Interview/Writing Scenarios

Question 1

Contesting a late family member’s estate

Answer 1

1. Is the will valid?
   - Will must comply with s9 Wills Act
   - Did the deceased have the requisite mental capacity? Medical history may be relevant to determining whether the criteria are satisfied. Did they have knowledge and approval?
2. Is there any evidence of undue influence?
   - Not easy to prove and standard of proof is high - it must amount to coercion which overwhelms free will
   - Evidence of this may be found in letters/texts
   - If there was undue influence, the will is not valid
3. If the will is valid, there may be a claim for financial provision to meet maintenance needs
   - IPFDA 1975 criteria
4. Advising on how to proceed
   - court is expensive, time consuming and stressful
   - it is risky and the outcome is not guaranteed
   - alternative methods such as mediation / settlement

Question 2

IHT Lifetime planning (gifts)

Answer 2

1. Payments to a family member (e.g., grandparents helping parents pay school fees) is likely to be classified as gifts
   - This means if you die within 7 years of making a payment, it will be subject to IHT
   - Starting rate for IHT is 40% for anything above the nil rate band, £325,000, although this tapers once three years have passed from the date of the gift
   - IHT is payable by the recipient in the first instance, meaning the person who receives the gift could be left with a tax demand from HMRC after you pass away
2. Potential exemptions
   - Regular expenditure out of income: if you have a high level of income, might consider the exemption for regular gifts made from surplus income.
   - This exemption is complex as the gifts must come out of income, not capital, and must not affect your quality of life
   - This means if the gifts comes out of income, and you need to use your capital to meet normal living expenses, the exemption will not apply
3. Separate exemption
   - Annual exemption of £3,000 - gift £3,000 in total each year free of IHT
4. Use of trusts - alternative option
   - Setting up trusts have tax implications
5. Advise on family relationships / dynamics
   - Are you making gifts to all members of your family? Consider how other members may feel?
   - Usually advise parents to treat children equally, unless there is compelling reason not to, as otherwise they may expect you to equalise things further down the line

Question 3

How to resolve a financial dispute out of court relating to a late family member’s estate?

Answer 3

1. Understand why unequal provision in the will has been made (e.g., why a parent has left more to one child and not the other).
   - If the will was professionally drafted, there may be records from lawyers which provide insight on the unequal provisions
   - some parents give unequal provisions in a will, if the other child was supported more during lifetime
2. Dispute resolution: mediation
   - voluntary and confidential
   - involves the appointment of an independent mediator who engages in “shuttle diplomacy” to bring the two parties to an agreement/deal in person during a one-day session
   - process is flexible and lawyers don’t have to be present if the parties want more privacy
   - can be valuable to reconcile relationships

Question 4

Unresponsive/incompetent executors

Answer 4

1. Starting point is to send a letter/email to the executors outlining concerns with the distribution of the estate and their progress
2. If the executors are not forthcoming, then there may be cause for concern
   - Executors have a duty to provide beneficiaries with information if they request it and to answer questions promptly

Typical timescale: executor’s year
- six months for grant of probate to be made
- six months for assets to be sold and matters concluded

Question 5

Advising on CGT (life / death)

Answer 5

Tax on death (CGT and IHT):
- Death is not a disposal for CGT purposes and does not give rise to a CGT liability
- This means that for CGT purposes, the beneficiary will acquire the asset at the market value upon death
- Asset subject to IHT (40%) after any available NRB
- Assets given away during lifetime are a PET for IHT purposes if you live another 7 years

If sell the asset during lifetime:
- Pay CGT at 18% (basic income) or 24% (higher / additional rate)
- The taxable gain is based on the market value of the property, minus the cost and any capital enhancement

GROB Rules (gifts with reservation of benefit):
- Rules which prevent tax avoidance that can apply if someone gives away an asset and continues to benefit from it
- To avoid these rules, (if for a property), both must occupy and pay fair share of expenses