FLK Wills Flashcards

Question

What can be done to prevent the issue of a grant e.g. in a situation where someone needs more time to investigate the situation?

Answer 1

If a person has just cause to dispute the validity of a will or has another reason why the grant should not be issued, they can lodge a caveat at HMCTS. Other reasons could be a beneficiary not believing the executor has the capacity to act.

Answer 2

A caveat prevents a grant from being issued, until the caveat is removed or it ceases to be effective.

Answer 3

An application for a caveat can be made online or using form PA8A.

Answer 4

A caveat lasts for six months although its duration can be extended. An applicant for a grant may issue a warning to the caveator which requires the caveator to enter a appearance within 14 days setting out their interest. If the caveator fails to do so they can remove the caveat.

Answer 5

Compelling a person to take an grant could cause more issues if they are incompetent and unwilling. Another option is to apply for a court order to pass them over in favour for someone else. E.g. an executor has intermeddled but will not do anything.

Answer 6

PRs need to produce estate accounts for the residuary beneficiaries to show all the assets of the estate, the payment of debts, administration expenses and legacies and the balance remaining for the residuary beneficiaries. The balance is usually a combination of assets transferred to the beneficiaries and some cash. Interim payments need to be taken into account and shown on the estate accounts. The residuary beneficiaries then sign the accounts to indicate their approval.

Answer 7

The residuary beneficiaries then sign the accounts to indicate their approval which also absolves PRs from future liability. But does not absolve them from liability for fraud or failure to disclose assets.

Answer 8

There is no prescribed form for estate accounts. The account should show capital assets and income produced during the administration period, in separate capital and income accounts.

Answer 9

Not for small estates. Although it is always necessary to prepare separate accounts if the will/intestacy rules creates a life or minority interest. This is because the capital and income need to be distinguished throughout the period of the trust and when it ends.

Answer 10

If a beneficiary wants to see the estate accounts before the administration is complete and the executors refuse to comply, a beneficiary can apply to the court for an order to compel the executors to provide the estate accounts.

Answer 11

Before making distributions, need to consider if they have made interim distributions already on account of their entitlement. These must be taken into account when considering what is left to be transferred. Whether they are adults/minors or have a vested/contingent interest.

Answer 12

Apart from any interim distributions that must be taken into account when considering what is left to be transferred, if they are adults and have a vested interest, their interest can be transferred straight to them.

Answer 13

Apart from any interim distributions that must be taken into account when considering what is left to be transferred, if they have a continent interest, the property has to be transferred to a trustee who will hold it on trust for them until they fulfil the contingency.

Answer 14

Any interim distributions that must be taken into account when considering what is left to be transferred. If the beneficiaries are under 18, it does not matter whether they have a vested or a contingent interest, they cannot give good receipt. The property will be held on trust for them, either until they reach 18 or they fulfil their contingency.

Answer 15

Personalty = usually delivery (no particular form of assent is required)

Answer 16

Company shares = stock transfer form (PRs must also show their grant to the company as proof of title to the shares) and beneficiary must apply to be on the register of members.

Answer 17

Freehold/leasehold = by means of an assent, which will become the document of title to the estate. If the PRs continue to hold in the capacity of trustees then another assent is necessary to formally vest it in themselves. Must be in writing, signed by PRs and in name of the person in whose favour it is made. A deed is not necessary to pass the legal estate. But this can be useful/necessary e.g. if an indemnity covenant needs to be given.

Answer 18

Complex estate: - Value of the estate exceeds £2.5 million - Tax due for the whole of the administration period is over £10,000 - The value of the assets sold in the tax year exceeds £500k The payment is usually made in a lump sum at the end of the administration period (not complex estates). CGT for disposal of UK residential land must be paid within 60 days of completion.

Answer 19

a) Adjusting inheritance tax - corrective amount b) PRs continuing tax liability - corrective amount c) Income tax for administration period d) Capital gains tax

Answer 20

An adjustment for either/or the instalment or non-instalment option may be necessary if: - New assets or liabilities have been discovered since the IHT account - Lifetime transfers made in the 7 years before death have been discovered Asset valuations for e.g. shares and land, have come back - PRs and HMRC have agreed the tax liability or repayment of the deceased’s income or capital gains before death Sales made by PRs after the death have given rise to inheritance tax loss relief. This is when qualifying assets are sold within 12 months of the date of death for less than their value calculated at the date of the death. The sale price (the loss) is swapped with the market value at death and the IHT is adjusted accordingly. Qualifying investments are shares or securities which are quoted on a recognised stock exchange at the date of death and also holdings in authorised unit trusts. The relief is not automatic so the PRs must make a claim. It is usually only available to a PR making a claim and not a beneficiary to whom the assets have been transferred.

Answer 21

Yes, when the IHT is being paid by instalments, the PRs should consider retaining some assets to pay the future instalments. If they do not do so and distribute all assets, the PRs continue to be liable to pay the remaining instalments so it is risky for them to rely on the promise that the beneficiaries will pay the tax. If they disappear/become insolvent, there are no assets to pay the IHT and PRs will be liable. In terms of IHT on lifetime transfers: When a deceased dies within 7 years of a PET or LCT*, the donee has to pay (*more) IHT. However, if the donee has failed to pay IHT on the gifts within 12 months after the end of the month of death, the PRs of the donor’s estate become liable. However, the deceased’s liability is limited to the extent of the deceased’s assets that they have received or would have received, but for their neglect or default. In terms of IHT on GROB: If the deceased made a GROB, this property is treated as part of the estate on death. Whilst the donee of a gift is primarily liable to pay the tax, if the IHT is unpaid 12 months after the end of the month of death, the PRs are liable.

Answer 22

When all tax variations considered, the PRs report the outstanding matters (if there are any) to HMRC in a ‘corrective account’.

Answer 23

The PRs will want to obtain confirmation from HMRC that there are no other IHT liabilities. They can apply for this using IHT30. The confirmation is provided in a clearance certificate. Once received. The certificate discharges all people, including PRs from IHT. This does not absolve them from fraud or non-disclosure.

Answer 24

The PRs have liability immediately following the death to make HMRC return for the deceased’s income and capital gains. Tax liability is debt that the PRs must pay during the administration. The debt is deductible when the IHT is calculated. Alternative, if tax was overpaid and tax refund is obtained, then this is an asset and increases the size of the estate for IHT purposes.

Answer 25

Calculated from the period of 6 April before the death and ends with the date of death. This is the tax that was due before the deceased died. Even if they die part way through the income tax year, the same tax reliefs and allowances can be claimed as if they lived throughout the whole year.

Answer 26

PRs must pay CGT on taxable gains made following a disposal of estate assets and pay income tax on any income received during the administration period.

Answer 27

There are some differences with PRs managing income tax than when a live person sorts out their income tax: The PRs do not pay income tax on any higher rates (so it is 8.75% on dividends and 20% on other income). PRs do not benefit from any allowances available to individuals for income tax. However, if the only income received is interest payment of less than £500, then PRs do not need to pay any income tax. The interest is therefore paid to the beneficiary who is entitled to it (who owns the asset) and they have to submit it in their own income tax return. PRs may be able to claim relief for interest paid on bank loans to pay inheritance tax on a deceased’s personal property located in the UK. Once the PR’s tax position has been settled, the rest of the net income is transferred to the beneficiary who is entitled. The beneficiary then deal with it as their property and their income tax position relates to their own finances but they will get credit for the tax paid by the PRs on that asset.

Answer 28

The PRs acquire all of the deceased’s assets at their probate value at death. This means that any gains made during the deceased’s lifetime are forgotten so they are not charged. The asset is taken as the value on death. For future CGT issues, the probate value is the base cost so any actual purchase price becomes irrelevant.

Answer 29

If the PRs then make a sale of an asset during the administration e.g. to raise capital, this is a disposal that would attract CGT. Again the CGT position differs from a non-probate disposal. The CGT payable for PRs is 20% although this is increased to 28% for gains on residential property which is taxed at 28%. The PRs can claim annual exemption for disposals made in the tax year in which the deceased died and the following two tax years (if administration is ongoing). This is £6,000 for 23/24. It is possible for the PRs to plan the disposal carefully so that the annual exemption can be used for the three tax years it is available. If the assets are worth less at death than when they were bough i.e. they have depreciated in value, then an allowable loss for CGT will arise. This allowance loss can be set off against gains made by the PRs on other sales. These are either sales in the same year or a future tax year during the period of administration. If a loss has not been relieved at the end of administration, it cannot be transferred to the beneficiaries. The tax therefore has to be planned carefully e.g. planning the sale of their assets or transferring assets that have depreciated directly to the beneficiaries/trustees. The beneficiary/trustee is deemed to have acquired the asset on its probate value rather than the original purchase value. This is therefore the base cost for any future CGT disposals.

Answer 30

Before distributing, the PRs need to ascertain that the specific legacy is not needed to pay debts and expenses.

Answer 31

a. Check it is not needed to pay/debts expenses b. Transfer asset

Answer 32

The vesting of the asset is retrospective to the date of death. This means that any income produced by the beneficiary belongs to the beneficiary during this time. However, they are not entitled to the income as it arises and need to wait until the property vests in them. As the beneficiary is entitled to the income, the beneficiary will be assessed on the income tax from death.

Answer 33

The beneficiary bears the cost of transferring the assets e.g. necessary insurance cover. The beneficiaries should therefore reimburse the PRs for the expenses incurred. This obviously only applies as long as there is no other intention expressed in the will.

Answer 34

If the deceased’s title to the asset is being disputed, the costs fall on the beneficiary.

Answer 35

If the will does not designate assets for this, the PRs must decide. The general approach is that they should be paid from the residue and real property is to be avoided.

Answer 36

The general rule is at the payment of the end of the executor’s year. PRs are not bound to distribute it before the expiration of the one year from death.

Answer 37

But the beneficiary is entitled to interest* compensation payment if its takes them longer than the executor’s year. *Either the rate defined in will or the rate payable into court. Dependant on when the pecuniary legacy vests in the beneficiary i.e. immediately on death or on fulfilment of a contingency, the date the interest becomes payable is a year after the date it becomes possible for it to vest in them.

