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Client Interview + Attendance Note > SPA 2 - Probate > Flashcards

SPA 2 - Probate Flashcards

Taking Instructions Effect of Marriage v Divorce on Death Beneficial Entitlement on Death Intestacy and IHT IHT and Jointly Owned Property How to Calculate IHT on Death Rights of Spouse of Intestacy Intestacy Property Passing Outside Intestacy Administering an Intestacy IHT on Death

1
Q

What kinds of questions do you need to ask?

A
  1. Find out about the circumstances of death
  2. Date of death?
  3. Has the death certificate been received?
  4. What family did the deceased have?
  5. Did they have a will?
  6. Ask about assets?
  7. Aware of any potential claims? Was the deceased maintaining anyone?
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2
Q

What is the effect of marriage on a will?

A

It revokes the will in its entirety unless the will has been made in express contemplation of a specific marriage

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3
Q

What is the effect of divorce on a will?

A

It doesn’t revoke a will.
It treats the former spouse/civil partner as if they were deceased.

The will survives a divorce

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4
Q

Which assets should you consider first when in an interview?

A

Assets that pass under their own rules of succession, regardless of the terms of the will.

For example:
- jointly owned assets,
- life assurance policies (if written under trust)

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5
Q

What happens if a will doesn’t deal with all of the assets?

A

Partial intestacy

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6
Q

What is the only difference with IHT based on whether someone dies with or without a will?

A

The intestacy rules will now determine whether any exemptions apply.
E.g., intestacy rules mean the charity exemption won’t apply/

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7
Q

What happens re IHT if property was owned as tenants in common?

A

Each tenant in common has their own defined share + that share’s value will be included in the IHT estate on death

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8
Q

What happens re IHT if property was owned as beneficial joint tenants?

A

Beneficial entitlement perspective - passes automatically to the survivor.

However, the notional share + its corresponding value is included in the deceased’s estate for the purposes of calculating the entire value of the estate + for paying IHT.

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9
Q

What steps do you need to take to calculate IHT on death?

A
  1. Define what falls into a person’s estate for IHT purposes,
  2. Value it
  3. Deduct liabilities
  4. Consider any exemptions
  5. Apply reliefs
  6. What nil rate band applies
  7. Tax remainder at death rate of 40%
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10
Q

Who rights take priority under the intestacy rules?

A

A surviving spouse

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11
Q

What is a spouse’s entitlement dependent upon under the intestacy rules?

A

They need to survive the deceased by 28 days

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12
Q

What happens if a spouse dies within 28 days of their pre-deceased spouse (intestacy)?

A

They are viewed as having pre-deceased the intestate spouse

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13
Q

What is a surviving spouse entitled under the intestacy rules if there are also issue?

A

i. deceased’s personal chattels
ii. statutory legacy of £322,000
iii. half of the remaining estate

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14
Q

What does ‘personal chattels’ not include under the intestacy rules?

A

Any assets solely or mainly for business purposes + any investment assets

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15
Q

What rights does the spouse have re the matrimonial home in the case of an intestacy?

A

They can have the family home transferred to them as full/partial satisfaction of their entitlement (unless they were beneficial joint tenants).

They have the right to insist that the PR’s exercise their power of appropriation to transfer the matrimonial home to them.

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16
Q

What happens if the PRs transfer the surviving spouse the matrimonial home but it exceeds their share of entitlement under the intestacy rules?

A

They will need to pay into the estate ‘equality money’.

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17
Q

What is intestate succession?

A

A statutory method of distributing assets that aren’t disposed of by will, either because a decedent died without a valid will or because the decedent’s will failed to give away all of their property, such as when a residuary gift fails or when the will didn’t include a residuary gift.

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18
Q

What happens if the intestate dies with no spouse, and their children predeceased them too but left issue of their own?

A

If the child predeceased the decedent but is survived by their own children, the children take on trust + split the parents share (a ‘per stirpes’ or ‘by the root’ distribution)

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19
Q

What is the order of distribution under intestacy rules if there is no spouse?

A
  1. Children
  2. Decedent’s parents
  3. Full brothers + sisters
  4. Half brothers + sisters
  5. Grandparents
  6. Uncles and aunts
  7. The Crown
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20
Q

What property passes outside the intestacy rules?

