PROPERTY PASSING OUTSIDE THE WILL OR INTESTACY

Question 1

Definition of PROPERTY PASSING OUTSIDE THE WILL OR INTESTACY

Answer 1

1. Some property cannot pass via the testator’s will or the rules of intestacy. These rules are strict and cannot be varied by the terms of the will.
2. The property listed below does not form part of the deceased’s ‘succession estate’ for succession purposes and so is not payable to their personal representatives.

Question 2

Types of PROPERTY PASSING OUTSIDE THE WILL OR INTESTACY

Answer 2

1. PROPERTY OWNED AS BENEFICIAL JOINT TENANT
2. LIFE ASSURANCE POLICIES
3. PENSION SCHEME DEATH BENEFITS
4. NOMINATED PROPERTY
5. LIFE INTERESTS IN TRUST PROPERTY
6. GIFTS WHERE DONOR HAS RECEIVED A BENEFIT

Question 3

PROPERTY OWNED AS BENEFICIAL JOINT TENANT

Answer 3

The interest in property owned as** a benefcial joint tenant **passes to the survivor(s). This could be a bank account or the matrimonial home, for example. However, this rule does not apply for tenancies in common, where the share passes via the will or intestacy rules.

Question 4

LIFE ASSURANCE POLICIEs

Answer 4

Life assurance polices may be held on trust for, or assigned to, benefciaries. Alternatively, a person insuring their own life may express the policy to be for the beneft of their spouse and/or children. In either scenario,** the policy belongs to the benefciaries and is payable directly to them **(or trustees) on proof of death. The proceeds will not form part of the de-ceased’s taxable estate for inheritance tax purposes.

Question 5

PENSION SCHEME DEATH BENEFITS

Answer 5

Pension scheme death benefts may be subject to discretion-ary trusts, but the scheme member is normally permitted to make a non-binding nomination of their preferred recipient. Not all pension schemes operate in this way; in some cases the death in service beneft forms part of the estate for the will or intestacy rules.

Question 6

NOMINATED PROPERTY

Answer 6

A person may transfer property held on death in friendly societies, the National Savings Bank, and National Savings Certifcates directly to chosen benefciaries by way of statuto-ry nomination in writing. If an individual has made a nomination for such accounts, the institution will pay the investment to the chosen nominee. The provisions apply to deposits not exceeding £5,000.

Question 7

LIFE INTERESTS IN TRUST PROPERTY

Answer 7

Interests in a trust fund will pass according to the terms of the trust. These interests may be subject to inheritance tax.
EXAMPLE
Jolene died owning various assets in her own name. She was also a benefciary of a trust in which she had the right to receive the income from the trust as it arose (a life interest). On Jolene’s death, the trust assets will pass to the named capital benefciary (the ‘remainderman’) outside of Jolene’s estate.

Question 8

Inheritance tax

Answer 8

Exam Tip
It is worth noting that jointly owned property, life inter-ests in trust property, and gifts with reservation of bene-ft do form part of the deceased’s estate for inheritance tax purposes, even though they are not payable to the personal representatives.

Question 8

GIFTS WHERE DONOR HAS RECEIVED A BENEFIT

Answer 8

This is an inheritance tax concept. The deceased has given something away but has retained some beneft in the gifted property. There is a tax consequence to this, but the asset does not belong to the deceased for succession purposes.
EXAMPLE
Erasmus had owned his main residence for many years. In an attempt to mitigate the inheritance tax liability, he trans-ferred the legal ownership of the house to his daughter, Jenna, but continued to live in it rent-free until the date of his death. Although the gift will not be effective for inheritance tax and still forms part of Erasmus’s taxable estate,
from a succession point of view the house passes outside his estate.