Answer 38

However, there are four exceptions to the rule. The exception are where interest is payable on a pecuniary legacy from the date of the death rather than from the end of the executor’s year. This happens when the legacies are: Payable in satisfaction of a debt owed by a testator to a creditor Charged on land owned by the testator Payable to the testator’s minor child Payable to any minor where the intention is to provide maintenance to that minor

Answer 39

Once some money has been collected from immediate sources e.g. bank accounts, the PRs should pay the deceased’s outstanding debts and the funeral account.

Answer 40

If they took out a loan for IHT, the PRs will need to pay this back. It may be that the undertaking that was given was a ‘first proceeds undertaking’. Failure to do would be a breach of the undertaking.

Answer 41

Any of the estate’s assets can be used to pay the debts and expenses. This may involve selling assets. The PRs should consider: a. The provisions of the will The will may state where the expenses and debts should be paid from. If no provision, they are usually paid from the residue. b. Beneficiaries wishes The wishes of the beneficiaries of the residuary estate should be respected if possible. Pls may have the power to sell any assets in the residuary estate but the residuary beneficiaries should be consulted beforehand. May be necessary to get professional advice on the sale. c. Tax consequences The PRs should consider any capital gains or losses that could arise out a sale and exemptions. Annual exemptions should be fully used for capital gains tax. If assets are to be sold at a loss compared to their value at the date of death, loss reliefs for capital gains tax and inheritance tax purposes may be available for the PRs.

Answer 42

PRs are required to pay reasonable expenses of a funeral that is suitable for the deceased’s means and circumstances (question of fact). PRs are only liable to do so to the extent they have sufficient assets of the deceased’s estate to make the payment.

Answer 43

a. Secured debts A beneficiary who takes an asset with a secured debt, takes the asset subject to the debt. It effectively moves with the asset so the beneficiary recipient will have to deal with it. The above rule is subject to any variation (in the will or other document). However, the rule cannot by a general provision in the will e.g. “the debts should be paid out of the residue”. A direction like this would be construed to mean a direction to pay debts from residue other than secured debts. For contrary intention to be effective, there must be express reference to a secured debt e.g. my cottage to my daughter free of mortgage. This would be enough to ensure the asset was free of debt. b. Unsecured debts and expenses There is a statutory order of priority: 1. Property not disposed of by a will (i.e. passing by full/partial intestacy not subject to the retention of a sum for pecuniary legacies) 2. Residue gift (subject to the retention of pecuniary legacy fund if not already done) 3. Property the will sets aside (or charges with) the repayment of debts Money in the pecuniary legacy fund (if insufficient money, the legacies abate i.e. are reduced proportionately according to value) 4. Property specifically given e.g. chattels Generally the residue is used first before specific gifts. The statutory order applies subject to contrary intention in the will.

Answer 44

The order of distribution in the Administration of Insolvent Estates of Deceased Persons Order should be followed: 1. Secured creditors - they are ranked first and are paid first. 2. Unsecured creditors - will be paid out of any remaining assets. a. Funeral expenses and testamentary expenses are paid first. b. Ordinary unsecured debts and liabilities of the deceased - if more than one, they will abate equally. If there is any doubt as to whether the estate is solvent or insolvent, the estate should be treated as insolvent. This is because the PRs are liable for failing to administer the estate in accordance with the statutory order.

Answer 45

If the assets are passing under the will or intestacy rules, the assets will devolve on the PRs automatically. Devolution means that the PRs have ownership of the assets in the estate but they still need to collect the assets in. Real property passes under statute and personal property under common law.

Answer 46

For executors the devolution happens immediately on death.

Answer 47

For administrators, the devolution happens when the grant of representation is issued.

Answer 48

Some assets can be collected in immediately e.g. cash in home. But most assets will require a grant of representation to collect the asset. An office copy of the grant is usually acceptable - it does not have to be the original copy.

Answer 49

Once the assets have been collected, the PRs must preserve the assets pending the completion of the administration. Preservation essentially means that they have to manage the assets. This is under the same duties as those of trustees in terms of management and investment and they are subject to the same reasonable care and skill.

Answer 50

a. Keeping assets in case claimant appears. b. Indemnity from beneficiaries c. Insurance to provide funds if they reappear d. Benjamin order e. Waiting 6 months to distribute

Answer 51

a) Make searches of property and b) make an s27 advertisement.

Answer 52

2 months - The PRs should starting advertising (for min two months) as early as possible in the administration. For executors the earliest time would be after death. For administrators this would be from obtaining grant of representation.

Answer 53

The advertisement should be in the London Gazette, a local newspaper in district where the deceased owned the land and anywhere that a court in administration would direct to advertise in.

Answer 54

If the PRs are not sure where they should advertise, they can apply to court for directions.

Answer 55

If a person who is interested in making a claim, they need to send in a particulars of claim within the time specific in the notice. The time specified in the notice cannot be less than two months.

Answer 56

The PRs should make searches that ‘a prudent purchaser of land would make’. This includes Land Registry, the Land Charges Register and the Local Land Charges Registry (if relevant).

Answer 57

PRs hold the office for life so if further assets or liabilities are discovered after the residue has been transferred then the PRs are still required to deal with them.

Answer 58

If they accept office, they are liable for the loss to the estate resulting from a breach of duty they commit in the office of PR. They are not generally liable for breaches committed by a co-PR.

Answer 59

Whether there has been a loss caused by the breach. The test is not whether the PR is culpable.

Answer 60

The court has the discretion to relieve a PR from liability for breach of duty if satisfied that the PR has “acted honestly and reasonably and ought fairly to be excused for the breach”.

Answer 61

An executor might be able to rely on a clause in the will providing protection from liability for mistakes made in good faith.

Answer 62

People in the lower category can only take the grant if they clear off the above category. In form PA1A they also need to state their relationship to the deceased as well as clearing off. Unless the applicant is the Treasury solicitor or a creditor, the applicant must have a beneficial interest under the estate through the intestacy rules.

Answer 63

Normally one but if there is a life interest or a minor, two administrators need to be appointed but the court may dispense of this in special circumstances.

Answer 64

If there are many possible administrators in the same category, then the grant will not be issued to more than 4 administrators.

Answer 65

If there are two or more people entitled to apply in the same category, they can make grants without giving each other notice.

Answer 66

They can renounce their right by submitting Form PA16. Renunciation does not affect their beneficial entitlement or any appointment as a trustee.

Answer 67

Form PA1P, the original will and any codicils. The dates of the will and codicils must be entered onto the form and details must be provided of any foreign wills in case they revoke the UK will. The form asks whether the deceased married or formed a civil partnership after making the will.

Answer 68

Only one executor is needed (even if there is an interest of land or a minor interest).

Answer 69

There is no limit to how many executors can apply to a grant but ONLY 4 can take out a grant of probate. The power can be reserved to the others so they can take it out if a vacancy arises.

Answer 70

An executor who lacks capacity to act cannot apply for the grant. If there are other appointed executors, they can act. If there is no-one else, if they have an attorney who has power of attorney, they can take out the grant.

Answer 71

The minor can reserve their power. This means that when they are old enough they can take out a grant when they turn 18 and if the estate is not yet completed.

Answer 72

This is the grant that is taken out by a minor when they have historically reserved a power and they turn 18 and the administration is not yet complete so they take out a grant.

Answer 73

If minor is the only executor appointed by will, they cannot take out a grant of probate so it will have to be a grant of letters of administration with will attached for use and benefit of the minor. Usually made to the parent/guardian until minor attains 18. When they reach 18, they could then apply to stop the grant if the administration has not been completed.

Answer 74

With effect from January 2024, the requirement for PRs submitting a form IHT400 to obtain a form IHT421 from HMRC no longer applies. The process now is that following submission of the IHT400, HMRC will write to the PRs providing a unique code and details of the estate values. The PRs must include the code and estate values in the relevant grant application form. The grant will not be issued if the code is not included HMCTS. An interval of 20 days should be allowed for this to be done. The application forms for a grant include a question asking when the IHT400 was submitted and the application will be blocked if insufficient time has elapsed.

Answer 75

The IHT400 is an inventory of assets to which the deceased was beneficially entitled and of their liabilities. This is the form that is used to show reliefs and exemptions and is used for calculating IHT.

Answer 76

It should be sent to HMRC within 12 months of the end of the month in which the death occurred. PRs will however want to send it within six months of the end of the month of death to avoid paying interest in IHT.

Answer 77

HMRC then has 60 days from the issue of the grant of representation to ask for additional information. If it does not make this request it is automatically cleared.

Answer 78

Estates of £5,000 or less.

Answer 79

This evidence can be an affidavit sworn before a solicitor who is not acting for the PRs or a witness statement verified by a statement of truth.

Answer 80

The registrar will require evidence of due execution and/or capacity if: a) there is no attestation clause, b) there are circumstances raising doubt about the execution of the will, c) the attestation clause is defective. The evidence should come from an attesting witness. If the doubt is about mental capacity, the affidavit may have to be from a doctor. It will be helpful if the doctor had examined the testator at the time the will was made.

Answer 81

Doubt may arise as when: a) the will was signed by someone other than the testator due to illiteracy or illness or b) suspicious circumstances. If these situations arose, the attestation clause should have been adapted to reflect this but indicating that the will was read over to the testator/was independently explained to the testator. If there is no such amendment the registrar will want evidence normally from an attesting witness but could also be the independent person who explained the will to the testator.

Answer 82

Unless the attestation clause was amended, evidence will be required.

Answer 83

Evidence will be required if it seems that the will has been interfered with since its execution. The registrar will likely want evidence where: a) the will has been altered since execution, b) if there are marks at the top of the page that indicate something as been attached or taken away or c) where there is evidence of attempted revocation.

Answer 84

A lost will is presumed to have been destroyed by the testator with the intention of revoking it. But if this was an accident, it may be possible to use a copy of the will if it was kept on file by a solicitor or reconstructed but evidence will be needed.

