Terms Flashcards
Abatement
If there is insufficient money in an Estate to pay all of the Legacies under a Will in full, each Legacy is reduced (normally proportionately) so that all Beneficiaries receive something. This reduction is referred to as Abatement.
Absolute Interest
Where a Beneficiary is immediately and, without restriction, entitled to receive the benefit due.
See Contingent Interest.
Accumulated Income
Income generated by a Trust Fund can be paid out to a Beneficiary immediately, kept to one side as a “stock pile” of undistributed income or the Trustees can decide to formally Accumulate it.
Accumulated income can be converted into capital. The Trustees will often do this if none of the Beneficiaries need the income and it is simpler for the Trustees to treat these amounts as capital along with the rest of the Trust Fund.
NB: If the Trustees “stock pile” income then it remains available to distribute to the Beneficiaries. However, it can’t be held as income indefinitely. After a certain period of time the Trustees must treat it as capital.
Accumulation and Maintenance Trust (A&M)
A type of Trust that was abolished in April 2006 but which you will find reference to. A&M Trusts were often used by parents / grandparents to benefit minor children and were taxed more leniently than other types of Discretionary Trust.
Ademption
If a specific item (e.g. a particular watch or painting) is left to someone by Will but when the Testator dies he no longer owns it, the clause in the Will cannot be given effect to and the gift has adeemed.
Administration
The process of dealing with all matters involved with the winding up and distribution of a deceased person’s Estate.
Administrator
A person appointed by court (via Non Contentious Probate Rules 1987) to Administer a person’s Estate. An Administrator (rather than Executor) is appointed when a person dies Intestate or where there is a Will, but the named Executor is not going to act.
AEA 1925
Administration of Estates Act 1925.
Affidavit of due execution
A written statement confirming that a Will was validly executed, and the person who signs the statement (usually the witnesses) formally swears as to the truth of its contents.
Agent
For purposes of Trustee Act 2000. (See also Custodian and Nominee).
A person to whom Trustees have delegated decision making powers.
An Agent will essentially step into the shoes of the Trustees and make management decisions about the Trust assets. However, he can only act in relation to the assets, and within the limits of, what is delegated to him.
E.g. A solicitor Trustee decides that Trust money should be invested in stocks and shares. However, he does not have the expertise to decide which shares to buy, when and how many. He can therefore transfer funds to a specialist fund manager who will make these decisions on his behalf. When the Agent makes decisions about the shares he has full discretionary powers. However, he would have no powers in relation to other Trust assets over which he has not been appointed Agent.
The Trustee who appoints an Agent will still be under a duty to supervise the Agent and ensure that he is an appropriate person to act. E.g. while the choice of which shares to buy and sell rests with the Agent, if his actions result in a fall in value of fund, then the Trustee would need to consider whether a different fund manager needs to be appointed instead.
Ancillary proceedings
Part of the divorce process which resolves any financial issues between the parties to the marriage.
Appointment out of a Trust
Where trust property is either paid out absolutely to a beneficiary or resettled on new trusts.
APR
Agricultural Property Relief.
Attestation
The act of acknowledging that a document has been signed by the person whose name is on the signature line. Attestation only relates to the signing process and does not guarantee the content of the document.
Attorney
Someone who a Donor legally appoints to manage their affairs on their behalf.
Beneficiary
A wide term used to describe any person (or organisation) who can benefit under a Will or from a Trust.
Includes those with Absolute, Vested and Contingent Interests as well as those who have only a hope of benefiting (rather than fixed and identifiable rights).
Bequest
General term used to mean a gift made by Will, but more often refers to a gift of personal possessions rather than real property.
See Legacy / Devise.
Bereaved Minors Trust
A Trust created by Will or Intestacy, for the Testator’s minor children who must have an Absolute Interest in the Trust property when they reach 18 and which complies with s. 71A IHTA 1984.
Bereaved Young Person’s Trust (also referred to as an “18-25 Trust”)
A Trust created by Will, for the Testator’s children who are under the age of 25 who must have an Absolute Interest in the Trust property by their 25th birthday and which complies with s. 71D IHTA 1984.
