Probate IHT Flashcards
1
Q
What is the nil rate band?
A
A tax-free allowance chargeable at 0% (no IHT to pay)
The basic Nil Rate Band (NRB) is £325,000.
2
Q
What is the amount of the Residence Nil Rate Band (RNRB)?
A
£175,000
This applies if a property that has previously been the residence of D is passed on to lineal descendants on death.
3
Q
What happens if the value of the home is less than the maximum RNRB?
A
Only the value of the home applies; remaining RNRB cannot be set against other assets
For example, if a flat is worth £100,000, only £100,000 of RNRB applies.
4
Q
How is the RNRB affected if the estate is worth more than £2 million?
A
RNRB is reduced by £1 for every £2 over the £2 million threshold
For example, an estate worth £2,100,000 will have the RNRB reduced by £50,000.
5
Q
Define ‘Lineal Descendant’.
A
Children, grandchildren, other remoter descendants, step-children, adopted children, foster children, and children for whom D was a guardian
Excludes siblings, nieces, nephews, cohabitees’ children, or other relatives.
6
Q
What is meant by ‘Residence’ in the context of IHT?
A
A property that has been lived in by D at some point
It does not have to be the residence at the time of death.
7
Q
What is the Transferable Nil Rate Band (TNRB)?
A
Unused portion of the NRB and RNRB can be inherited by a spouse/CP from a predeceased spouse/CP
Maximum amount that can be transferred is one additional nil rate band.
8
Q
What is the first step in calculating IHT?
A
Determine the applicable nil rate band
This includes both the basic NRB and any applicable RNRB.
9
Q
What is the process to work out the value of the estate?
A
Add all assets to get ‘gross value’, then deduct debts to get ‘net value’
Some properties may still form part of the IHT taxable estate.
10
Q
What should you consider with jointly owned assets?
A
Only the value of D’s share is considered, not the whole asset
A discount may apply if the co-owner is not a spouse/CP.
11
Q
What are Potentially Exempt Transfers (PETs)?
A
Gifts made within 7 years prior to death
These may affect the IHT calculation.
12
Q
What are Chargeable Lifetime Transfers (CLTs)?
A
Gifts that were immediately chargeable to IHT during D’s lifetime at a rate of 20% above the NRB
Applies to specific types of gifts related to trusts and companies.
13
Q
What are the main exemptions for gifts made on death?
A
Gifts to spouses/CPs, charities, political parties, and gifts for national purposes
Conditions apply for some of these exemptions.
14
Q
What is the annual exemption for lifetime gifts?
A
Lifetime gifts are exempt up to £3,000 a year
Unused portion can be carried forward for one year.
15
Q
What is Business Property Relief (BPR)?
A
Relief on business property subject to certain conditions
100% relief applies to unquoted company shares and 50% to quoted company shares that give control.
16
Q
What are the criteria for BPR eligibility?
A
Property must be owned for at least 2 years, used mainly for trading business, and not caught by an exclusion
Exclusions include companies dealing with securities, stocks, or shares.
17
Q
What is Agricultural Property Relief (APR)?
A
Relief available for farmland and farm buildings
100% for agricultural property under certain tenancies, otherwise 50%.
18
Q
What is the IHT rate on the estate passing on death?
A
Charged at 40% (or 36% if ≥ 10% of net value is left to charity)
This applies to the taxable estate passing on death in excess of the nil rate bands.
19
Q
What is Taper Relief?
A
Reduces the IHT rate on lifetime gifts made between 3 and 7 years prior to death
The reduction varies based on the years between gift and death.
20
Q
What happens to gifts made less than 3 years before death?
A
They are charged at normal rates, and reduced rates do not apply
Only gifts made 7 years or more before death are exempt.
21
Q
What is required for the payment of IHT?
A
Payment is necessary to obtain a grant of representation
This is a prerequisite for the personal representative (PR).
22
Q
What is the formula to calculate IHT due on an estate?
A
IHT @40% (£120,000) - Less 20% (£24,000) = IHT due is £96,000.