Answer 85

Step 1: Check PRs. Step 2: Check validity of will and which grant to obtain. Step 3: Establish identity of the beneficiaries and the nature and extent of their entitlements. Check whether any gifts have failed due to ademption or lapse. Step 4: Separate assets into the assets that do not require a grant, those that do not pass through PRs hands and those that do. Identify the assets and have them valued (most will be market value) Step 5: Assess the IHT position. Step 6: Prepare and send off IHT400.

Answer 86

An estate is considered small if the gross value for IHT purposes does not exceed the current nil rate threshold (£325,000 but consider TNRB). The gross value includes value of specified transfers and specified exempt transfers in 7 years prior to death but does not include deductions for exemptions and reliefs. So need to add up the relevant estate and consider what NRB is available BEFORE deductions. A specified transfer is: a chargeable transfers of cash, personal chattels or tangible moveable property, quoted shares or securities, or an interest in or over land (unless the land becomes settled or is subject to a reservation of benefit) made in the 7 years before death. Specified exempt transfers are transfers of value made during the seven years before death which are exempt under spouse exemption, charity exemption, gifts to political parties, gifts to housing associations, maintenance funds for historic buildings or employee trusts.

Answer 87

i) The gross value of the estate plus specified transfers and specified exempt transfers made in the seven years before death must not exceed £3 million; and ii) The net chargeable estate after deduction of liabilities and spouse/charity exemption plus specified transfers and specified exempt transfers made in the seven years before death and must not exceed the nil rate band. Consider NRB or TNRB. So need to add up all of the estate and the specified transfers and specified exempt transfers in 7 years prior to make sure it is below £3 million. Then if under £3 million, deduct the exemptions and reliefs. If it is still under the NRB/TNRB, then it is an exempt estate.

Answer 88

This is where the deceased was never domiciled or treated as domiciled in the UK and only owned limited assets in the UK. In order to prove this, the PRs need to include various information when apply for a grant. They do not need to contact HMRC directly. HMCTS passes the information to HMRC. They need to include deceased’s name and DoB, a declaration that the estate is excepted and details of any TNRB and the three IHT estate values. The three IHT estate values: gross value (+ specified transfers and specified exempt transfers made in seven years before death), net value of estate (for IHT less any allowable debts) and net qualifying value of the estate PRs of non-UK domiciled estates will have to provide more information. HMRC will have to provide a random sample to review within 60 days of the application for a grant.

Answer 89

Generally, the IHT is due six months after the end of the month in which the deceased died, or on application of the grant, if earlier. This applies to the non-instalment option which is used for most property. Late payments of the IHT will attract interest. The IHT on the non-instalment option must be paid before the grant is issued or within six months of the end of death if earlier. Assets under this: chattels, money in bank, quoted shares if not a controlling interest.

Answer 90

The instalment option is used for land and some types of business property. The first instalment will be due after 6 months of the end of the month of death and the other nine will be payable at other annual intervals. The tax on the estate is apportioned using the estate rate. It applies to: Land of any description A business or an interest in a business Shares (quoted or unquoted) which immediately before death gave control of the company to the deceased so this would be above 50% If the unquoted shares do not give control then there are some instances where HMRC may allow the instalment option. This is if the holding is sufficiently large (at least 10% of the nominal value of the company’s shares and worth more than £20k), or HMRC is satisfied that the tax cannot be paid in one sum without undue hardship or if the IHT attributable to the shares and any other instalment option property in the estate amounts to at least 20% of the IHT payable on the estate. Instalments of IHT on land carry interest whether or not they are paid on time. The interest is on the amount of IHT that was outstanding from the previous year. For all other instalment property, interest is only payable if an payment is missed. If the instalment option property is sold, all outstanding tax and interest becomes payable.

Answer 91

Options for this are a direct payment scheme, life assurance, assets realisable without production of a grant, loans from beneficiaries, bank borrowing, national savings and government stock, heritage property in lieu of tax and obtaining a grant on credit.

Answer 92

It is an option for paying IHT before the grant is taken out. Procedure that allows PRs to arrange payment of IHT to HMRC directly from the deceased’s accounts. Banks and building societies do have to be part of the scheme so need to check with them if they are. PRs need to provide the institutions with identification (well before grant to avoid delay). PRs complete IHT423 for each bank and building society from which money is transferred and sent to them at the same time as they send the IHT400 and supporting schedules to HMRC. The IHT423 includes an IHT reference number to allow HMRC to match up the payment with the correct estate. The bank or building society sends the money direct to HMRC. Once HMRC has received the money and is satisfied with the amount, it will e-mail the IHT receipt to HMCTS and notify the solicitor. Disadvantages: - Not a quick process, if need the money urgently this is not the right choice. However, solicitors often make private arrangements with the banks for the payment of IHT. - Depends on if the bank is party to the scheme

Answer 93

If proceeds of the life assurance policy are payable to the estate, it can be arranged with the insurance holder to instead pay this to HMRC rather than the PRs.

Answer 94

This is usually on the condition that they will be repaid from the estate once the grant is issued. Or they may already have assets that have passed outside of intestacy/the will, which they may be able to use e.g. life policy in trust.

Answer 95

Yes. The bank may however require an undertaking from the solicitor to repay the loan given by the PRs. No matter who the PRs is, any undertaking should be limited to proceeds that are in the solicitor’s control. The PRs can get income tax relief for interest paid on a separate loan account regarding the IHT payable on personalty vesting in them.

Answer 96

Can pay the tax from: - National Savings Bank accounts - National Savings Certificated - Any Government stock held on the National Savings register or any other National Savings investment

Answer 97

i) Joint property if held as beneficial joint tenant will pass to the other joint tenant through survivorship. The survivor can get the property transferred into their sole name by producing the deceased’s death certificate to the relevant institution/authority. ii) Insurance policies written in trust. The beneficiary of the trust just needs to present the deceased’s death certificate to the insurer. No IHT is payable on this. iii) Pension benefits. Pension schemes are often payable to a person decided on at the discretion of the pension fund trustees. Payments will be made to the beneficiaries if they produce a death certificate.

Answer 98

This is useful where the deceased’s family needs funds immediately for paying IHT or discharging bills. If the whole estate is made up of these estates then a grant is not needed at all. i) Small payments under £5,000 but these are at the discretion of the asset holder. A bank could still refuse to comply without a grant. Payments can be made from money in National Savings Bank and Trustee Savings Bank (but not other bank accounts), National Savings Certificates and Premium Bonds and money in building societies and friendly societies. ii) Chattels iii) Cash (e.g. found in home) iv) Assets not passing through PRs hands (joint property, insurance policies assigned or written in trust)

Answer 99

The grant of representation allows the PRs to gain control of the deceased’s assets so that they can realise or sell them or pay debts and legacies. It confirms that the PR has authority. Asset holders such as banks, building societies and insurance companies will not release funds to PRs before seeing a grant. In order to sell assets, the buyer will also often want to see a grant. Application for grant of representation are made to His Majesty’s Courts and Tribunals Service Probate (‘HMCTS’).

Answer 100

Whilst executors derive their authority from a grant of probate, they technically have full power to act from the date of death. However, many asset holders will require a grant before they release the assets so they will not be able to do much without a grant. Both types of administrators have limited powers before a grant is issued. Their authority is derived solely from the grant.

Answer 101

If a deceased leaves a valid will that appoints executors and one of more are able and willing to act, the executors will obtain a grant of probate. If a deceased has left a will but there is no one who is able to willing to act as an executor, the administrators will obtain a grant of letters of administration will the will annexed. If a deceased does not leave a will or it is not a valid will and they die intestate, the administrators have to obtain a grant of (simple) letters of administration.

Answer 102

Only one PR is needed to obtain a grant and they can act alone, even if there is land sold in the administration (not the case for trustees where need to have two for good receipt). One PR can give good receipt for the sale proceeds. Two administrators are needed if there is a minority interest or a beneficiary only has a life interest. In this case, if the PRs are executors, they can act alone.

Answer 103

If there is a will, a solicitor will want to identify the beneficiaries and the nature and extent of their liabilities. The solicitor will also want to check whether the gifts have failed due to ademption or lapse. If the deceased died intestate, the solicitor will need to establish which members of the family are still alive so that they can advise on the distribution of the estate in accordance with the rules.

Answer 104

It is necessary to establish the above and any associated documents such as share certificates etc. From this, it is possible to start assessing the size of the deceased’s estate and any IHT liability. The IHT valuation is also used for probate. The balances of any bank accounts and amount due on life policies can be obtained by writing to the asset holders. Assets are using valued at their open market value but special rules apply to related property and the valuation of quoted shares. An estate agent or auctioneer can be asked to value property. An accountant can be asked to value unquoted shares.

Answer 105

legacy. The circumstances may have changed since the testator made the will or adult beneficiaries decide they want their children to receive the legacy. If a person is threatening to claim under IPFDA, it may be better in terms of expense and stress to make a voluntary variation out of court. If the will or the intestacy is not tax efficient, a variation could save money on IHT or CGT or both.

Answer 106

The recipient could a) make a lifetime gift of the legacy, b) make a post-death disclaimer or c) a post-death variation

Answer 107

A disclaimer is a rejection of the assets which results in the assets passing as though the original beneficiary had predeceased. This is only a good option if the property passes to the intended beneficiary once the original beneficiary disclaims or if they do not care who it passes to. There are restrictions on disclaimers. The whole gift must be disclaimed; part of a gift cannot be disclaimed. A gift cannot be disclaimed if they have already accepted a benefit from the gift.

Answer 108

The whole gift must be disclaimed; part of a gift cannot be disclaimed.

Answer 109

A gift cannot be disclaimed if they have already accepted a benefit from the gift.

Answer 110

The restrictions that apply to disclaimers above, do not apply to variations. The beneficiary who want to vary the gift can direct who it should go to and on what terms. The effect of a variation is that it is as if the will is being rewritten by the original beneficiary. Variations can also be used to redirect the deceased’s interest in joint property which passes by survivorship. There are conditions to post-death variations.