A
  1. Property held as beneficial joint tenant
  2. Proceeds of a life assurance policy (pass to the beneficial named in the policy under contract law)
  3. Property held in a National Savings Bank, friendly societies, or in National Savings Certificates is someone has been nominated through a statutory written nomination
  4. Interest in a trust (passes according to the terms of the trust)
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21
Q

What is needed before the deceased’s estate can be administered in intestacy?

A

A person interested in serving as administrator applies for letters of administration.

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22
Q

What do letters of administration do?

A

Give the administrator authority to act for the estate from the date of the grant

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23
Q

What is the order of preference for someone applies for letters of administration (Intestacy)?

A
  1. Surviving spouse,
  2. Children
  3. Parents
  4. Brothers and sisters
  5. Grandparents

PRs of a person have the same right to a grant of letters as the person named in the list.

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24
Q

What is needed if a minor child is a beneficiary?

A

At least 2 administrators must be appointed

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25
Q

What happens if the sole or last surviving PR dies (intestacy)?

A

A grant de bonis non (second grant of letters) will be made using the same preferential lists discussed previously.

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26
Q

When is a grant de bonis non not needed?

A

If the PR has died but has left a PR of their own (chain of representation) who will over the deceased PR’s administration

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27
Q

When are lifetime gifts to a trust or a company chargeable?

A

Usually immediately chargeable
- Chargeable lifetime transfers

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28
Q

What can the value of a CLT be reduced by ?

A

Any available annual exemptions

29
Q

What is the nil rate band ?

A

£325,000

30
Q

What is the tax rate for trustees and the donor (CLT)?

A

20% if paid by the trustees (out of funds gifted to the trust), and
25% if paid by the donor

31
Q

How do you determine whether the NRB has been exceeded (CLTs)?

A

If other CLTs were made in the previous 7 years, we have to add those to the current gift.

If the donor paid tax on any of the earlier gifts, the amount of tax must be added in.

Any applicable annual exemption can be deducted from the amount of the CLTs which were made.

32
Q

When will the recipient of a PET owe tax?

A

if the donor died within 7 years of making the PET to the extent the PET isn’t shielded from tax by any available annual exclusions or the NRB

33
Q

How do you determine whether IHT is owed on a PET made within 7 years of the donor’s death?

A

use the nil rate band + the IHT rates in force at the date of death.

to work out the remaining NRB, we deduct any gross chargeable transfers made in the 7 years before the PET (not merely the date of death)

34
Q

What happens if the donor dies within 7 years of making a CLT?

A

Trustees will owe additional IHT.

Start with the CLT, then apply the amount of the NRB remaining to determine the amount that is chargeable to 40% IHT.

If there are more than 3 years between the date of the CLT + the date of the death, taper relief will be available to reduce this tax.

Trustees also receive credit for the lifetime tax already paid on the CLT

35
Q

What happens if there are more than 3 years between the date of the PET and the donor’s date of death?

A

Taper relief is available to reduce the tax owed by 20% for each year prior to 3 years from the date.

36
Q

What tax reliefs are available for IHT?

A

1) Business relief
2) Agricultural relief

37
Q

What does business relief do?

A

Reduces the value of business property given as a lifetime gift to a trust or at death.

Only available if the business is trading.
Available even if the trading business is overseas.

38
Q

When is business relief applied?

A

Before any annual exemption is applied

39
Q

When is 100% business relief applied?

A

If the donor transfers:

i. a sole trade business or partnership interest to the trust, or

ii. the donor transfers shares in an unlisted trading company

40
Q

When is 50% business relief applied?

A

If the donor transfers:

i. Shares in a quoted trading company if the donor has 50% of the company’s voting shares, or

ii. The donor transfers land, buildings, plant, or machinery used either by a partnership of which they are a member or a company they control.

41
Q

How long must the donor have owned the business property for in order for business relief to apply?

A

At least 2 years

42
Q

What is agricultural relief?

A

Applies in a similar way to business relief when a donor transfers agricultural property to a trust during life or at death

43
Q

When is agricultural relief applied? How much?

A

100% relief:
i. Agricultural land,
ii. Buildings used for the purposes of agriculture, and
iii. Situated either in the UK, the Channel Islands, the Isle of Man, or European Economic Area State

44
Q

How long does the farmer/donor need to have owned the land/buildings for the relief to apply?

A

At least 2 years if the owner was using the land in their business.
At least 7 years if they leased out the land or buildings

45
Q

Who is IHT on death payable by?

A

Personal representatives

46
Q

How do you determine the net value of the estate at death?