23
Q
What must be paid before obtaining a grant of representation?
A
Any IHT due must be paid first.
24
Q
What is an ‘Excepted Estate’?
A
An estate where a full IHT account is not required, provided certain conditions are satisfied.
25
List the three types of Excepted Estates.
* Low-Value Estates (no tax to pay because it is within the nil rate threshold)
* Exempt Estates (no tax to pay because exemptions reduce the chargeable value to within the nil rate threshold and the gross value ≤ £3m)
* D was permanently living outside the UK and the UK assets are under £150,000.
26
When must IHT be paid?
By the end of the 6th month after the person dies.
27
What happens if IHT is not paid on time?
HMRC will charge interest.
28
What is a payment on account regarding IHT?
A payment made if PRs do not know how much IHT the estate owes, which can help avoid interest.
29
Who is responsible for arranging the initial IHT payment?
The PR (Personal Representative) must arrange it.
30
What are the options for arranging IHT payment?
* Loan from a bank or a beneficiary
* Own funds
* Payment scheme between British Bankers’ Association, Building Societies Association and HMRC
* Direct payment by the insurance company to HMRC
* Instalments option for certain assets
31
What is the difference between liability and burden of IHT?
Liability is the obligation to pay tax to HMRC; burden is who ultimately bears the tax.
32
Are PRs personally liable for IHT?
Yes, but only to the extent of assets received as PRs.
33
How is IHT on legacies treated?
IHT on pecuniary and specific legacies is a testamentary expense payable out of residue.
34
Who bears the IHT on property passing by survivorship?
The surviving joint tenant bears the IHT.
35
What happens if PRs pay IHT that is not a testamentary expense?
There is a right of recovery against the person in whom the property is vested.
36
What is the primary responsibility for IHT on PETs, CLTs, and gifts with reservation?
The transferee is primarily responsible for IHT.
37
How is IHT relief allocated if the property qualifying for relief is specifically gifted?
The relief attaches to that gifted property.
38
What is the allocation of RNRB?
RNRB reduces the IHT burden of the whole estate, not just the qualifying property.
39
What tax may apply to income received by the estate during the period of administration?
Income tax may apply.
40
What are the tax rates for estates?
* 8.75% on dividends
* 20% on other income.
41
What is the tax-free amount for low-income estates?
£500.
42
What tax applies to gains on assets disposed of by the estate?
Capital Gains Tax (CGT).
43
What is the annual exempt amount (AEA) for the tax year in which death occurred?
£3,000.
44
What are the CGT rates for residential property and other chargeable assets?
* 24% on residential property
* 20% on other chargeable assets.
45
What must PRs do if the estate's income is less than £500?
PRs do not need to report to HMRC.
46
What are the three formalities required for a valid will under S.9?
1. In writing; 2. Signed; 3. 2 witnesses
## Footnote
These formalities ensure the validity of the will.
47
What happens to an earlier will when a later will or codicil is made?
The later will or codicil impliedly revokes the earlier will only to the extent that it is inconsistent.
## Footnote
This is based on the doctrine of conditional revocation.
48
What is the presumption regarding a missing will following the death of the testator?
If known to have been in the testator’s possession and no evidence to the contrary, there is a presumption that the will has been revoked by destruction.
## Footnote
This presumption protects against claims of existence without evidence.
49
What is a codicil?
An official alteration to a will that must be signed and witnessed as a will.
## Footnote
Codicils allow for changes without creating an entirely new will.
50
Under what conditions are alterations to a will considered valid?
Alterations must be executed as a will; if not, they will not be effective unless proven they happened before execution.
## Footnote
Validity can be established by witnesses or other evidence.
51
What occurs if there is no valid will?
Rules of intestacy will apply.
## Footnote
Intestacy rules determine how an estate is distributed when there is no will.
52
What is the Testamentary Capacity Test as established in Banks v Goodfellow?
