Unit 4 Flashcards

Question

Category 2) Exempt Estates

Answer 1

Exempt estates attract the spouse/civil partner or charity exemption. Particularly: * The gross value of the estate (plus specified transfers and specified exempt transfers made in the seven years before death) must not exceed £3million; and * The net chargeable estate after deduction of liabilities and spouse and/or charity exemption (plus specified transfers and specified exempt transfers made in the seven years before death) must not exceed the nil rate band. Note – a transferred nil rate band can increase the NRB threshold for this purpose.

Answer 2

Regulations for exempt excepted estates: (a) The deceased, domiciled in the UK (b) The value of the estate is attributable wholly to property passing: - Under his will or intestacy - Under a nomination of an asset taking effect on death, - Under a single settlement in which he was entitled to an interest in possession in settled property, or - By survivorship in a beneficial joint tenancy, or in Scotland, by survivorship in a special destination (c) Of that property: - Chargeable trust property included in the estate does not exceed £250,000 and the total amount of trust property including exempt amounts does not exceed £1million. And; - Not more than £100,000 represents property situated outside the UK. (d) The deceased made no chargeable transfers during the period of seven years ending with his death other than specified transfers where the aggregate value transferred (ignoring business or agricultural relief) did not exceed £250,000; (e) The aggregate of: - The gross value of that person’s estate, plus - The value transferred by any specified transfers made by that person, plus - The value transferred by any specified exempt transfers, did not exceed £3million. (f) There is property left after deduction of liabilities to pass to spouse or charity and (g) The aggregate of: - The value of the estate after deducting allowable liabilities, spouse and charity exemptions, plus - Specified transfers, plus - Specified exempt transfers, - did not exceed the nil rate threshold, increased to take account of any nil rate band transferred from a deceased spouse or civil partner.

Answer 3

1) Gross value of estate, plus value of specified transfers in the 7 years prior to death does not exceed £3million 2) Chargeable lifetime transfers in the 7 years before death does not exceed £250,000 3) Net value of estate after deduction of liabilities and spouse exemption, together with the value of specified transfers and specified exempt transfers in the 7 years prior to death does not exceed the current nil rate threshold of £325,000.

Answer 4

Category 3 is where the deceased was never domiciled or treated as domiciled in the UK and owned only limited assets in the UK. Procedure for Excepted Estates: PRs provide no information directly to HMRC. Instead, they include the following on their applications for a grant: 1. the deceased’s full name and DOB; and 2. A declaration: (a) That the estate is an excepted estate; and (b) Whether they are claiming against the estate the unused proportion of the IHT nil rate band of a pre-deceased spouse or civil partner (the transferrable nil rate band); and 3. The following three IHT estate values: * The gross value of the estate for IHT plus any specified transfers and specified exempt transfers made by the deceased in the seven years before their death; * The net estate value of the estate for IHT minus any allowable debts; (i.e., value of assets passing under the will minus debts & funeral expenses). Sometimes called ‘net probate value’ of estate. * The net qualifying value of the estate, that is, the net value of the estate for IHT minus any spouse, civil partner or charity exemptions. HM Courts and Tribunals Service have 1 month to pass the information to HMRC. For non-UK domicilliaries: * HMRC will select a random sample to review within 60 days of the application for a grant. Additionally, it will ‘use other information sources’ to identify those estates nearer to the IHT threshold, where it feels that there is a risk that IHT may be payable.

Answer 5

An IHT400 must be used whenever: - The deceased dies domiciled in the UK and - The estate is not an ‘excepted’ estate.

Answer 6

- PRs send the completed IHT400 and relevant supporting schedules to HMRC. - PRs use the form to calculate any IHT payable. IHT is then paid before the grant. - HMRC then emails the receipted summary (on form IHT421) to HMCTS and inform PRs this has been done. - Grant is not issued until HMCTS receives the receipt. - If practitioner does not allow 20 working days from the date of sending IHT400 before applying for the grant, the application will be blocked.

Answer 7

General rule = IHT is due six months after the end of the month, in which the deceased died, or on application for the grant if earlier. Grant not issued until IHT is paid.

Answer 8

* Where there is property which qualifies for the instalment option and the executors exercise that option, none of the tax due on that property is due until the expiry of the 6 month period.

