Family Provision and Post-death Variations

Question 1

What is the purpose of the Inheritance Provision for Family and Dependants Act 1975?

Answer 1

Allows certain groups of people to apply to the court for a benefit from the estate which they have been left out of (or have not be able to inherit under intestacy rules).

Question 2

List the categories of applicant under the 1975 Act.

Answer 2

a) Spouse or civil partner;

b) Former spouse or civil partner of deceased who has not remarried (unless on the divorce order they were barred rom making a claim);

c) Children of deceased;

d) People treated as family - in relation to any marriage or civil partnership of the deceased (or people such as a stepchild or child of a cohabited that the deceased assumed a parental role for).

e) Any person who was being maintained by the deceased immediately prior to death.

f) Any person who during whole of the period of two years (ending immediately before the date deceased died) was living in same household, or as the husband or wife, of the deceased.

Question 3

Explain in further detail when children of the deceased can make a claim under the 1975 act.

Answer 3

Adopted children are not included in this category (nor are step children).

Applications by infant children are not usually controversial.

More challenging for adult children. if adult child is in employment and likely to have earning capacity for foreseeable future, unlikely they will be able to claim (unless a special circumstance applies).

Question 4

What does being maintained by the deceased mean for the purposes of the 1975 act?

Answer 4

Where deceased was making substantial contributions in money or money’s worth towards the reasonable needs of that person (other than contributions made for full valuable consideration in a commercial arrangement).

Question 5

Explain the special circumstances under which an adult child may be able to make a claim (even if they are in employment and likely to have earning capacity for the foreseeable future).

Answer 5

Special circumstances include:

1) moral obligation owed by the deceased;
2) adult child is disabled;
3) adult child was working for the deceased for many years on a low wage;
4) child making sacrifices in order to care for the deceased prior to death.

Question 6

Explain in further detail category (e) of the 1975 Act - ‘any person who immediately before death of the deceased was being maintained wholly or partly by the deceased.

Answer 6

Catches those not falling within other categories but were a financial dependant.

The requirement the maintianece must be immediately before death isn’t taken literally. It refers to general arrangements for maintenance which existed during the lifetime of the deceased.

Question is whether there was a settled basis or arrangement between parties as regards to maintenance. Temporary breaks in this maintenance just before death does not negate a claim.

The arrangement also cannot be commercial (so a housekeeper or live in carer is not able to claim).

Question 7

Explain in further detail category (d) - any person (not being a child of the deceased) who was treated by the deceased as a child of the family.

Answer 7

Covers those who are not legal children but were deceased acted as a parent towards them.

Step children have succeeded under this category, but must prove deceased acted as a parent towards them to be successful.

Question 8

Further explain category f under the 1975 act (those living in the same household as husband wife or civil partner during whole period of 2 years ending immediately before death).

Answer 8

Cohabitants (not married spouse or civil partner) can claim under this category if they satisfy the following three conditions:

1) must have been living in same household as deceased;
2) as there husband wife or civil partner; and
3) this must have been for the whole two years immediately preceding the deceased’s death.

Question 9

Explain the requirement that the cohabitant must have been living in the same household as the deceased (in order to claim under category f).

Answer 9

This means living together as one unit.

Doesn’t include living under one roof but as separate entities.

Effectively this is construed as being tied. by their relationship, and having private and public acknowledgement of the mutual protection and support that binds them together.

Question 10

Explain the requirement that the cohabitant must have been ‘as a husband, wife or civil partner’ (in order to claim under category f).

Answer 10

This does not mean literally.

Applicant and deceased must have lived together as if they were married.

Test is whether a reasonable person with normal perceptions would regard them as living together as husband and wife or civil partners.

Absence of sexual relations does not negate this being found.

The relationship as a couple must however be openly acknowledged (ie not secretive).

Question 11

Explain the two years ending immediately before death requirement (in order to claim under category f).

Answer 11

Temporary situations (eg hospitalisation or care home) for a period before death does not disqualify cohabitant from a claim.

Court considers whether a reasonable person would regard them as living as husband and wife.

Some degree of permanence and commitment is needed.

Question 12

Explain the decision of Gully v Dix

Answer 12

Man and woman cohabitants for 27 years.

Applicant walked out sometimes due to deceased’s drink problem, but always returned.