The testator must: 1. Understand the nature and effects; 2. Understand the extent of the property; 3. Comprehend and appreciate claims; 4. Have no disorder of the mind.
## Footnote
This test ensures the testator's mental fitness when creating a will.
53
What is presumed regarding mental capacity for adults?
Mental capacity is presumed unless there is a 'real doubt' raised by a challenger.
## Footnote
The burden of proof shifts to those claiming lack of capacity.
54
What are the requirements to contest a will for lack of intention?
The testator must have testamentary intention, knowledge and approval.
## Footnote
Intention is presumed if the will is executed properly unless there are special circumstances.
55
What must be proven to contest a will for undue influence?
The testator must have made the will voluntarily and without pressure.
## Footnote
Proving undue influence is more challenging compared to mental capacity.
56
What happens to a will if the testator marries or forms a civil partnership?
Any will made previously will be revoked unless the will indicates the testator intended it to remain valid.
## Footnote
This protects the rights of the new spouse or partner.
57
What is the class-closing rule in relation to class beneficiaries?
If the gift is an immediate class gift, the death automatically closes the class; if contingent, it closes when the first member satisfies the condition.
## Footnote
This ensures clarity in distribution among class members.
58
What is the effect if a beneficiary in a will predeceases the testator?
The gift will fail unless there’s a contrary indication in the will, in which case substitution under s.33 Wills Act applies.
## Footnote
This allows the nearest issue to inherit the share.
59
What happens to gifts made to a former spouse following a divorce?
Unless there is a contrary intention, any gifts to the former spouse will fail.
## Footnote
This provision protects the interests of the remaining beneficiaries.
60
What is the presumption regarding the meaning of 'children' in a will?
Gifts to children include all children (legitimate, illegitimate, adopted, and child en ventre sa mère) unless contrary intention is shown.
## Footnote
This ensures comprehensive inclusion unless specified otherwise.
61
What is the rule regarding simultaneous deaths?
If the order of death cannot be proved, the elder is deemed to have died first.
## Footnote
This rule assists in determining inheritance rights.
62
What is the Forfeiture Rule in relation to beneficiaries?
A beneficiary who unlawfully kills the testator cannot inherit and is treated as if they predeceased the testator.
## Footnote
This rule upholds justice in inheritance matters.
63
What must be done if a beneficiary lacks mental capacity?
Payments should be made to the person managing their financial affairs, not directly to the beneficiary.
## Footnote
This ensures that the beneficiary's rights are protected.
64
What happens to property passing outside of a will?
It includes interests as joint tenants, life policies, discretionary pensions, lifetime gifts, life interests in trust property, and donationes mortis causa.
## Footnote
These assets may still be part of the inheritance tax estate.
65
What is the consequence of a specific gift being missing?
The gift will fail with no compensation (ademption); if only part is missing, it is partially adeemed.
## Footnote
This protects the intentions of the testator regarding specific bequests.
66
What is the effect of a general gift that does not exist?
The gift will not fail.
## Footnote
General gifts provide flexibility in estate distribution.
67
What is the statutory trust under s.47 AEA in intestacy rules?
Relatives in the relevant category get equal shares; interests are contingent on reaching 18 years or earlier marriage/CP.
## Footnote
This ensures fair distribution among heirs.
68
What is the priority order for applying for letters of administration with a will annexed?
1. Person holding the residuary on trust; 2. Residuary beneficiary; 3. PR of anyone in 2; 4. Any other beneficiary; 5. PR of anyone in 4.
## Footnote
This establishes a clear hierarchy for estate administration.
69
What is required to stop someone from issuing a grant?
Lodging a caveat can prevent a grant from being issued for 6 months.
## Footnote
This provides a mechanism for challenging the validity of a will.
70
What are the main roles of personal representatives (PRs)?
1. Establish and collect the estate; 2. Administer the estate; 3. Pay debts and liabilities; 4. Distribute the balance to entitled persons.
## Footnote
PRs have a fiduciary duty to manage the estate fairly.
71
What is the role of Personal Representatives (PRs)?