Can be used instead of a Bereaved Minor’s Trust when parents do not want their children to inherit at 18.
Bona Vacantia
Translates as “ownerless goods” and refers to assets distributed in accordance with the Intestacy Rules which end up passing to the state because there are no family members to inherit.
BPR
Business Property Relief.
Certificate Provider
The Certificate Provider is someone who must ensure that the person who wishes to make the Lasting Power of Attorney is mentally capable of making it and that there is no pressure on them to make one.
Chargeable Transfer
A transfer of value made by an individual which is chargeable to IHT. The value of the Chargeable Transfer is the actual amount / value transferred less any exemptions or reliefs that apply.
Chargeable Transfers include:
Lifetime Chargeable Transfers (LCTs)
Failed Potentially Exempt Transfers (PETs)
The transfer of a person’s Estate which is
deemed to take place when they die.
Chattels
Personal property such as household and personal goods, furniture, jewellery, antiques and works of art, but NOT items used for business purposes or held solely for investment purposes. See s. 55 (1)(x) AEA 1925.
Clear Off
The process of showing that an individual is the right person to be appointed as the Administrator of an Estate.
When applying to court to be appointed, the applicant must show that no one else has priority to act i.e. “clear off” other categories of relative who would also have a claim to act as Administrator.
Codicil
A formal document that amends, rather than replaces, a Will.
Codicils are used where the Testator wants to make a small number of minor changes to his Will. When the Testator dies the instructions in his original Will, as amended by any Codicils, are put into effect.
Commorientes
The rule that applies where two or more people die in circumstances where the exact order of death is uncertain, e.g. in a road accident or plane crash. Where this happens there is a presumption that the eldest died first and the youngest last.
Conditional Interest
See Contingent Interest.
Contingent Interest
An Interest under a Will or Trust where a specific event has to happen before the Beneficiary becomes entitled.
E.g. Helen is left £10,000 under her uncle’s Will but the money can only be paid to her once she reaches 21. If her uncle dies when she is 18, Helen is not entitled to the money absolutely (she hasn’t complied with the condition attached to the gift). On her 21st birthday she has complied with the contingency, her interest Vests and the £10,000 must be paid to her immediately. Before Helen complies with the condition her interest in the gift is described as ‘contingent’.
Corrective Account
An Inland Revenue account (Form C4) which notifies HMRC of:
assets that were not included in the IHT 400/205, or
any adjustment to valuations previously submitted.
CTO
Capital Taxes Office. The division of HMRC that deals with IHT.
Cumulative Total
Total of all the Chargeable Transfers made in the seven years prior to the current Chargeable Transfer.
Custodian
In the context of Trustee Act 2000. (See also Agent and Nominee.)
Someone who undertakes the safe custody of some or all of the Trust assets, or of any documents or records relating to the assets. A Custodian does not exercise management powers over these assets.
E.g. if the trust held some antique furniture the Trustees may decide that it would be best looked after if it were placed in a specialist museum, where it could be safeguarded and maintained.
Cy-près doctrine
When a gift to a charitable organisation is made by Will and the charity named either no longer exists or no longer conducts the activity for which the gift is made, then the gift would ordinarily fail. However, the cy-près doctrine allows the PRs to make the gift to an organisation which comes closest to fulfilling the purpose of the original gift.
Death Rate
0% and 40% - the rate at which IHT is charged on the Taxable Estate. IHT may be charged at 0% and 36% if the estate qualifies for a reduced rate as a result of charitable donation.
Deed of Variation
Deed by which the Beneficiaries of a Will or Intestacy can change / re-direct their inheritance.
They allow family members to effectively “re-write” the deceased’s Will, often for tax planning purposes.
Devise
A gift under a Will - is normally used in relation to gifts of land.
Discretionary Trust
A Trust where none of the Beneficiaries have a Life Interest.
Instead, Trustees have discretion to decide which of a number of Beneficiaries should receive capital or income from the trust, when and how much. No Beneficiary is entitled to anything; rather each has a hope of receiving benefit and relies on the Trustees exercising discretion in his favour.