They were apart for 3 months prior to death.

Court found however that the two years requirement was satisfied as they had ‘a substantial and enduring relationship akin to marriage which had lasted for 27 years’.

Question 13

Does cohabitant have tp li ve in same house as deceased to qualify under the act?

Answer 13

No provided they live as one unit - no requirement to technically live under same roof.

Question 14

Is there a time limit on making an application under the 1975 Act?

Answer 14

Must be made within 6 months from date of grant of representation.

Application can also be made before the grant is issued.

Application is made online or by postal search of probate records.

Question 15

What is a standing search?

Answer 15

Ensures applicant is notified of any grant which issues in the following 6 months.

Question 16

Can the time limit for a 1975 act application be extended by the court?

Answer 16

Yes but only if the court is satisfied there is a good reason for the delay.

Question 17

List the factors the court will consider when seeking to determine whether to extend the period for an application under the 1975 Act.

Answer 17

Court will onside the following factors:

1) Merits of applicant’s claim for provision;
2) How promptly applicant sought permission;
3) Whether the estate has already been distributed;
4) Whether, if application was refused, applicants would have had any other remedy; and
5) Whether PRs/ beneficiaries had notice within time limit of a possible claim.

Question 18

Explain the ‘surviving spouse standard’ for the reasonable financial provision test.

Answer 18

Allows surviving spouse or civil partner such provision as is reasonable in all circumstances, whether or not the provision is necessary for their maintenance.

Relevant factor here is how much they may have received had there have been a divorce.

Question 19

Explain the grounds for an application under the 1975 Act.

Answer 19

Whether or not the estate makes reasonable financial provision for the applicant.

This is an objective test.

Burden is on applicant to show this is satisfied.

There are two standards for judging the reasonable financial provision test:
1) Surviving spouse standard;
2) Ordinary standard.

Question 20

Explain the ‘ordinary standard’ for the reasonable financial provision test.

Answer 20

Applies to all other applicants (who are not spouse or civil partner of the deceased).

This allows financial provision that would be reasonable in the circumstances for the applicant to receive maintenance.

Maintenance is not defined in the act, but it has been deemed to mean payments which enable the applicant to discharge cost of daily living at whatever standard of living is appropriate to them (eg how much they need for rent, food bills etc).

The limitation to maintenance in the ordinary standard means that if the applicant is able to pay their own expenses, they won’t obtain anything and will fail the test.

Question 21

List the common guidelines in the act which help courts decide whether or not to make an award under the 1975 act (and whether the applicant meets the releasable financial provision test).

Answer 21

Guidelines are:

1) Financial resources and needs of applicant, other applicants, and beneficiaries of the estate now and in the future;

2) Deceased’s obligations towards any applicant or beneficiary (includes legal obligations such as the duty of a parent to maintain their infant child, as well as other moral obligations);

3) Size and nature of the estate (easier to make successful claim against large estate);

4) Physical or mental disability of any applicant or beneficiary;

5) Anything else which is relevant such as the conduct of the applicant (such as wishes of the deceased in documents which weren’t part of the will).

Question 22

Explain the guideline ‘financial resources and needs of applicant, other applicants, and beneficiaries of the estate now and in the future’ when deciding the entitlement of the applicant for readable financial provision under the 1975 Act

Answer 22

Court balances needs and resources of applicant against other beneficiaries and those with a claim to the estate.

Here they take into account earning capacity and financial obligations and responsibilities.

Question 23

Is it possible for someone who killed the deceased to make a 1975 claim? Technically yes but courts would be reluctant to allow it.

Answer 23

Technically yes but courts would be reluctant to allow it.

Question 24

Once satisfied the claimant qualifies as an applicant, and they are entitled to reasonable financial provision (either under the spousal standard or the ordinary standard) was happens next?

Answer 24

To determine the nature of the provision which should be made.

Question 25

The court has wide powers to make orders against the net estate? What types of payments can they order?

Answer 25

• Periodical payments;
• Lump sum payments; or
• The transfer of specific property to the applicant.

The revenant guidelines are used to determine which is most appropriate.

Question 26

When making an order for a family provision, what must the court specify in relation to where the money comes from?