The role of PRs includes:
* Establishing and collecting the estate
* Administering the estate
* Paying debts, expenses, liabilities, and IHT
* Distributing the balance according to the Will or Intestacy Rules
## Footnote
PRs are responsible for managing the estate of a deceased individual and ensuring that all debts are settled before distributing the remaining assets.
72
What are the main duties of Personal Representatives?
Main duties include:
* Making inquiries and searches
* Acting in good faith and due diligence
* Acting in the interests of beneficiaries or creditors
* Collecting and managing the estate's assets
* Administering the estate properly
## Footnote
The duties may be modified or extended by the Will.
73
Can Personal Representatives purchase estate property?
No, PRs may not purchase estate property without consent from beneficiaries or the court
## Footnote
This rule is in place to prevent self-dealing.
74
What powers do Personal Representatives have?
Powers of PR include:
* Power to appropriate assets
* Power to advance capital
* Power to hold a minor's share until they reach 18
* Power to appoint trustees for minors
* Power to dispose of property
* Power to insure property
* Power to delegate functions
## Footnote
The Will may modify or exclude these powers.
75
What is the Nil Rate Band for Inheritance Tax?
The Nil Rate Band is:
* Basic Nil Rate Band (NRB): £325,000
* Residence Nil Rate Band (RNRB): £175,000
## Footnote
The NRB can be transferable from a predeceased spouse or civil partner.
76
What are some main exemptions for gifts under Inheritance Tax?
Main exemptions include:
* Gifts to spouse/civil partner
* Charitable donations
* Gifts made 7 years before death
* Small gifts up to £250
* Wedding gifts
* Normal gifts from surplus income
## Footnote
Specific exemptions may apply depending on the timing and nature of the gift.
77
True or False: Personal Representatives can be personally liable for loss resulting from breach of duty.
True
## Footnote
PRs can be held accountable for their actions if they fail to fulfill their duties properly.
78
What is the order of payment for debts if the estate is solvent?
Order of payment is:
* Property undisposed of by the Will
* Property in a residuary gift
* Property specifically given for payment of debts
* Fund retained for general legacy
* Specific legacy
## Footnote
This order determines how the estate's assets are utilized to pay debts.
79
Fill in the blank: The right to income or interest between death and distribution applies to _______ gifts.
specific and residuary gifts
## Footnote
These gifts carry the right to income from the date of death, subject to certain rules.
80
What must Personal Representatives do if they are uncertain about any aspect of the administration?
They may apply to the court for determination or obtain consent from beneficiaries via indemnity
## Footnote
This ensures that PRs act within legal boundaries and with proper guidance.
81
What happens if a surviving partner was not a spouse or civil partner?
They have no automatic right to inherit but may claim for financial provision
## Footnote
Cohabiting partners may pursue claims under certain circumstances.
82
What is the executor's year?
The executor's year is the period of at least one year from the date of death during which PRs are not compelled to distribute the estate
## Footnote
PRs have a duty to manage debts and legacies with due diligence within this timeframe.
83
What is Business Property Relief?
Business Property Relief provides:
* 100% relief for business interests (sole trader or partnership)
* 100% relief for shares in unquoted trading companies
* 50% relief for controlling shares in listed companies
* 50% relief for business assets
## Footnote
This relief helps to reduce the IHT burden on business properties.
84
What are the potential remedies available to beneficiaries and creditors?
Remedies include:
* Application to remove/substitute PR
* Administration proceedings
* Actions to recover losses
* Personal actions against PRs for duty failures
* Tracing and recovering property
## Footnote
These remedies ensure accountability of PRs and protection of beneficiaries' rights.
85
What is the duty of solicitors regarding client confidentiality after death?
Solicitors MUST keep the affairs of their current and former clients confidential.
## Footnote
The right to confidentiality and privilege passes to the client’s PR after death.
86
Who has the authority to disclose contents of a will after the client's death?