Discretionary Trusts are taxed under the Relevant Property Regime and can be referred to as Relevant Property Trusts.
Distribution Estate
All the assets that a person owns when they die which are distributed in accordance with their Will or the Intestacy Rules.
Also referred to as the Succession Estate.
The gross Distribution Estate is the total value of all these assets. The net Distribution Estate is the gross value less the debts/liabilities.
Domicile
The place where a person has their “fixed and permanent home” – where they live or intend to return to. There are three types:
Domicile of Choice (where a person has moved to a new country with the intention of settling there permanently).
Domicile of Dependency (while under the age of 16 a child has the same Domicile as the person on whom they are dependent).
Domicile of Origin: The Domicile acquired at birth (usually that of a person’s father). It need not be the country in which a person is born.
A person’s domicile affects their liability to inheritance tax and also determines the common law system that applies for succession matters.
Do not confuse with Residence.
Donatio Mortis Causa (DMC)
A gift made in contemplation of and conditional upon death. Can be referred to as a “death bed” gift.
E.g. Dennis made a Will leaving his car to his daughter Helen. Close to dying he changes his mind and tells his nephew Joe that when he dies he wants Joe not Helen to have the car. If Joe can prove the DMC, it will take precedence over the contradictory clause in the Will and he will inherit the car.
Donor
Someone who creates a Lasting Power of Attorney
Enduring Power of Attorney (EPA)
A valid Enduring Power of Attorney legally authorises Attorneys to act on the Donor’s behalf in financial matters. The authority can continue even after the Donor loses mental capacity.
Since 1 October 2007, it is no longer possible to create an Enduring Power of Attorney.
Estate
A wide term used to describe everything that a person owns or is entitled to. See Distribution Estate and Taxable Estate.
Estate Accounts
Accounts recording the financial transactions during the Administration period.
The accounts will include a list of all the deceased’s assets and their value, details of any income received and gains realised, any tax paid and the payment of Legacies to Beneficiaries.
Estate Rate
The average rate of IHT paid on the Taxable Estate.
Usually, because part of a Taxable Estate falls within the NRB and only the extra is taxed at 40% - the overall rate of IHT paid on the whole Estate will be less than 40%.
Excepted Estate
An Estate where an IHT 205, rather than IHT 400, can be returned to HMRC.
In summary, the main aspects of an Excepted Estate are where the gross taxable value:
is less than the NRB, so no IHT is payable – a “low value estate”
is less than £1M and no IHT is payable because spouse/civil partner/charity exemption applies – an “exempt estate”
of UK assets held by a non-UK Domiciled person are not more than £150,000 – a “foreign domiciliary estate”.
This is not an exhaustive list.
See Inland Revenue Account.
Excluded Property
Property which is outside the charge to IHT.
Executor
Person appointed by Will to carry out the instructions in the Will and administer the deceased’s Estate. Executrix is the feminine form.
Executors’ Year
The 12 month period following death. Executors are usually expected to have dealt with the Administration of the Estate within this period.
Exempt Beneficiary
There is no IHT charge on transfers of value to Exempt Beneficiaries.
Exempt Beneficiaries include a person’s spouse or civil partner and registered charities.
Exit Charge
An IHT charge that arises when property leaves a Discretionary / Relevant Property Trust.
Failed PET
A PET where the person making the gift has died within seven years of making it.
Often referred to as the ‘seven year rule’.
General Legacy
A gift in a will of property which is not distinguished from property of a similar type.
E.g.1 ‘I GIVE to my cousin John Taylor of [address] 100ordinary shares in Tesco Plc’. If the shares are not owned by the Testator when he dies then the PRs would have to buy them. (Compare with Specific Legacy below.)
Below is an example of a Pecuniary General Legacy.
E.g.2 ‘I GIVE to my cousin John Taylor of [address] one thousand pounds £1,000.’
Gift with Reservation of Benefit (GROB)
If a person gives away an asset (e.g. transfers legal title in their house to a family member) but continues to benefit from that asset after making the gift (e.g. lives in the house without paying rent) they have “reserved benefit” in that asset and made a GROB.
Grant
See Grant of Representation.
