Topic 5 - Wills, intestacy and trusts Flashcards
1
Q
What is the definition of a will
A
- Written declaration of someone’s wishes for when they die
- Can be disposal of assets as well as matters such as funeral wishes
2
Q
What are the 4 parties in a will
A
- Testator
- Executor
- Beneficiary
- Witness/es
3
Q
Requirements for a will to be valid
A
- Must be in writing
- Should be dated - avoids confusion
- Each person has an individual will
- Statement that previous wills are revoked
- Will revoked automatically if married (unless was written in anticipation)
4
Q
What is a mirror will
A
- Will most commonly used by couples
- Almost identical, leaving everything to each other first, then to beneficiaries
5
Q
What is a mutual will
A
- 2 parties make similar wills containing agreement that on 1st death, survivor cannot revoke their will
- Ensures assets make it to intended beneficiaries (instead of re-married spouse for example)
6
Q
What is a codicil
A
- An extra page added to the will that allows you to make small changes to your will without having to make a new one
7
Q
What does intestate/intestacy refer to
A
- A person who has died without leaving a will
- Different rules apply to distribution of estate, covered in Inheritance and Trustee’s Powers Act 2014
8
Q
Define these terms:
- Absolutely
- Issue
- Remoter issue
- Spouse
- Chattels
A
- Beneficiary owns asset completely
- Children
- Great/grandchildren
- Civil partners
- All tangible, movable property except money
9
Q
Laws of intestacy surrounding distribution of estate
A
- Spouse receives chattels + £270k absolutely, then half of the remaining estate absolutely if there are children
- Children split rest of estate equally
- If there is no spouse or children, estate goes to the groups as follows:
- Parents
- Siblings
- Half-siblings
- Grandparents
- Crown
10
Q
What is a grant of probate
A
- Executors require valid grant of probate to begin distribution of estate
- IHT must be paid before probate granted
- Probate granted by probate registry
11
Q
What is a letter of administration
A
- When someone dies intestate, administrator is uncharge of winding up estate
- Letter of administration essentially a probate
- Letter has to be granted before IHT is paid and estate distributed
12
Q
What are the 2 methods of varying a will or intestacy and what are their key features
A
- Disclaimer - legacy rejected (as long as it was within 2 years of death) and bequest treated as if it never happened. Legacy passed back into estate, out of beneficiaries hands
- Deed of variation - if all beneficiaries affected agree, legacies can be re-directed as they wish, providing it does not affect other beneficiaries
13
Q
What us a gift with reservation
A
- Conditions on gift which could lead to it going back into estate
- E.G. gifting house with reservation to live in it rent free, which would make it part of their estate
14
Q
3 parties to a trust
A
- Settlor - creator/owner
- Trustee - person in charge of looking after/distributing estate
- Beneficiaries - people benefitting from estate
15
Q
Main duties of a trustee
A
- Must act in accordance with trust deed
- Understand their duties
- Must balance maximising and protecting investments from the trust fund
- Invest in line with the deed
- Must be honest
- Must be diligent to avoid losses
- Must balance interests of all beneficiaries
16
Q
What are the 3 certainties are needed for a trust to be valid
A
- Certainty of intention - clear that settlor intended to create
- Certainty of subject matter - trust deed must specify what property is going to the trust
- Certainty of object - clearly stated beneficiaries
17
Q
What should a trust deed include
A
- What property or assets are to be held in the trust
- The trustees
- The beneficiaries
- The powers given to trustees
- Rights of beneficiaries
18
Q
What is a will trust
A
- Trust created through a will
- Bequests to will trusts treated as normal death transfers
19
Q
What is an absolute (bare) trust
A
- Established for one or more beneficiaries who are solely entitled to the trust assets
- Once they turn 18, they can demand the assets
- Gifts into an absolute trust treated as potentially exempt transfer
20
Q
What is a Interest In Possession trust
A
- Beneficiary will receive income or use of asset during whole life or on specified event (known as a contingency) like marriage etc.
- Two types of beneficiary - Life tenant (beneficiary with interest in possession) and remaindermen (other beneficiary who will benefit upon death of life tenant)
- Assets are set up as a gift (known as ‘relevant property’)
- Chargeable lifetime transfer (20% tax)
21
Q
What is an immediate post-death interest trust (IPDI)
A
- Similar to IIP, except trust written in will
- Gift made upon death, so subject to normal IHT
22
Q
What is a discretionary trust
A
Trustees given discretionary powers to:
- Appoint beneficiaries (from specified categories)
- Decide whether to pay a beneficiary, or if at all
Settlor has no power over who receives benefits
23
Q
2 main life assurance trusts
A
- Flexible trusts
- Split trusts
24
Q
What is a flexible (life assurance) trust
A
- Form of discretionary trust, where trustees can vary beneficial interests
- Settlor can appoint potential beneficiary or state categories
- Must appoint ‘default beneficiary’ who will receive proceeds if no others are appointed
25
Q
What is a split (life assurance) trust
A
- Normally used with COMBINED life and critical illness policy
- Splits payouts - CI paid to settlor upon diagnosis of illness and life policy paid into trust
26
Q
What is a gift and loan trust
A
- Investment trust using investment bonds
- Gift annual exemption (£3k) then make bigger gift (loan) and buy an investment bond
- Investment bond allows withdrawal of up to 5% of capital annually
- This is withdrawn and paid to settlor - must be spent so doesn’t go back into estate
- Final price of bond is exempt from IHT
27
Q
What is a discounted gift trust
A
- Similar to gift and loan, invests in investment bonds
- Agreed amount paid for lifetime, so if you live over expectancy, you take from beneficiaries legacy
- Any growth is outside the estate
- Income cannot increase
28
Q
What is a designated account
A
- Investing money for a child in the name of there settlor
- Can be investments made in many places
- Can be done as simply as leaving initials of child on account
- Child can access funds when 18
29
Q
What is the married women’s property act (1882) trust (MWPA)
A
- Trust made when life policy taken out on one’s life for benefit of spouse or child
- Benefits outside policy holder’s estate
- Can be used by men and women, civil partners and single people with children
