Topic 8 - Taxation and legal issues

Question 1

The starting point for later life planning is ensuring there is a xxx. After this, it may include xxx planning via gifting and trusts, maybe even xxx, and finally xxx planning.

Answer 1

valid will
IHT planning
protection policies
long-term care planning.

Question 2

Long-term care planning can be extremely expensive and will not fully be covered by the state unless xxx

Answer 2

their estate falls below a certain threshold.

Question 3

The ‘laws of succession’ dictate what happens to assets and liabilities following death. The state have their own rules for this, and this depends on whether you die xxx (with a will) or xxx (without a will).

Answer 3

testate
intestate

Question 4

The estate of a deceased is administered by one or more of the following personal representatives:

Answer 4

• Executor – as described and agreed in a will
• Administrators – where no will was left

Question 5

Executors need a xxx to administer the estate, administrators need a xxx.

Answer 5

grant of probate
letter of administration

Question 6

Letters of administration cum testamento annexo (with the will annexed) will be obtained where xxx

Answer 6

a will WAS left, but there was a defect so it could not be used for whatever reason.

Question 7

The grant of probate is signed and sealed by the xxx and included xxx.

Answer 7

registrar of the court
a copy of the will

Question 8

If it is not known whether grant of probate or letters of administration are to be obtained, the term xxx may be used.

Answer 8

‘grant of representation’

Question 9

For a will to be valid, there are many checkpoints that must be met, the 2 most important that it is xxx. It is not mandatory to xxxa will, but good practice nevertheless.

Answer 9

signed and witnessed
date

Question 10

The personal representative of the estate needs to establish the following:

Answer 10

• Total assets of the deceased
• Total liabilities of the deceased
• Any joint assets of the deceased

Question 11

For elderly or infirm testators, it is correct practice for a xxx to be present to ensure that they have the capacity to be doing this.

Answer 11

doctor

Question 12

What is a Larke v Nugus statement

Answer 12

This is a legal statement which is made by the solicitor that prepared or witnessed the execution of a will that has been disputed. They are requested by someone who is challenging the validity of a will (family member etc) on different grounds.

Question 13

The validity of a will can be challenged on a couple of different grounds, including:

Answer 13

• Mental capacity
• Use of undue influence
• Invalid procedure
• Lack of knowledge of the true content of the will
• Deliberate fraud
• If the will has made inadequate provisions for surviving family members (under the Provisions for family and Dependants) Act 1975 – this one may be a bit harder

Question 14

xxx established an eccentric or malicious will is not invalid providing the testator knew what they were doing.

Answer 14

Boughton v Knight (1873)

Question 15

What is a stautory will

Answer 15

Will provided by the Court of Protection for someone who is unable to make the will themselves

Question 16

Under what circumstances would a statutory will usually be supplied other than when mental capacity is lost and no will is present

Answer 16

• Will was made but uncertain of the capability when it was done
• Suspicion of undue influence upon making the will
• Will was made, but since become incapable and circumstances have changed e.g. beneficiary has died

Question 17

What is another word for a will executed by the Court of Protection

Answer 17

A codicil

Question 18

What parties can apply for a statutory will (codicil) from the Court of Protection

Answer 18

• Registered attorney
• Deputy for the patient
• Someone who has applied for deputy
• Someone who under an existing known will of the patient is a known beneficiary
• Someone who the patient may be expected to care for if they were capable
• Anyone else the Official Solicitor authorises

Question 19

The Official Solicitor is part of the judicial system on England and Wales. They primarily provide representation for xxx in xxx or xxx.