Answer 111

There are conditions to post-death variations. The original beneficiary who is making the variation must be a) over 18 and b) have mental capacity. If a beneficiary is not legally capable of making a variation, they can apply to court. The court can consent to the variation for minors and those who lack capacity but they will only do so if it is for their benefit. The downside of a court application is that it is expensive and time consuming but this needs to be weighed up with factors such as potential tax savings.

Answer 112

If a disclaimer or a variation is made it will be regarded as a lifetime transfer of value. If the person making the changes then dies within 7 years, it would become chargeable. This means that the gift could be taxed twice. To avoid this issue there is a statutory provision that allows the changes to be ‘read-back’ to the will. This essentially means that the change is treated as though the testator had given the legacy directly to the new beneficiary. There are conditions that need to be met in order for the change to be read back to the deceased’s death.

Answer 113

a) The disclaimer/variation is in writing and signed by the original beneficiary; b) It is made within 2 years of deceased’s death; and c) It is NOT made for a consideration in money or money’s worth. For this to apply to variations, the note must also state that s142 Inheritance Tax Act 1984 applies.

Answer 114

If a disclaimer or a variation is made within 2 years, the change can be read back to the date of death for CGT purposes so that there is no disposal by the original beneficiary and no resulting charge. The are similar to conditions to those for IHT.

Answer 115

The IPFDA Act can be used by people who have been left out of the will, are not inheriting from intestacy or who have received some benefit but are not happy with the amount. They apply to court to following the testator’s or intestate’s death.

Answer 116

The person who’s estate is contested must have been domiciled in England and Wales.

Answer 117

a) Spouse or CP of the deceased. b) Former spouse or CP of the deceased who has not remarried (but not if the court barred this when they divorced/dissolved). c) A child of the deceased (whatever age). This includes adopted children but does not include stepchildren. It is easier for an infant child to succeed in this application. If the child is an adult and has a job and has an earning capacity for the foreseeable future, it is unlikely that they will be able to claim unless there is a moral obligation, they have a disability, they worked for the deceased on a low wage for many years and the child made sacrifices in order to care for the deceased. d) A person who was treated as a child of the deceased but were the child of their partner (spouse or CP) (e.g. step child) or if the deceased took on the role of parent (e.g. child of cohabitee). Stepchildren have succeeded but they need to show that the deceased acted as a parent to them. e) A person who was being maintained financially (in part or completely) immediately before the death. The financial contribution must be substantial in money or money’s worth to the person’s reasonable needs. This cannot be a commercial transaction so a housekeeper or live in carer does not count. Immediately before death is not to be construed literally, there can be breaks. f) A person who in the 2 years leading up to the death was living in the same household as the deceased as their husband/wife/CP. Same household means living as one unit. Living as a spouse is determined by the question, would a reasonable person with normal perceptions regard them as living together as husband and wife or civil partners. Relationship does not need to be sexual. The relationship has to be openly acknowledged so not secret. Two years before death is not broken up by temporary separation e.g. hospital or care home. But there has to be some degree of permanence and commitment.

Answer 118

The time limit for making an application is 6 months of issue of date of grant of representation. However, an application can be made before a grant is issued. The court has a discretion to extend the time limit but will only do so if there is good reason for the delay.

Answer 119

- The merits of the applicant’s claim for provision, - How promptly the applicant sought permission, - Whether the estate has already been distributed, - Whether the personal representatives of beneficiaries had notice within the time limit of a possible claim and - Whether the applicant would have another remedy if permission would be refused (e.g. suing their solicitor in negligence).

Answer 120

An applicant can check whether an grant has already been issued by doing an online or postal search of the probate records. It is also possible to make a standing search which ensures that the applicant is notified if a grant is issued in the following six months.

Answer 121

Test for making a claim: Step 1: Has the estate made a reasonable financial provision for the applicant? Objective test. Step 2: Apply the relevant standard for judging ‘reasonable financial provision. There are two standards, one for spouses and one for all other categories of applicants.

Answer 122

Relevant standard - standard for spouses This standard allows a surviving spouse or CP to receive financial provision that is reasonable in all circumstances. It does not matter whether that provision is for their maintenance or not. The way to assess this is to consider whether how much they might have received if they had divorced.

Answer 123

Relevant standard - standard for other applicants The standard for all other applicants allows them to receive financial provision that is reasonable in all circumstances, for their maintenance. Maintenance is construed from case law (no statutory definition) to mean payments that allow the applicant to pay for their daily costs, to whatever standard of living is appropriate to them. Therefore it considered the payments that would be necessary to meet their recurring expenses such as rent, heating and food bills. Due to the above, if an applicant is able to pay for their own living expenses from their own resources, they will not be able to obtain an award. Nb: Core difference between the standard is the maintenance aspect for ordinary standard which is absent from the spouse standard.

Answer 124

The Act also includes guidelines to help the court to decide whether an applicant has been given reasonable financial provision from the will and/or the intestacy provisions. There are common guidelines and specific guidelines. The common guidelines should be considered for every applicant and the specific guidelines should be considered if they are relevant to that applicant. The court considers the facts as they are at the date of the hearing. The common guidelines are: a) The financial resources and the needs of the applicant, other applicants and beneficiaries of the estate now and in the foreseeable future. The court considers the needs of the applicants as a whole before making a decision. The court will also consider the applicants’ earning capacity, their financial obligations, their responsibilities and any state benefits they are in receipt of. b) The deceased’s obligations towards any applicant or beneficiary. This includes legal obligations such as a parents duty to maintain their minor child and any moral obligations. c) The size and nature of the estate. If the estate is large, it is easier to make a successful claim. If it is small, the courts will not want to encourage claims that where the costs would take up a large part of the estate. d) The physical or mental ability of any applicant or beneficiary. e) Anything else which may be relevant such as the conduct of the applicant. Written reasons: Sometimes a testator will leave written reasons for leaving someone out of the will. These reasons may be in the will itself in which case it would become public when the will is admitted to probate or they may be in a separate document. The court has discretion as to how much weight they will give the reasons. Conduct: For example, if the claimant had killed the deceased* or there is a prolonged period of estrangement. *If a person is the cause of the testator’s death they forfeit their entitlement in a will but can still claim under the family provision so this provision would catch that loophole. The special guidelines: These guidelines vary with the category of applicant. a) Spouses and CPs - The court will take into consideration the age and the contribution to the welfare of the family (includes looking after the home and the family), the duration of the marriage or civil partnership and the likely financial settlement if the marriage or CP had ended formally. b) Children of deceased - The court considers their education or training requirements. c) Cohabitant - The court considers their age, the length of the cohabitation, the contribution made by the cohabitant to the welfare of the family e.g. looking after the home and caring for the family.

Answer 125

If the court decides after objective assessment that there was not reasonable financial provision, the court will make an order by determining the amount and nature of the provision that should be made. The court’s powers are wide. It can make an order against the net estate of the deceased which can include periodical payments or a lump sum payment. The net estate comprises also comprises property that may have been disposed of already and not just under the will.* Property that has passed under survivorship or otherwise can also be caught. The relevant guidelines are referred to again when making the decision for an order. When making an order the court will state which beneficiary or person will carry the burden of the reallocation of assets. *It is not possible to avoid the scope of the Act by making lifetime gifts as the court can avoid those gifts.

Answer 126

The altered disposition is treated as if taking effect from death so the IHT paid on death may have to be recalculated.

Answer 127

If a successful claim is made under the Act and there are not enough assets, the PRs are personally liable to satisfy the assets. The PRs should protect themselves by not distributing the assets until the 6 months have passed from the issue of the grant. If the court then decides to use its discretion to extend the deadline, the PRs will not be personally liable. A claimant can however pursue the other beneficiaries.

Answer 128

IHT is subject to the regulations on DOTAS. These require certain schemes to be disclosed to HMRC so that HMRC can decide whether it is allowed. To be notifiable the main purpose/one of main purposes of the tax arrangement must be to enable a person to obtain a tax advantage.

Answer 129

IHT is subject to GAAR, a regulation that intends to counteract abusive tax arrangements. A tax arrangement will be caught by GAAR if it is reasonable to conclude that it is the main purpose/one of main purposes to obtain a tax advantage. A tax arrangement will be abusive if it cannot reasonably be regarded as a reasonable course of action. So this is effectively a double reasonableness test. HMRC has the burden to prove it is abusive. If a tax arrangement comes under GAAR, HMRC may impose a penalty.

Answer 130

a) Joint property Joint property passes to the surviving joint tenant by survivorship. This can be land or bank accounts. b) Insurance policies written in trust Only if the insurance policy is written in trust or assigned to named beneficiaries, will it pass outside of the estate. If the insurance policy is not written in trust/assigned i.e. it is a simple life insurance policy, it passes to the estate and the PRs will deal with it. The benefit will be released upon the production of a death certificate. c) Pension benefits schemes This will pass outside of the estate unless it expressly states that it will pass to the PRs. The nomination to a third party is not actually binding. The benefit of the discretionary pension scheme will be released upon the production of a death certificate. d) Life interest in a trust property When the deceased passes away, their life interest ceases and the trust property will devolve according to the terms of the trust. A remainder interest will however pass into the estate if it is vested in interest. The trustees then hold the life tenant for life with the remainder to the entitled under the remainder man’s will or the intestacy rules. e) Statutory nominations A statutory nomination is a payment of under £5,000 to a friendly society, industrial society or provident society. The benefit will be released upon the production of a death certificate. f) Donations Mortis Causa Three requirements for a DMC: The gift is made because the donor beliefs that they may die imminently of a particular cause The donor makes it clear that the gift is conditional upon them dying and that the property reverts to them if they survive. The donor either parts with the property or something representing ownership of it.

Answer 131

The formalities of the will are that it must be: a) in writing, b) signed and, c) this must be witnessed by two witnesses who also sign the will. It is however possible for a testator to sign the will without the witnesses being present as long as they go on to acknowledge that signature in the presence of witnesses.

Answer 132

The general rule is that the person who is asserting that the validity of the will has the burden of proof to prove that it is valid. But no proof necessary as there is a presumption of due execution if there is an attestation clause. If there is no attestation clause, there is no presumption of due execution and the burden shifts to the challenger to prove that there is due execution. This can be proven by adducing an affidavit of due execution/witness statement verified by statement of truth to HMCTs. Or take the case to a judge.