Authority may come from:
* the testator client
* the PR
* beneficiaries
* a court order
## Footnote
Disclosure without consent is a breach of confidentiality.
87
What is the starting point regarding solicitors acting for multiple clients?
Solicitors should NOT act for multiple clients if there is a conflict of interest or significant risk of conflict unless exceptions apply.
## Footnote
Client conflict can arise between executors or beneficiaries with different interests.
88
What must solicitors ensure when taking instructions for a will from a third party?
Solicitors MUST confirm instructions directly with the testator to ensure the will reflects the testator’s wishes.
## Footnote
This includes checking for undue influence and ensuring free will.
89
What is the duty of solicitors when preparing a will for an elderly or infirm testator?
Solicitors MUST ensure clients have the necessary mental capacity to make a will.
## Footnote
A doctor's opinion may be required to evidence mental capacity.
90
What should a solicitor do if a client wishes to make a gift to them in a will?
Solicitors MUST ensure the client has taken independent legal advice regarding the gift.
## Footnote
If the client refuses, they may need to cease acting.
91
What is the duty of solicitors regarding the appointment as executors?
Solicitors MUST act in the best interests of their clients and provide full advice on different types of executors.
## Footnote
Clients must understand that an executor does not have to be a solicitor.
92
What is the difference between capital and income in the context of a trust?
‘Capital’ is the trust property itself; ‘Income’ is the profits derived from the trust property.
## Footnote
Examples of income include shares dividends or rental income.
93
Define 'express trust'.
An express trust is explicitly created by someone, either while alive or through their will.
## Footnote
It requires compliance with formalities required by law.
94
What is a discretionary trust?
A discretionary trust allows trustees to decide who from a class of beneficiaries should receive income or capital.
## Footnote
Beneficiaries do not have an automatic right to distributions.
95
What is a secret trust?
A secret trust arises when a testator makes a gift intending the donee to act as a trustee for an ultimate beneficiary without revealing this in the will.
## Footnote
Types include 'fully secret' and 'half secret' trusts.
96
What are the three certainties required for the validity of a trust?
The three certainties are:
* Intention
* Subject (trust property)
* Object (beneficiaries)
## Footnote
All three must be present for a trust to be valid.
97
True or False: A charitable trust is subject to the rule against perpetuities.
False. Charitable trusts are not subject to the rule against perpetuities.
## Footnote
They can have abstract and impersonal beneficiaries.
98
What is a resulting trust?
A resulting trust occurs when a trust fails and the property returns to the settlor due to lack of certainty in intention, subjects, or objects.
## Footnote
This can happen when the settlor fails to inform trustees of the trust's purpose.
99
Fill in the blank: A _______ is a type of trust imposed by statute.
Statutory Trust
## Footnote
They come into being automatically when certain legal circumstances occur.
100
What is a bare trust?
A bare trust is where beneficiaries have an immediate and absolute right to both the capital and income of the trust.
## Footnote
The trustee has no discretion over the assets.
101
What should solicitors be alert to in the context of tax avoidance and fraud?
Solicitors MUST NOT mislead others and should assist taxpayers in complying with obligations honestly.
## Footnote
Red flags include undisclosed assets and unusual asset valuations.
102
What is the duty of solicitors regarding the storage of wills?
Solicitors MUST advise clients about storage options for their wills.
## Footnote
Clients should understand the importance of executors knowing the location of the original will.
103
What is a trust?
A legal relationship created by a settlor when assets are placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.
104
What is the key characteristic of a trust?
It permits the separation of legal ownership and beneficial interest.
105
What is a trust document?
A legal document that creates a trust, appoints trustees, and states the terms of the trust.
106
What is a testamentary trust?
A trust established according to the instructions in a will after the person's death.
107
Define a charitable trust.
A form of express trust for which the purposes are exclusively charitable.
108
Differentiate between capital and income in a trust.
Capital is the trust property itself; income is the profits derived from the trust property.
109
Who is a settlor?
A person who gives property under a trust for the benefit of the beneficiaries.
110
What is the role of a trustee?