Answer 19

minors or adults under legal disability
County High court
High Court proceedings

Question 20

For estates, the public trustee can:
(Public trustee is a trustee assigned from the official solicitor)

Answer 20

• Act as executor or administrator of last resort if beneficiary is vulnerable
• Act as title holder where no will or named executor
• Manage register of notices affecting land
• Act in relation to common land or undivided shares in land

Question 21

What are the intestacy rules for spouse and kids in the UK

Answer 21

If there is a spouse, first £322k goes to them directly, after that 50% of proceedings over this go to any kids equally if they have any

Question 22

What is the order of intestacy after Spouse and kids

Answer 22

Parents
siblings
grandparents
aunts or uncles
crown

Question 23

What does Bona vacantia mean

Answer 23

– passing of assets to the crown, means ‘ownerless property’

Question 24

Some areas of the UK have differing rules relating to intestacy, what are these places and what is different

Answer 24

If deceased dies in Duchies of Lancaster or Cornwall, and there are no relatives entitled to the estate under the Administration of Estates Act 1925, then the respective Duchy claims the estate.

In Scotland, the law of devolution applied. Essentially, the spouse inherits a set amount and any children receive a percentage of the residual movable estate.

Question 25

For a deed of variation to be valid, it must:

Answer 25

• Relate to a valid will
• Be signed by all the parties who would have benefitted had the variation not been made (all of whom must be over 18 and capable)
• Be executed within 2 years of death date
• Not be made for any consideration (any money, bribe etc.)
• Be registered within 6 months of signing

The deed must also include a statement which says that IHT is treated the same with or without the deed.

Question 26

Joint tenancy - main points

Answer 26

• Whole of the interest in the property vests in both parties at the same time (they own 100% jointly)
• The interest of any one of them passes over upon death to the other party – by ‘right of survivorship’
• Trustees may use this as if one of the trustees dies, it can be passed to the other with minimal hassle
• Spouses also use this for obvious reasons

Question 27

Tenancy in common - main points

Answer 27

• Each party owns a distinctive share (to understand easier, one owns upstairs and one owns downstairs)
• If one dies, the interest in the property passes on as per their will and the beneficiaries can take the interest or be bought out of it by the surviving partner
• Typically used for business arrangements or where is land is left to two or more people under a will

Question 28

Tenancy in common and Joint tenancy have no effect on how the local authorities view the estates, but xxx may look at this for deprivation of assets

Answer 28

HMRC

Question 29

what are the 2 most common types of vehicle used for IHT mitigation

Answer 29

Lump sum contracts (immediate life annuity)
Trusts

Question 30

What is the benefit of putting a bond in trust

Answer 30

Where a product with residual value is included in the trust (like a long-term care bond) providers can put this into trust and when a claim arises, benefits can be paid out of the bond in the usual way and be used by the trustees for the client’s needs.

Any residue of value left in the bond on death will not form part of their estate for IHT purposes and can be left for the beneficiaries. Only downside here is that when the bond is put in trust, will have been either PET or CLT depending on the type of trust set up.

Question 31

G&L Trusts

Answer 31

Basic idea of G&L trust:

1. Settlor makes £3,000 gift to max gift exemption
2. Makes a further payment (technically a loan to the trust)
3. The trust invest into a investment bond
4. 5% withdrawals apply and must be spent to avoid money going back into the estate
5. Growth in the bond stays outside the estate
6. Upon death, if initial investment not fully withdrawn, trust must repay the remainder of the ‘loan’ back into the settlors estate

Question 32

Spousal by-pass trust

Answer 32

Aimed at occupational pension schemes that offer death in service. These are exempt from IHT when paid, but not exempt in spouses estate when they die for example. To avoid this, benefits paid into bypass trust which is discretionary and states that the spouse can benefit from the trust until they die. Once they die, benefits go to ultimate beneficiaries free of any IHT.

Question 33

DGTs

Answer 33

This is where the settlor buys an investment bond, and specifies a level of income they require from the bond. At this point, the initial investment is reduced by the average income amount based on their estimated life expectancy as they will be taking this as income. Income amount also known as ‘retained rights’. This leaves a smaller gift and less IHT. The downside of this is that if they live over and above the 20 years or income amount, the income must keep getting paid and cannot be changed at any time. This may end up being taken from the growth if needed and will erode the amount left to beneficiaries. The rest of the gift is also treated as a PET or CLT depending on the type of trust. As it is a gift, 7 year rule also applies.