Answer 133

The general rule is that the testator must have capacity at the time that they execute the will*. This is determined by the testator being over 18 and having the requisite mental capacity. Mental capacity is determined by asking the following questions: did they understand they were making a will, did they understand the moral claims to their estate and did they understand the extent of their property (Banks v Goodfellow).

Answer 134

*There is an exception to the general rule (Parker v Feldgate). The will can be valid if the testator had capacity at the time the instructions for the will were given to a solicitor who prepared the will in accordance with their instructions. At the time the testator executes the will, they must be able to recognise that they are executing a will in accordance with instructions they have previously given.

Answer 135

a) Formalities b) Capacity c) Knowledge and approval

Answer 136

There is a presumption that a testator satisfied the mental capacity test. As a general rule, the burden of proving capacity lies with the person relying on the will, however, due to this presumption there is no need to actually prove anything. The presumption applies if the will is rational on face value and the testator showed no signs of mental confusion before making the will. This presumption can be rebutted if someone challenges the will. In this case the burden of proof shifts onto the challenger. At the time of drafting a will, if the solicitor is concerned that they lack capacity, the solicitor should follow the golden rule. The golden rule encompasses asking a medical practitioner to write a written report to confirm the testator has testamentary capacity. This should then be kept on file in case of a dispute.

Answer 137

At the time of drafting a will, if the solicitor is concerned that they lack capacity, the solicitor should follow the golden rule. The golden rule encompasses asking a medical practitioner to write a written report to confirm the testator has testamentary capacity. This should then be kept on file in case of a dispute.

Answer 138

A testator must have both general and specific intention to create a will. General intention is being generally clear that they want to write a will. Specific intention is that they want to write that will.

Answer 139

This must be at the time the will was executed, however, Parker v Feldgate also applies here.

Answer 140

The general rule is that the person who is asserting that the will is valid i.e. the testator had intention, has the burden of proof. However, they do not usually have to prove this because there is a presumption of knowledge and approval if the testator had capacity and has read and executed the will. If the testator did not have capacity/the presumption of capacity has been rebutted, then the presumption of knowledge and approval also does not arise. In such a case, the challenger has the burden of proof to show that they did have knowledge and approval.

Answer 141

In cases of the testator being a) blind, illiterate and not signing personally or b) in instances of suspicious circumstances, the presumption does not apply. In cases pertaining to a), HMCTs will require evidence to prove the intent/knowledge and approval before they will issue a probate grant. Suspicious circumstances could comprise the will being prepared by someone who is a major beneficiary etc.

Answer 142

The first step when construing the will is to consider the wording of the will itself. The court has developed two basic presumptions. The first presumption is that non-technical words should be interpreted by their ordinary meaning. The second presumption is that technical words should be interpreted by the technical meaning. These presumptions can be rebutted through extrinsic evidence to show the testator was using the words in a difference sense.

Answer 143

Aside from the basic presumptions, the court will not consider other evidence to try and establish what the testator meant. If it is unclear, the gift will fail for uncertainty.

Answer 144

There are however some exceptions to this rule. If any part of the will is a) meaningless or b) the language used is ambiguous or c) evidence shows that the language is ambiguous in light of the surrounding circumstances, the court may allow extrinsic evidence to be adduced.

Answer 145

The court will not read intention into the will. However, if the the intention of the will is clear but the will has been drafted gives rise to something else, then the court may step in to rectify this. The court will only do this if the the failure has arisen from a) consequence of a clerical error or b) failure to understand instructions. This is very narrow. Cannot be applied if the testator simply misunderstood the law or thought their choice of words would result in a different outcome.

Answer 146

The general rule is that assets that form the subject matter of a gift are read as those in existence at the date of death. The will is therefore interpreted as if the will were executed immediately before the testator’s death.

Answer 147

A contrary intention can be expressed in the will through the use of words such as ‘present’ and ‘now’. This means that the assets are interpreted as those the testator owned at the date the will was written. This also applies if the word ‘my’ is used to refer to a specific asset e.g. my car. However, if the testator uses ‘my’ generically to refer to an asset or a collection of assets that is capable of increase or decrease, the will speaks from the date of death e.g. my collection of cars.

Answer 148

The general rule is that the will speaks from the date of execution - the beneficiaries that are alive at the time of date of execution e.g. if a gift is set out the “eldest daughter” of a person who has two daughters and the eldest dies, the second daughter is technically the eldest daughter at the date of execution. Note this can only apply at the date of execution as this is when the will speaks. So if a will contains a provision saying that a car is intended for the “eldest nephew” but the nephew dies in between the time the will was executed and the testator’s own death, then the will provision lapse (even if there are other nephews). This is because at the date of execution of the will, that particular person was the eldest nephew but he is now dead. This becomes more complex when a codicil is used which republishes the will (see that section). Generally, references to beneficiaries are construed as to people alive at the time of the will’s execution - the will ‘speaks from the date of execution’. A woman makes a gift to ‘her eldest daughter’ who ends up predeceasing her - the gift is construed as a gift to the person who fulfilled that description when the will was made. As the eldest daughter predeceased the testator, the gift does not pass to eldest surviving daughter; she did not fit the description at the time the will was executed. The gift of the house to the eldest daughter will lapse.

Answer 149

If the will refers to a class of beneficiaries, this needs to be defined in the will e.g. my children. This is generally interpreted to be the testator’s own children although the will could say otherwise.

Answer 150

The term spouse and civil partner are not synonymous. If a gift is set out to someone’s wife but they are indeed their civil partner, this will fail.

Answer 151

If a gift fails, it falls into the residuary estate. If a residuary estate gift fails, there may be full or partial intestacy.

Answer 152

If the subject matter or the object of the gift is uncertain, the gift will fail if the court cannot establish the testators intentions within their powers or powers of rectification. However, if the gift is for charity and it is exclusively for charitable purposes, the court may use the cyprès doctrine.

Answer 153

If a witness to the will, is a beneficiary or a spouse/CP of the beneficiary, the gift will fail. However, the act of witnessing stands and the will is valid. However, if there are two witnesses, then the gift need not fail as they can be the two witnesses required for due execution. Furthermore, if this situation arises, a codicil can be used to confirm the will (obviously the witness with the gift would not witness this for it to be valid).

Answer 154

If the testator divorces or dissolves their CP after executing a will, the will is treated as if the spouse/CP has died. This means that any gifts fall into a substitution clause/the residuary estate/intestacy rules depending on the circumstances and any appointment as trustee or executor becomes void. Note the differences with the effect of a marriage/CP on the will. This results in revocation of the will.

Answer 155

This occurs where the specific gift in a will has been sold or destroyed so that the testator no longer owns the property at the date of their death. If the asset has changed (i.e. testator’s shareholding has changed into a holding of a new company), then the question to be asked is whether it has substantially changed. It will only be considered adeemed if it has substantially changed. The basic rule is that assets which form the subject matter of a gift are determined according to those in existence at the date of death – the will is said to ‘speak from the date of death’. If the testator uses the word 'my' when referring to a specific asset (e.g. my car) it is possible that the court could interpret this as meaning the gift is of the car which the testator owned at the date of the will. A specific legacy will fail if the testator no longer owns that property at death. The gift is said to be adeemed. However, if the asset concerned is generic in that it is capable of increase or decrease between the date of the will and the date of death e.g. 'my jewellery', then this will be taken to mean the jewellery owned at the date of death.

Answer 156

If before their death, the testator replaces the specific item in the will with one that answers the same description e.g. my car, the gift adeems. This is because there is a presumption with the word ‘my’ that they meant that specific asset but this is subject to contrary intention. If the property is capable of increase or decrease e.g. my collection of cars, the testator will normally be taken to have made a gift of the items satisfying the description at death.

Answer 157

The testator could amend the will by executing a codicil. By doing so the will is effectively republished so all of the assets need to be considered as they are from the date of the codicil being executed. The same formalities as a will apply to a codicil. So if a will gives a specific gift e.g. my gold watch, which is subsequently lost and replaced with a gift of the same description, the gift would adeem. However, if a codicil is subsequently executed, the will is republished, the replacement gift becomes valid and the legatee could take that gift. This also applies in the context of beneficiaries e.g. gift to eldest son of two sons. Son is dead at the date of execution so the gift cannot pass to him. It does not matter that the eldest son is now the second son. However, if a codicil is executed and the will is effectively republished, the second son is now technically the eldest and he could receive that gift.

Answer 158

A gift in a will lapses if the beneficiary dies before the testator. The property will fall into the residue, unless this has been provided for by including a substitutional gift. If the gift of residue lapses, the property will be governed by the intestacy rules, either partially or fully. It is possible to get around the possibility of lapse by drafting a residue to make clear that it would go to a person who is the holder of a particular position or office at the time of death. If a gift is to two or more people, for example a joint tenancy, the gift will not lapse unless both of them have died before the testator. However, if the gift contains words of severance e.g. to both in equal shares, then this rule does not apply. The lapsed share would pass under the intestacy rules unless there is a substitutional gift. If the gift is a class gift e.g. to all my nephews, it will not lapse unless all of the beneficiaries have predeceased the testator.

Answer 159

If the testator and a beneficiary die at a similar time, you need to figure who died first. If the order of death cannot be proved, the elder of the two is deemed to have died first. So if the testator was the older of the two, the gift will pass to the beneficiary. However, if the beneficiary is the older of the two then the gift will lapse. It is common to put in survivorship clauses if the testator only wants the beneficiary to have the gift if the live a certain amount of time beyond the testator’s death.

Answer 160

Gifts to a testator’s children or remoter issue i.e. their direct descendants, benefit from an implied substitution provision if there is a lapse. Instead, the gift intended for the testator’s child/direct descendant will pass onto their issue. This will not apply if there is contrary intention, usually shown in an express substitution clause. S33 does not apply to any other gifts other than those to the testator’s children or remoter issue. If s33 is excluded then this substitution provision cannot apply.