The person who legally owns trust property for the benefit of a beneficiary or specified purpose.
111
What is a beneficiary?
A person who receives a gift or benefit in the context of a gift, will, or trust.
112
What is an express trust?
A type of trust explicitly created by someone, either while alive or through their will.
113
Define implied trust.
A trust that arises by operation of law and distinguishes express trusts from constructive and resulting trusts.
114
What is a statutory trust?
A trust imposed by statute, created automatically when an event or circumstance as set out in the relevant law occurs.
115
What are the three certainties required for a trust's validity?
* Intention
* Subject (trust property)
* Object (beneficiaries)
116
What is a bare trust?
A simple trust where beneficiaries have an immediate and absolute right to both capital and income.
117
What is a discretionary trust?
A flexible trust where trustees have the power to decide which beneficiaries should receive capital or income.
118
What is a letter of wishes?
A letter written by the settlor expressing preferences on how trustees should exercise their discretion.
119
What is a secret trust?
A trust where a gift is made in a will to a donee, intending the donee to receive the gift as trustee for an ultimate beneficiary.
120
What is a resulting trust?
Occurs when a trust fails, returning the trust property back to the settlor.
121
Define constructive trust.
A trust that arises by operation of law where it would be unconscionable for a person to deny another's beneficial interest in an asset.
122
What is meant by 'equity follows the law'?
In determining beneficial interests, the starting point is that equity follows the law.
123
What is the common intention constructive trust?
A beneficial interest established by showing an agreement and detrimental reliance.
124
What are the elements of proprietary estoppel?
* Assurance
* Reliance
* Detriment
125
True or False: A trustee can make unauthorized profits from their position.
False.
126
Fill in the blank: In a bare trust, the trustee has _______ over the assets held in trust.
no discretion
127
What happens if a trust's formalities or requirements are not followed?
A resulting trust occurs, and the property will revert to the donor.
128
What is the burden of proof in establishing beneficial ownership differing from legal ownership?
It rests on the party seeking to show that beneficial ownership is different from legal ownership.
129
What is the test for unconscionability in property assurance cases?
The question is whether it would be unjust to allow the property owner who has given the assurance to go back on it.
130
What does detriment mean in the context of assurances?
Detriment is not confined to pure financial detriment; it can include substantial actions like giving up a job or moving from a property formerly owned.
131
What is the burden of proof once assurances are established?
There’s a rebuttable presumption that the claimant behaved in reliance on the assurances made. The burden then shifts to the defendant to establish otherwise.
132
How can proprietary estoppel be pleaded?
Proprietary estoppel can be pleaded independently or in the alternative to a constructive trust in the context of home ownership.
133
What principle underlies proprietary estoppel?
Proprietary estoppel is founded on the principle that it would be unconscionable for the property owner not to give effect to their promise.
134
When might a resulting trust arise in a domestic context?
A resulting trust might arise when both parties contributed to the purchase price and/or mortgage payments in contexts like business partnerships or investment properties.
135
What is the effect of an express declaration of trust?
An express declaration of trust as to equitable ownership is conclusive unless varied by subsequent agreement or affected by proprietary estoppel.
136
What recent decision has cast doubt on the principle of express declarations of trust?
The decision in Nilsson v Cynberg suggested that an express declaration of trust can be overridden by a 'subsequent agreement' that includes common intention constructive trust.
137
What should always be established before considering parties' intentions regarding property?
Establish the parties' respective interests in the property.
138
What does 'equity follows the law' imply about beneficial interests?
Beneficial interests reflect the legal interests in the property.
139
What is the starting point for beneficial ownership with sole legal ownership?
The starting point is that there is sole beneficial ownership.
140
What is the presumption regarding beneficial ownership when legal title is held in joint names?
The presumption is that beneficial ownership is held jointly in equal shares, unless the contrary is proved.
141
Fill in the blank: Proprietary estoppel arises from the courts' ______ jurisdiction to intervene in cases of unconscionability.
[equitable]