A

Deduct funeral expenses, debts and other liabilities.
No annual exemptions apply

47
Q

How do you determine the remaining NRB on death?

A

Deduct the amount by PETs and CLTs made in the past 7 years.

48
Q

When is a gift on death made to a spouse/civil partner not exempt from IHT?

A

Restricted to £325,000 if the spouse isn’t domiciled in the UK

49
Q

What is the charity exemption?

A

If the decedent gave more than 10% of their ‘baseline amount’ to a charity, the IHT is reduced from 40% to 36%

50
Q

What is the baseline amount?

A

The value of the estate after deducting all available reliefs, exemptions, and NRB, but excluding the exemption for the charitable legacy itself.

51
Q

When will the value of property owned jointly be partially discounted?

A

If it was owned jointly with someone other than a spouse or civil partner because of the difficulty in selling such an asset.

52
Q

What happens if someone is predeceased by a spouse/civil partner who didn’t use up all of their NRB?

A

The unused proportion of NRB may be transferred to the decedent to give them an uplift in their NRB by up to an additional 100% (transferable NRB)

Uplift is applied to the NRB available at the time of the 2nd decedent’s death

53
Q

What happens re transferable NRB if a taxpayer has survived more than 1 spouse?

A

The NRB on death is calculated by taking into account the unused proportion of each deceased spouse, up to a maximum of 100%

54
Q

When is a Residence NRB available?

A

If an estate includes a home that was used as the deceased’s private residence at some point if the residence or proceeds of the residence are left to lineal descendants or spouses of such descendants.

Descendants need not occupy the residence after death

55
Q

What is the value of the Residence NRB?

A

The value of the dwelling at the time of death (after deducting liabilities such as a mortgage) up to a residential NRB limit (£175,000)

56
Q

What is the ‘brought forward allowance’?

A

A percentage of any unused Residence NRB can also be transferred between spouses on death

57
Q

When can an estate claim a ‘downsizing addition’?

A

If the decedent downsized their home during life, the estate can claim a ‘downsizing addition’ which uplifts the amount of the Residence NRB in the death estate based on the value of the earlier owned home.

58
Q

What is quick succession relief?

A

Given when an individual’s estate was increased by a gift made to them in the 5 years before death upon which IHT was paid.

It applies when someone dies within 5 years of inheriting something on which IHT was paid + it decreases by 20% for each year between the donor’s death and the recipient’s death.

The gifted property need not be in the decedent’s estate at the time of their death.

59
Q

What is a gift with reservation of benefit?

A

If an individual gives away an asset but continues to be able to benefit from that asset, the gift is treated as being in the donor’s estate when they die.
> we pretend the donor still owns the asset at their death.

60
Q

When does the gift with reservation of benefit rule not apply?

A

It the donor pays the recipient market value for use of the gifted property

61
Q

How can a donor avid the gift with reservation of benefit? What is the issue with this?

A

They can release the reservation before they dies.
However, HMRC will treat the release as a PET on the date of the release.

62
Q

When is IHT typically due?

A

6 months from the end of the month in which the decedent died

63
Q

When is IHT due on CLTs?

A

At the later of:
i. 6 months from the end of the month in which the CLT was made, and
ii. 30 April after the tax year in which it was made.

Any additional tax on death arising from a CLT is due 6 months after the end of the month in which death occurred (payable by the trustee)

64
Q

In most cases, who is liable for IHT on property transferred on death?

A

The Personal Representatives

65
Q

For property given with a reservation of benefit, who is liable to pay IHT?

A

Primarily the donee of the gift, but
The PRs are liable if not paid within 12 months after death

66
Q

Who is liable for IHT for property that passes other than by will or intestacy?

A

Liability falls on the PRs, but
Will be borne by the beneficiary

67
Q

What must PRs do re the deceased’s income tax?

A

They must complete the deceased’s income tax return covering the period from 6 April to the date of death + pay any amount owed.

The return will also include any capital gains in the year of death

68
Q

What will PRs do if an estate generates income or capital gains during administration?

A

The PRs will submit tax returns detailing any income and gains accruing to them during the period of administration.

If the administration lasts more than 1 years, returns are required for each separate tax year.

69
Q

When must tax returns be filed by PRs?

A

They are bound by normal self-reporting rules, so must be filed by 31 January.

However, instead of making annual self-assessment returns, PRs may may an informal payment of the total liability for the whole period of administration together with a single income tax + capital gains tax computation

Client Interview + Attendance Note (2 decks)

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