Answer 161

A beneficiary can disclaim a gift which means it will be put into residue. If the disclaimed gift is the residue, intestacy rules will apply. A beneficiary who disclaims a gift is treated as if they were dead so the implied substitution provision could apply here and their issue could receive the gift. If a beneficiary has received a benefit from a gift, they are taken to have accepted it and cannot subsequently disclaim it.

Answer 162

Subject to contrary intention, if the beneficiary is the cause of the testator’s death by unlawful killing (murder, manslaughter, aiding and abetting suicide), they cannot benefit from their death either under their will or though intestacy or survivorship. The beneficiary is treated as if they died before the testator, so the implied substitution provision could apply and the beneficiary’s issue could lay claim to it. If the death was caused by unlawful killing, other than murder, the court can step in and modify the effect of the forfeiture rule if it is in interests of justice considering the circumstances. The offender must apply for relief within 3 months of conviction. Strict time limit and court does not have discretion to extend.

Answer 163

The offender must apply for relief within 3 months of conviction. Strict time limit and court does not have discretion to extend.

Answer 164

Testator's capacity - same interpretation of capacity as validity of a will

Answer 165

A will can be revoked in three ways: destruction, later will or codicil or by marriage/CP.

Answer 166

A later will or codicil can revoke a current one expressly by including a clause to that effect. If there is no express provision, the older will or codicil is revoked by implication but only to the extend that they are inconsistent (could result in complete revocation if completely inconsistent or only part, if only partly inconsistent). If this is the case, the later is applied. A will should therefore be dated. Doctrine of dependant relative revocation could apply which is an exception to the above. Applies where an express revocation clause that is conditional on an event. If that condition is not satisfied the revocation may be held to be invalid. The earlier will is therefore still effective.

Answer 167

Can be revoked by destruction by testator themselves or the instructions they give to someone as long as the testator is in their presence. If they are not present it is not valid. The will must be physically destroyed. Crossing out or writing revoked is not enough. However, if the above results in the signature or a vital being destroyed, it may be held as being valid to revoke. The test is whether the remainder of the will can still operate despite the destroyed part. The act of destruction must be done with intention to revoke. Therefore, accidental destruction is not enough as there is no intent. The court will therefore look at evidence to establish the contents of the will because it has been destroyed but not revoked. The best evidence would be a copy of the wall. The court may apply the doctrine of dependent relevant revocation here.

Answer 168

If the testator marries or enters a CP after executing a will, the will is automatically revoked. This can be avoided if the testator makes the will prior to and in expectation of marriage by drafting a clause into the will to reflect this. In order for this to be valid, a) the expectation of marriage must be to a specific person, it cannot just be general and b) the testator must intend that the will should not be revoked by the marriage. Both of these elements must be clear from the will. A will made in contemplation of marriage that fulfils these elements is effective even if the marriage never takes place unless the will is expressed as being conditional on the marriage taking place. However, if they then marry someone else, the will is then revoked.

Answer 169

This is when two people make wills in similar terms and agree that whichever of them survives will irrevocably leave their estate in a particular way. If the doctrine of mutual wills is breached and either party does something that is different to what was agreed or creates a new will, equity will step in by imposing a constructive trust over the estate. As a result the doctrine does not invalidate the will but may frustrate the intentions of that testator. It must have been explicitly agreed that this is a mutual will for the doctrine to apply. When the first testator dies without having revoked a will, a constructive trust is imposed as it would be wrong to allow the survivor to renege on their side of the agreement. This doctrine is obviously subject to how the gifts in the will are treated throughout the testator’s lifetime. If the testator spends it all there is not much that can be done. However, the testator is not allowed to dispose of the gifts in a way to defeat the agreement of the mutual will. Both parties can revoke the mutual will together. If one testator unilaterally revokes the will, this is a breach of agreement and the other party can sue for damages lost as a result of the breach which also releases the other from the agreement not to revoke.

Answer 170

A codicil can be used to revive a will that has been previously revoked. This has the effect of resurrecting the will so that it speaks from the date of revival. To do so, the codicil must show intention to revive the will which could be an express statement. A reference is not enough to have this effect.

Answer 171

Alterations made before the will was executed are valid as long as the testator intended for these alterations to be part of the will. However, unless there is evidence, the presumption is that they were included after the will was executed. The court will allow extrinsic evidence to prove that the alterations had been made before execution e.g. by interviewing witnesses.

Answer 172

Alterations made after the will was executed will be valid if the alterations were executed like a will. Initials of the testator and the witness in the margin of the amendment are enough.

Answer 173

If an invalid alteration has been made, the original wording of the will is applied if it can be deciphered. The requirement is that the original wording is apparent. Apparent is interpreted as in being optically apparent so it can be read by using ordinary means such as holding it up to the light or by using a magnifying glass. It must be ordinary means. Cannot use extrinsic evidence or chemicals.

Answer 174

This applies when a testator makes an amendment that obliterates the original wording. In effect this is revocation by destruction. This also means there is a requirement of intent to revoke. In some cases of obliteration, the court may be prepared to apply the conditional revocation rule. This usually occurs where the testator obliterates a gift and substitutes it with another gift but this gift is invalid. The court may apply the rule to say that the testator only intended to revoke the original words if the substitute words were effective.

Answer 175

The intestacy rules impose a trust over all the property (real and personal) when a person dies intestate. The trustees of the trust are the personal representatives.

Answer 176

The trust provides that the PRs must pay the funeral, testamentary and administration expenses and any debts of the deceased. If necessary, the PRs can also sell assets from the estate to raise capital to pay the debts and expenses. After this a fund should be set aside for pecuniary legacies. The rest goes into the residuary estate and is shared as per the rules of distribution.

Answer 177

The PRs do have a power of sale .

Answer 178

The PRs do have a power to appropriate assets for a beneficiary with their consent.

Answer 179

The primary beneficiaries are the alive children of the intestate. Unless the issue has died, any remoter descendants are not relevant here. The interests of the issue are contingent on them reaching 18 or marrying/forming a civil partnership earlier than 18. If the issue on the date of death is 18 or older they will have a vested interest instead.

Answer 180

If the issue survives the intestate but dies before they obtain a vested interest, it fails unless they have their own issue. If this is the case, the situation is treated as if the original issue predeceased the intestate and their own issue takes their place and receives the share. To be substituted, they must be alive at the intestate’s death.

Answer 181

An issue includes all of the direct descendants of the deceased such as the children, grandchildren etc. Adopted children are included in this. Step-children are not included in this.

Answer 182

The spouse or CP receive all of the personal chattels. Personal chattels are tangible moveable property. Personal chattels are not money or securities for money, used mainly or solely for business purposes or held solely as an investment. The spouse or CP receives a statutory legacy of £322,000, free of tax and costs plus interest from death until payment. If the residuary estate is worth less than this number, the spouse/CP receives it all. If there is any residuary estate left, this is divided in half. The spouse/CP receives half and the issue receives half to be held on statutory trusts. The spouse/CP must survive the intestate by 28 days in order to inherit. If they do not, the estate is distributed as if the spouse/CP has not survived the intestate.

Answer 183

If the home is held as beneficial joint tenants it passes outside of the intestacy rules and passes by survivorship. This is the case even if there is a will; the property will pass in accordance with survivorship. If the home is held as tenants in common or as a sole owner, the intestate’s interest will pass into the residuary estate and is subject to intestacy rules. If the family home forms part of the residuary estate passing on intestacy, the surviving spouse/CP can require the PRs to appropriate the family home in full or partial satisfaction of their interest in the estate. However, in order to rely on this the spouse/CP must have been living in the property. If the property is worth more than the entitlement, they can still insist on the appropriation as long as they pay the difference to the estate. The surviving spouse/CP must elect to do this and notify the PRs in writing within 12 months of the grant of representation.

Answer 184

The whole estate will pass to the spouse/CP. The spouse must survive the intestate for 28 days. If they die within that period, the estate is distributed as if the spouse or CP had not survived the intestate.

Answer 185

If a trust is also created and the same people are named as executors and trustees, once the executors are done administering the estate they will transfer the trust property to themselves and act as trustees. If the trustees are different people, then they transfer the trust property to them.

Answer 186

Minimum = 1 (but considering prospect of divorce or death of the executor it is better to appoint 2). Also if the executors are also trustees, makes sense to appoint 2 so they can give good receipt for the proceeds of sale of any trust property. Maximum = no maximum but as only 4 people can apply for a grant of probate for the same assets, more people does not make a lot of sense.

Answer 187

Advantages People who know the testator and the estate deal with the administration. These people probably will not charge for the role. Disadvantage May not have the necessary expertise to deal with a complex estate which will result in hiring a lawyer and additional legal expenses. The costs of this will be paid from the estate so could reduce estate property.

Answer 188

Advantages Will have the necessary expertise to administer the estate. Family and friends do not have to deal with it whilst they are grieving. Disadvantages They will expect payment for their time doing the work as well as expenses. It is better to appoint the firm of solicitors rather than an individual solicitor incase they die. As they are LLPs, the appointment should be to the ‘partners’ in the named firm at the date of the testators death. Also sensible to provide for the possibility of firm changing name or merging etc.

Answer 189

Advantages Similar to those of the professionals. Disadvantages The corporation may seem large and impersonal to the family. They usually charge a percentage of the value of the estate which could be significant.

Answer 190

As an executor or a trustee is a fiduciary, they are unable to profit from their position unless they are authorised.

Answer 191

Without authorisations, they can recover expenses/disbursements from the estate but not payment for their time and expertise.

Answer 192

The Trustee Act allows trust corporations and trustees in a professional capacity (including role of executor) to charge for their work but it must be ‘reasonable’. A solicitor can therefore charge but they need consent from their co-executors or co-trustees. A sole trustee/executor cannot charge under these provisions. It is a good idea to include an express power in the will for charging in these circumstances so that if an executor dies leaving only one, they can still charge. This covers cases where the statutory right could not apply.

Answer 193

This is a gift of a specific asset. If the asset is not in existence at death, the gift adeems and the beneficiary will get nothing unless this is specifically provided for. To avoid this, for example instead of naming a specific house in the will state instead ‘my main residence on date of death’.

