Inheritance act 1975 and post death changes Flashcards
Inheritance act (provisions for family and dependents) 1975?
English law allows a testator to dispose of their property however they wish
Close relatives have no legal right to inherit a fixed portion
- But may make an application to court under the inheritance act 1975 to vary the content of a will or an intestacy after the deceased has died.
- Court has power to make provision for an applicant if it feels that reasonable financial provision should have been made
Terms of will or intestacy will be changed with courts order.
Eligibility to make an application?
- Be within the jurisdiction of IPFDA
- Domiciled within England and Wales
- Demonstrate they fall within a recognised category of eligible applicants
- Spouse/ civil partner
- Former spouse/civil partner who has not remarried
- A person who cohabited with deceased as if spouse 2 years prior to death
- A child of deceased
- Any person who was treated by deceased as a child of their family
- Any other person who was maintained by the deceased immediately before their death
- On ex-spouse – only if they have no remarried.
- Make their claim within prescribed time limit
- Cannot be made more than 6 months after the date the grant of representation was made – searched government probate records to find when it was issued.
- Extension of time limits – court has discretion to extend the time onus is on applicant to show special reasons for delay.
Property to which IPFDA applies to?
- Made out of net estate of the deceased – defined in s25 IPFDA
- Normal succession estate
- Any property in respect of which deceased held a power of appointment which has not been exercised
- Deceased’s severable share of a joint tenancy ONLY IF COURT ORDERS IT
Grounds for IPFDA claim?
- That the deceased’s will did not make reasonable financial provisions for applicant
- That the distribution of the deceased’s estate under intestacy rules fails to make reasonable provisions for applicant
- Courts will consider competing interest – difficult
Orders that can be made by court?
- Period payments
- Lump sum
- Transfer of property
- Settlement of property
Two stage test? first stage?
THE FIRST STAGE - REASONABLE FINANCIAL PROVISION?
Two standards for this
Surviving spouse standard is – reasonable in all circumstances for a person to receive whether to not that is for maintenance
SURVIVING SPOUSE STANDARD CAN ALSO APPLY IF 3 conditions are SATISFIED:
* S14 – discretion to apply surviving spouse standard when 3 conditions are satisfied
* An applicant is a former spouse who has not remarried
* Divorce or separation occurred within 12 months
* No order for financial provision has been made or refused in ancillary proceedings
Maintenance standard – such needed for maintenance
- S3 sets out what factors should be considered
- Common guidelines
* Applicants’ financial resources and financial needs
* Needs of other applicants
* Needs of beneficiaries of estate
* Any obligations and responsibility deceased had towards beneficiary
- Specific guidelines for spouse
- Applicants age and duration of marriage
- Contribution made by applicant to welfare of family of deceased
- The provision applicant might have reasonably have expected to receive in divorce
- Specific guidance cohabitees
- Age of applicant and length of cohabitation contribution made to family
- Specific guidance of child of deceased ALSO ONE TREATED LIKE CHILD:
- Whether and on what basis the deceased maintained the applicant
- Whether the deceased had assumed responsibility for maintenance of child
- Whether in maintaining or assuming responsibility to maintaining they did so know applicant was not their child
- Liability of any other person to maintain applicant
Second stage test?
2 components of this – 1- quantum AND 2 - form of award
Assessing value and nature of award
- Need to obtain a list of applicant’s assets and liabilities
- Should be used to assess whether applicant has a particular need
Comparisons with divorce
- Deemed divorce factor is only one factor
Interests under trust
- Applicant may be object under the will or intestacy but argue that it’s not reasonable financial provision
- Requires an assessment of relevant factors
- A discretionary trust may amount to UNREASONABLE
- A life interest may be reasonable
Post death changes? when is distribution unsatisfactory?
- Inadequate provisions have been made for a person
- Too great for a particular beneficiary
- Distribution results in undesirable tax position
If beneficiary chooses to give away their inheritance?
If beneficiary chooses to give away their inheritance there may be adverse IHT and CHT consequences
IHT – the OG beneficiary would be making a pet – chargeable if they die within 7 years
CGT – a gift of non-cash would be a disposal by OG beneficiary and increase in value since date of death would be subject to CGT if greater than beneficiary tax free allowance.
Variations? IHT consequences?
- It’s a direction form OG beneficiary to deceased’s PRs to transfer property that the beneficiary is entitled to under the term of a will to another person.
- IT IS possible after an inheritance has been accepted
- A variation may be made in respect of whole or part of an inheritance
- Original beneficiary is free to determine who receives the varied inheritance
IHT consequences - If conditions of s142 IHTA are satisfied the gift from the OG beneficiary is read back to the date of the deceased to the new beneficiary
- Consequences are OG beneficiary does not make a PET
- IHT Due on deceased’s death state is re-calculated on basis the deceased left the property to the new beneficiary
Variation conditions and CGT consequences?
Variation- conditions
Must comply with following conditions to writing-back conditions to be achieved
Legislation s142 IHTA
- Made by the OG beneficiary in writing
- Within two years of deceased’s death
- Contains an express statement by beneficiary confirming s142 IHTA should apply
- Not made for consideration in money or money’s worth
Variations – Estate PR’s
- A beneficiary can vary their entitlement without approval from PR’s BUT if it results in additional IHT – they should
- Sign the variation, provide HMRC with a copy of written variation and pay amount due
CGT
- Charged on disposal of non-cash asset
- A gain made by a person is potentially subject to CGT
Variations CGT consequences
- If the assets have increased in value since the date the deceased died a CGT liability can arise if increase is more than taxable free allowance
- If estate beneficiary wants to give away inheritance but avoid a CGT charge provision s62 Taxation of Chargeable Gains Act permit a writing back effect similar to s142
- The conditions to comply with are the same
- Treated as if inherited from death estate WHICH HAS NO CGT charge
- If they want to write-back they have to enter a formal variation and it will depend on circumstances.
Restrictions on variations?
Capacity to vary
- If the OG beneficiary lacks capacity cannot make a variation without consent of court under Variation of Trusts Act
No limit to number of variations but each asset can only be varied once
Property passing by will, intestacy and joint property CAN ALL BE SUBJECT OF VARITAION – but the FOLLOWING cannot
- Property in respect the deceased was a life tenant immediately before death – trust deed will determine where those goes
- If deceased made a gift with reservation of benefit – they ARE subject to IHT but do not form part of distribution estate
Disclaimers?
- Operates as a refusal to accept property to which beneficiary is entitled under intestacy or a will
Limitation to disclaimers - Only disclaim BEFORE acceptance
- Only disclaim the WHOLE gift
- A disclaimer of something in will does not disclaim anything they inherit under intestacy
- Cannot control who receives it instead
IHT and CGT are the same as s142 and s62 – same writing back test
Precatory trusts?
- Arises when a gift is made to a beneficiary by will with a wish as to how the beneficiary should pass on those assets to others. On a letter of wishes.
- NO formal trust created – not binding on beneficiary – gives more flexibility
Precatory trusts – IHT - Does not vary the distribution of an estate directly =
- By virtue of s143 IHTA – if OG beneficiary makes distributions as intended within 2 years of testators will, treats as gifts made by will
- There is no written election. Treated as that for IHT.
CGT is DIFFERENT - No equivalent s62 CGT benefit. WILL BE TREATED AS DISPOSAL – just unlikely in the time period.