Answer 26

How the burden of the order they make is going to be split, ie which beneficiary is to lose part or all of the property they would otherwise have taken.

Question 27

Are there any IHT implications of making a 1975 order?

Answer 27

Yes.

IHT may need to be recalculated as the order for provision to the applicant is treated as taking effect from the date of death.

This is particularly important if further provision is being made to a spouse for example (as this would mean more of the estate would qualify under the spousal exemption).

Question 28

Can lifetime gifts be impacted by an order under the 1975 act?

Answer 28

Yes.

If the court believes a gift was made with the intention of defeating potential claims under the act, they can avoid gifts made less than 6 years before death.

This means the gifted property in question would be included in the net estate from which a claim could be satisfied.

Question 29

Are PRs protected from personal liability from claims under the 1975 Act?

Answer 29

Yes provided they wait 6 months before distributing the estate.

Applicant can however still recover the property form beneficiaries.

Question 30

What special guidelines do the court take into account where an applicant is the surviving spouse or civil partner?

Answer 30

Age;

Contribution to the welfare of their family (including caring responsibilities);

Duration of the marriage and likely financial settlement if divorce had occurred.

Question 31

What special guidelines do the court take into account where an applicant is the child of the deceased?

Answer 31

Education or training requirements.

Question 32

What special guidelines do the court take into account where an applicant is the surviving cohabitant?

Answer 32

Age;

Length of period of cohabitation; and

Contribution to family (including caring responsibilities).

Question 33

In which situations is a post-death variation or disclaimer (in relation to the estate) desirable?

Answer 33

1) Beneficiary feels member of the family has been unfairly excluded or needs larger legacy (eg circumstances may have changed since the will was made).

2) Adult beneficiaries may decide their legacy should go to their own children.

3) Person threatening to bring a 1975 claim - out of court settlement may be desirable to avoid the stress of going to court.

4) Will or distribution of intestacy may not be tax-efficient. A variation of the terms may achieve considerable savings of IHT/ CGT.

Question 34

What are the three most common ways property can be redirected post-death?

Answer 34

1) Lifetime gift by beneficiary of an inheritance under will or intestacy;

2) Post death disclaimers;

3) Post-death Variations.

Question 35

Explain post-death disclaimers.

Answer 35

Rejection of assets under a will or intestacy by the beneficiary.

Disclaimed asset then passes as though that beneficiary had predeceased.

Disclaimers are only appropriate if the property rejected by the disclaiming beneficiary actually goes to the person they want to benefit from it.

Note beneficiary cannot disclaim part of a gift (all or nothing) and cannot disclaim once they have accepted the gift.

Question 36

Explain post death variations.

Answer 36

Allows beneficiary to redirect the gift to another (eg their children).

The beneficiary who has property redirected to them must be at least 18 and have mental capacity. Application can be made to the court if they are under 18. Under Variation of trusts Act 1958, court has power to consent for infants and people lacking capacity, provided the variation is for their benefit.

Question 37

Is a post-death variation or disclaimer treated as a PET for that beneficiary who makes the redirection?

Answer 37

Yes.

The effect of this is if the beneficiary making the redirection dies within 7 years, the property could be taxed twice for IHT purposes.

In order to get around this, the criteria under s142 Inheritance Tax Act 1984 must be fulfilled. This has the effect of the variation being ‘read back’ into the will.

Question 38

List the criteria that use be fulfilled in order to ‘read back’ variations into the will (for the purposes of s142).

Answer 38

Conditions are that the variation or disclaimer:

a) is in wiring and signed by the original beneficiary;

b) is within 2 years of the deceased’s death; and

c) is not made for a consideration in money or money’s worth.

The variation MUST also explicitly state that s142 IHTA 1984 is to apply.

Question 39

What happens if further IHT is payable as a result of the variation (eg the gift was to a spouse originally, but the variation causes the IHT exemption to be lost)?

Answer 39

If IHT is payable as a result of the variation, then the PRs of the deceased must also sign the written variation.

Question 40

How can a variation or disclaimer result in CGT implications?

Answer 40

A variation or disclaimer could give rise to a chargeable gain.

Chargable gains can be read back into the will to avoid this.

To do so, it must be within 2 years of the deceased’s death, and the conditions of the s142 IHTA must be satisfied (as with variations for IHT purposes).