Answer 194

To avoid this, for example instead of naming a specific house in the will state instead ‘my main residence on date of death’.

Answer 195

If the testator gives a gift of a collection of items to several people, it is a good idea to indicate the order of choosing or provide for a means of solving a dispute. This could be a provision stating that the decision of the executors is final. It is also a good idea to require for the selection to be done in a time limit.

Answer 196

If a gift is made to a minor, should consider whether the gift should be outright or contingent. If the gift is outright, it would go to the parents or guardians under a trust as they can give good receipt unless the will suggests otherwise. The minor cannot give good receipt. When the minor turns 18 it will go to them. If they die before 18, it forms part of their estate. If the gift is contingent then the beneficiary cannot receive the gift until they turn a certain age. It is a good idea to draft a clause stating an express trust and who will be trustees. If the minor dies before reaching the contingency, the gift does not go into the estate and instead pass to next person who is entitled under the will or into the residuary estate if no provisions are made. It is a good idea to always draft a substitution for any beneficiaries in the will to avoid a lapse.

Answer 197

A gift to a charity should be drafting to provide for the possibility of them changing name, merging etc. It is also necessary to identify a certain person in the charity would can give good receipt. If this is not done then everyone in the charity has to sign the receipt. This should be an authorised officer of the charity. It is also important to draft the gift for the ‘general charitable purpose’. This enables the gift to be applied to another charity if for whatever reason the gift fails.

Answer 198

The default position is that the IHT on individual gifts is paid out of the residuary. However, the will can displace the general rule by exhibiting a contrary intention.

Answer 199

There may be costs associated with the transfer of property. Unless the will says otherwise, the beneficiary bears those costs. The will drafter should anticipate the costs and consider whether it would be better for the residuary estate to bear the costs. Charges may arise from property for example that has a mortgage. The general rule is that the beneficiary has to deal with the debt of their gift unless the will shows a contrary intention. If the testator does not want this they should draft the gift as ‘free of mortgage’.

Answer 200

If a gift of residue fails, this results in partial intestacy.

Answer 201

It could be a good idea to draft in substitutional clauses to cover the possibility of the gift of residue failing. Another option is having a ‘long stop’ beneficiary to inherit all of it if the intended arrangements fail. This is often a charity. It is better not to name specific people in the residue and instead to refer only to a class of people who the testator may have at the date of death. The phrase ‘for such of my children as survive me and if more than one in equal shares’ would be adequate. Therefore if one of the children dies, their share would pass to the other children. Alternatively, drafting that if the deceased child leaves their own children, they take their parent’s share.

Answer 202

Power to charge: The power to charge can be drafted in but need to make sure to be clear whether it is all professional people or all professional people who are involved in the administration of the estate. Extended power to appropriate assets without the consent of the legatee: The PRs have a statutory power to appropriate assets as long as it does not prejudice a beneficiary of a specific legacy and the beneficiary in receipt consents. It is possible to remove the need for formal consent. Power to insure assets: PRs have a duty to preserve the value of the estate and statute gives PRs/trustees the power to insure against all risks, to the full value of the property and to pay the premiums out of the income or the capital. It is not necessary to amend the statutory provision but they may want to put this in the will for clarity. Power to accept receipt from or on behalf of minors: Instead of the parents or guardians giving good receipt for a minor, it could be drafted so that another person is trustee and gives good receipt for it. In this case it is drafted for the benefit of the minor rather than for the child directly. Can also draft a provision that a child of 16 can give good receipt but cannot be younger than this. Self-dealing: An express clause can permit self-dealing. It is important to include this where the executors and trustees are also beneficiaries.

Answer 203

Power to appropriate assets: The power to appropriate assets conferred on PRs does not apply to trustees so an express provision needs to be included to appropriate without consent of the recipient beneficiary. Power to invest: May be a good idea to include an express investment clause but not necessary as trustees have a power of investment as long as they consider the standard investment criteria. Power to purchase land: The statutory power is limited to purchasing land a) in UK and b) for investment, occupation by a beneficiary or other reason. It does not confer the power to buy abroad or purchase an interest in land with someone else so an express power will be needed if this is desired. Power to sell personalty: Statutory provisions are dubious about sale of residue so an express provision to be able to sell personalty should be included. Power to use income for maintenance of beneficiaries: The trustees could vary the right to income from 18 to an older age if they believe fit. Power to use capital for the advancement of beneficiaries Control of trustees by beneficiaries: If under the terms of the trust the position could arise where all the beneficiaries are in existence and aged over 18 but the trust has not ended, the testator might wish to prevent the trustees from choosing their own trustees. In effect, this excludes the effect of Saunders v Vautier rights. Trusts of land: The will may vary the usual rule if a trust in land in which the beneficiary has an interest in possession arises. The will may vary the fact that the beneficiary would usually be entitled to the income of the land. Duty to consult beneficiaries: The will may vary the statutory rule that trustees exercising a function related to land must consult with the beneficiary that has an interest in possession if they are older than 18. This can be varied. Beneficiary’s right to occupation: If a beneficiary has a beneficial interest in possession, even if they are not 18, they have the right to occupy the land, if this is allowed by the trust/conditions have given rise to this. There is no power to exclude this but can include a declaration that the land is not for occupation by a beneficiary.

Answer 204

Solicitors should only take instructions from the person subject if the will, not a third party.

Answer 205

This gives rise to a potential or significant risk of conflict of interest. The solicitor should advise the person, spouse, family to get independent legal advice. This relates to gifts that are significant value in relation to the estate or significant value in themselves. If they do not agree to get independent legal advice, should cease acting. May be an exception if the people are the solicitor’s family but this depends heavily on the specific circumstances.

Answer 206

When drafting a will, the client may ask the solicitor to draft themselves as the executor but this could give rise to a potential own conflict of interest as the solicitor is charging for the drafting services. Should advise them of the pros and cons of a professional solicitor and should not allow them to put the solicitor or firm as executors unless they have been fully informed of their choice of appointing executors.

Answer 207

There are three occasions when IHT will be charged: a) death, lifetime gifts made to individuals within seven years prior to death and c) lifetime gifts to a company or trust.

Answer 208

IHT is charged on the value transferred by a chargeable transfer (a transfer of value which is made by an individual but is not an exempt transfer). So this catches a) death, lifetime gifts made to individuals within seven years prior to death and c) lifetime gifts to a company or trust.

Answer 209

Step 1: Identify the transfer of value The transfer of value must reduce the value of the transferor’s estate. So a gift is a reduction. A sale of an asset is not because an asset is exchanged for money. When someone dies, the death is treated as giving away assets so is a reduction. Step 2: Find the value transferred This is the amount of the reduction for a lifetime transfer. On death, it is the value of the estate. Step 3: Apply relevant exemptions or reliefs Step 4: Calculate tax at the appropriate rate

Answer 210

Step 1: Identify the transfer of value On death there is a deemed transfer of value of the deceased’s estate immediately before death but not excluded property. Deceased’s estate: This refers to all the property to which the deceased was beneficially entitled immediately before their death. This does not encompass excluded property. Property to which the deceased was beneficially entitled immediately before their death: Property which passes under the deceased’s will or intestacy. Property which does not pass under the deceased’s will or intestacy but to which they were beneficially entitled immediately before death. This applies to joint property passing on death by survivorship to the surviving joint tenant. But only calculate half for IHT purposes. Property included under special statutory provisions. The statute deigns the deceased as having beneficial entitlement for the purposes of this, despite it not being strictly true. This applies to some trust property (qualifying interest in possession) and GROBs. Certain trust property (qualifying interest in possession): If a person is entitled to the income of a trust, they are treated as being beneficially entitled to the capital that produces that income. So if a beneficiary is entitled to all the income from a trust and then they die, they are taxed as if the trust fund was part of their estate. To be a qualifying interest in possession, there must be an interest under which the beneficiary is entitled to claim the income from the trust property (or enjoy it in some other way e.g. living in it (with no power on the part of the trustees to decide whether or not the beneficiary should receive it). Pre 22 March 2006 - any interest in possession is a qualifying interest. Post 22 March 2006 - an immediate post death interest (an interest in possession arising on death of settlor under the will or intestacy) qualifies. GROB: Catches a gift where the donor still retains a benefit. Property outside of the deceased’s estate for IHT purposes Property in which the deceased was not beneficiary entitled falls outside of the definition. For example a) life assurance policy written in trust and b) a discretionary lump sum payment from a pension fund. Excluded property: This is not part of the estate for IHT purposes e.g. reversionary interest (a future interest under a settlement).

Answer 211

The value of an asset agreed for IHT is the probate value. The assets are assessed at the value immediately before death. The valuation of every asset must be reported back to HMRC. Negotiations may be required with HMRC in order to reach an agreed valuation.

Answer 212

To compensate for the difficulty of selling a share of jointly owned land, its value may be discounted unless the related property rules apply. The discount is 10% for commercial property and 15% for residential property although a higher percentage may be allowed if the share in a property is very small.

Answer 213

Where death causes the value of an asset in the estate to increase or decrease, the change in value should be taken into account. This applies to an life assurance policy that of which the benefit belongs to the policy holder I.e. it is not written in trust. The value of the insurance policy is the surrender value I.e. if the policy holder surrendered their rights back to the insurance company in return for a payment. The surrender value will be considerably less than the maturity value, however, for IHT purposes, the effect of the death is taken into account and the IHT is charged on the maturity value.

Answer 214

The value of quoted shares is taken from the Stock Exchange Daily Official list for the date of death or nearest trading day.

Answer 215

Liabilities owed by the deceased at the time of death are deductible for IHT purposes provided that they were incurred for money or money’s worth. Debts such as gas and telephone bills may be deducted. Funeral expenses also. The deceased may not have paid enough income tax on the income they received before they died so this amount may also be deducted.

Answer 216

Property that is included for IHT purposes is exempt if it passes to the deceased’s spouse or CP under intestacy or deceased will or survivorship. If the transferor is domiciled in the UK but the transferee is not, there is a limit on the exemption to £325,000 or the transferee elects to be treated as UK domiciled for IHT purposes to receive the full exemption. The rule in relation to qualifying interest trusts applies to spouse exemption also for IHT purposes. The person with the right to income is charged as if they also had a right to the capital.

