the three elements involved in a loan trust?

Answer 16

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

Question 17

How is a spousal bypass trust taxed?

Answer 17

-@45% if die after age 75
-taxed on beneficiaries but with tax credit

Question 18

What invalidates a will? (4)

Answer 18

Being revoked by testator

Marriage (unless specified)

A new will

Divorse removes ex spouse as beneficiary and executor

Question 19

What happens to a will if couple divorse

Answer 19

Ex spouse is removed as beneficiary and executor of estate

Question 20

What is the executor of a will and what do they do? (3)

Answer 20

Deals with estate after death

Has to apply for probate before dealing with estate

Pays taxes/debts

Question 21

What are the laws of intestacy?(6)

Answer 21

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

Question 22

How is the estate divied up under the laws of intestacy?(4)

Answer 22

-First £270k to spouse

-+ 50% of remaining estate
-50% to children/grandchildren

-if none, the crown inherits

Question 23

What order do assets go to under laws of intestacy (8)

Answer 23

Spouse

Children

Grandchildren

Parents

Brother/sister equally

Grandparents

Aunties/uncles

Crown

Question 24

What happens to property under laws of intestacy? (2)

Answer 24

Joint tenance-spouse
Tenants in common-does not automatically inherit

Question 25

How do you administer the estate under laws of intestacy and what does this allow then to do?(2)

Answer 25

Relative applies for grant of letters of administration

This authorises them to distribute fund

Question 26

When is a letter of adminstration required?

Answer 26

When someone dies and does not leave a will

Question 27

How do you setup a POA (6)

Answer 27

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

Question 28

What are the legal requirements for POA (5)

Answer 28

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

Question 29

Risks of not having a will?(6)

Answer 29

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)

Question 30

What is the process for deed of variation? (6)

Answer 30

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

Question 31

What happens to assets when die without a will (12)

Answer 31

-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

Question 32

What should you put in a will (7)

Answer 32

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