Answer 217

Either property that is passing to a charity under the will or if the deceased had a life interest in trust property which passes under the terms of a trust to charity. There is a similar exemption for gifts to national bodies and bodies providing a public benefit, such as museums and art galleries and political parties. If at least 10% of a defined component of a person’s net estate (after deductions and exemptions) is left to charity, the normal rate of 40% for the estate in excess of the NRB reduced to 36%

Answer 218

a) Nil rate band (+ effect of cumulation) b) Residence nil rate band

Answer 219

If the deceased had made no chargeable transfers in the seven years before the death, their NRB will be £325,000. This means the first £325,000 of the estate is taxed at 0%. The rest is taxed at 40% (or 36% in rare occasion that a large charitable gift is made). If the deceased died on/after 9 October 2007 having survived a spouse/CP, the percentage that the deceased left unused will pass to the spouse. So if the NRB was £100,000 and they used half, when the spouse dies, they are allowed 50% of the NRB at the date of their own death. The maximum increase is 100%.

Answer 220

If the deceased made any chargeable transfers in the seven years before death, this accumulates under the NRB. The lifetime transfers use up the deceased’s NRB which reduces the amount available for the estate. PET are potentially exempt from IHT and become chargeable only if the transferor dies within seven years. LCT are chargeable immediately but are then reevaluated if the transferor dies within seven years. The values transferred by lifetime transfers must be aggregated. This means that any lifetime exemptions or reliefs which operate to reduce the value transferred are taken into account.

Answer 221

If the death occurred after the 6 April 2017, RNRB is available in addition to NRB. RNRB is £175,000. For RNRB to apply, the deceased must die owning a qualifying residential interest* which is closely inherited*. *Qualifying residential interest This is an interest in a dwelling house. At some point the dwelling house must have been the deceased’s residence and formed part of the deceased’s estate. *Closely inherited This means the property is passing to a child, a grandchild or another lineal descendant of the deceased outright or on certain types of trust. Lineal descendants are children, step-children, adopted children, foster children or children where the deceased has been appointed as a guardian. Alternatively, the current spouse or CP of the deceased’s lineal descendants or the widow, widower or surviving CP of a lineal descendant who predeceased the deceased unless such persons have remarried or formed a new CP before the deceased’s death. RNRB only applies up to the value of the deceased’s residence. If relevant, work out the estate less the RNRB first at 0%, then the NRB post cumulation at 0% then the left over death estate at 40%. Where the estate is worth over £2 million, the RNRB is reduced by £1 for every £2 over the £2 million threshold. The RNRB therefore needs to be adjusted for an estate over £2 million. A surviving spouse can claim their spouse’s unused RNRB even if the first spouse died before 6 April 2017. Downsizing allowance: This can apply if the original property would have qualified for RNRB if it had been trained and the replacement property or other assets of an equivalent value is left to the lineal descendants.

Answer 222

This can apply if the original property would have qualified for RNRB if it had been retrained and the replacement property or other assets of an equivalent value is left to the lineal descendants.

Answer 223

Used when calculating the IHT for related property. If property in a set is more valuable together than on its own, there are special rules. If one of the set is transferred then the loss to the estate has to be calculated by (value of pair - value of remaining asset = loss to estate). There is also an exception called the related property rules if in a set is split apart but both parties are married to each other then the each half of the property is half of the collated value i.e. splitting them apart does not make the individual property less valuable.

Answer 224

Spouse/CP, charity, business and agricultural property relief all apply the same to lifetime gifts. The only difference is that business relief given at lifetime may be withdrawn unless the transferee still owns the business property at the date of death or if earlier, the transferees own death. Spouse/CP and charity apply before the reliefs as they make the transfer wholly exempt. As lifetime only exemptions only apply to part of a transfer, they should be applied before exemptions are considered.

Answer 225

This is an allowance for IHT tax on lifetime gifts only. The first £3,000 transferred by lifetime gifts in a year is tax exempt. An unused annual exemption from one year may be carried forward for one year only. This gives a maximum exemption of £6,000. The current year’s exemption must be used before the previous year’s exemption can be carried forward.

Answer 226

This is an allowance for IHT tax on lifetime gifts only. Lifetime gifts in any one tax year of £250 or less to any one person are exempt. This exemption cannot be set against a gift which exceeds £250.

Answer 227

This is an allowance for IHT tax on lifetime gifts only. It will be exempt if it can be shown that it was made out as part of the transferor’s normal expenditure and it was made out of the transferor’s income and after the payments, the transferor was left with sufficient income to maintain their usual standard of living.

Answer 228

This is an allowance for IHT tax on lifetime gifts only. Up to £5,000 for a parent of a party to the marriage. Up to £2,500 by a remoter ancestor of a party to the marriage e.g. grandparent. Up to £1,000 by any other person.

Answer 229

A lifetime chargeable transfer is any lifetime transfer that does not fall within the definition of a PET. The most common is a lifetime transfer made on or after 22 March 2006 into any trust or to a discretionary trust or company as long as they were made on or after 22 March 2006.

Answer 230

Small gift exemption is not applicable to LCTs.

Answer 231

Step 1: Work out which transfers have to be reassessed by looking at which transfers fall within the seven year period. Step 2: Each of the transfers in the seven year period must be worked out chronologically (exemptions and reliefs) Step 3: Calculate the tax by calculating the cumulative total. The tax can be calculated by establishing the transferor’s cumulative total of transfers at the time of the PET as this will reduce the NRB. Calculating the cumulative total: LCTs made in seven years before the PET being assessed. So this means that an LCT needs to be taken into account even if it was made more than seven years before the transferors death if there was a PET prior and, Any other PETs made in the seven years prior to the PET being assessed which have become chargeable as a result of the transferor’s death. Tapering relief: When a PET becomes chargeable, tapering relief can be applied if the transferor lives for longer than three years after the transfer. The tapering relief reduces the amount of tax payable on the charge.

Answer 232

If an LCT was made in the seven years prior to the death, an additional tax of 20% will have to be paid. In total the tax paid would be 40%. This only occurs if NRB and RNRB have been used up. Also, the tax bill may be increased because PETs made before the LCT may have become chargeable which will increase the cumulative total and reduce the NRB applicable to the LCT. Step 1: Work out which transfers have to be reassessed by looking at which transfers fall within the seven year period. Step 2: Each of the transfers in the seven year period must be worked out chronologically (exemptions and reliefs) Step 3: Calculate the tax by calculating the cumulative total. The cumulative total of the LCT will determine how much of the NRB is available. The cumulative total is: a) Any other LCTs made in the seven year period before the LCT being assessed (even if such earlier LCTs were made more than seven years before the transferor’s death) and b) Any PETs made during the seven years before the LCT being assessed which have become chargeable as a result of the transferor’s death. Tapering is considered once the IHT on the LCT is recalculated. The tapering relief applies to reduce the recalculated tax. Credit is given for any IHT paid on the LCT at the time. If the recalculated bill is lower than the original amount of tax paid, it will not be refunded.

Answer 233

IHT payment will usually be taken from PRs and trustees (they are not beneficially entitled to the property but they hold it in a representative capacity). The beneficiaries who receive the property are also liable but the tax will usually have been paid before they receive it. However, the testator can change the statutory rules to change the burden by making an express provision in the will. But liability rules cannot be varied.

Answer 234

This is the average rate of tax applicable to each item of the estate. It is sometimes necessary to known this as some types of assets are paid in instalments, other people (i.e. trustees) may be liable to pay the tax rather than the PRs, or the testator has varied the statutory rules and made a gift subject to tax. The estate rate is worked out by dividing the tax between assets proportionately according to their value.

Answer 235

The PRs are liable to pay the tax on IHT of any property that had non-settled estate status immediately before death.

Answer 236

Non-settled property is property which vests in the PRs (passing under the will/intestacy) and property (not trust property) that does not pass to the PRs but is included in the estate for IHT because the deceased was beneficially entitled before death e.g. joint property. The PRs are liable to pay the IHT due on joint property even though the property does not vest in them. Their liability is limited to the value of the assets they received in respect of the estate, or would have received but for their own neglect or default. The beneficiary is also liable. So HMRC could come after them.

Answer 237

The trustees have to pay the IHT on settled property where there the deceased had a qualifying interest in possession under a trust. If the trust property vests in someone else or is applied to someone else’s benefit, they will also be liable to pay the IHT.

Answer 238

If there was a GROB, this is treated as part of the estate on death. The transferee of the gift is the primary person who is liable to pay the tax but if the tax is not paid within 12 months of the end of death, the PRs become liable.

Answer 239

If a PET becomes chargeable, the primary person liable is the transferee. However, if the tax is unpaid for 12 months after the end of the month of death, the PRs have to pay for it. Liability of the PRs is limited to the extent of the assets they have actually received or would have received but for their neglect or default. The PRs cannot escape liability because they have already distributed the estate. Therefore, it is a good idea to delay distribution until IHT on the lifetime gifts has been paid.

Answer 240

The transferor is primarily liable for IHT, although HMRC can also claim tax from the trustees. If the transferor is paying the IHT, this is more tax than if the trustees paid the IHT (grossing up). This is because when the transferor (the PRs of the estate) will have to consider all of the previous cumulated LCTs/PETs when calculating the tax whereas the trustees do not. This is not a factor if there were no previous lifetime gifts but if it is, it could pose a significant increase in the amount of tax to be paid. Additional liability following the transferors death: The transferee is primary liable to pay the additional IHT. However, if the tax is unpaid for 12 months after the end of the month of death, the PRs have to pay for it.

Answer 241

If it has become chargeable, it is due six months after the end of the month of death. The instalment option may be possible dependant on the nature of the property.

Answer 242

If a transfer was made between 5 April and 1 October in a year period, then the tax will be due on the 30th April of the following year. If the LCT was not made during that period, it will be due six months after the end of the month in which the LCT is made. Additional IHT is due six months after the end of the month of death. Instalment option might be available.

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