Answer 9

1) Direct payment scheme 2) Life assurance 3) Assets realisable without production of the grant 4) Loans from beneficiaries 5) Bank borrowing 6) National savings & government stock 7) Heritage property in lieu of tax 8) Obtaining a grant on credit.

Answer 10

Voluntary scheme which allows PRs to arrange payment of IHT to HMRC directly from deceased’s accounts (At the discretion of the banks/building societies). Procedure: * PRs provide identification required by banks in advance. * PRs complete a separate IHT423 for each bank and building society from which money is to be transferred. * PRs send each IHT423 to the relevant bank or building society at the same time that they send the IHT400 and supporting schedules to HMRC. The IHT423 includes an IHT reference number provided by the HMRC to allow HMRC to match up the payment with the correct estate. * Bank sends the money directly to HMRC. Once HMRC has received it, it will email the IHT receipt (IHT421) to HMCTS and notify the solicitor. Note – not a quick process, so where there is urgent need for grant, PRs need to find an alternative source of funding. – Solicitors sometime make private arrangements with banks and building societies where the bank transfers funds directly to HMRC from the deceased’s accounts. (Quicker way).

Answer 11

* Where proceeds of an insurance policy on the deceased’s life are payable to the estate, the life assurance company, like a bank, may be willing to release funds to pay the IHT directly to HMRC and not to the PRs or their solicitors

Answer 12

* Banks will typically lend against an undertaking to repay the loan given by the PRs. * Bank may require an undertaking from the solicitor to repay the loan from the proceeds of the estate. * Whether or not a solicitor is a PR, any undertaking should be limited to ‘such proceeds as come into the solicitor’s control’. I.e., worded so as not to ensure payment from the solicitor personally. * Note – expensive option as bank will charge an arrangement fee and interest/

Answer 13

* Payment of tax from any national savings bank accounts / proceeds of national savings certificates, any government stock held on the national savings register or any other national savings investment.

Answer 14

* Taxpayers can offer HMRC an asset in lieu of tax. * Secretary of State must agree to accept such assets and the standard required of such objects is very high. The item must be ‘pre-eminent for its national, scientific, historic or artistic interest’.

Answer 15

* In exceptional cases where the PRs can demonstrate that it is impossible to pay the IHT in advance, HMRC will allow grant to obtained on credit.

Answer 16

1) Grant of probate = Where there are executors appointed by the deceased's will who are able to act, 2) Letters of administration with the will annexed = where the deceased left a valid will, but for some reason, there are no executors able to take the grant of probate.

Answer 17

1) Identity of the applicants 2) Identity of deceased 3) Settled land 4) IHT form and probate estate (i..e, states whether an IHT400 and IHT421 was completed) 5) Probate value 6) Legal statements

Answer 18

Statement of truth – confiming they will administer the deceased's estate in accordance with the law & the content of the form is truthful a) Must acknowledge that criminal proceedings for fraud may be brought against the signatories if the evidence is deliberately untruthful or dishonest b) Where the applicant is legally represented and the legal representative is authorised by the applicant to sign on their behalf, the legal representative signs next to the client's name.

Answer 19

– Original will & codicils must be sent to HMCTS – One executor may obtain the grant and act alone, eve if the estate includes land or there are infant beneficiaries – Where the executor lacks capacity at the time of the testator's death, they cannot apply for the grant

Answer 20

A) Power reserved to minor: * Where one of the several executors is a minor and the others are adults can be granted to the adult executor with power reserved to the minor to take a grant at a later date. B) Grant of double probate: * Where the administration of the estate has not been completed by the time the minor attains 18 years, an application for a grant of double probate can be made to enable the former minor to act as an executor alongside the other proving executor(s). * If the minor is the only executor appointed, someone must take the grant on behalf of the minor as it would be impracticable to leave the testator’s estate unadministered until the executor reaches 18 years. A grant of letters of administration with will annexed for the use and benefit of the minor will be made, usually to the parent(s) or guardian(s) of the minor, until the minor attains 18 years. On obtaining majority, the executor may apply for a cessate grant of probate if the administration has not been completed.

Answer 21

* Executors can only renounce if they have not ‘intermeddled in the estate’. * “Intermeddling” = doing tasks a PR might do, e.g., selling the deceased’s chattels. By intermeddling, executors accept their appointment & they must take the grant because they are treated as having accepted office. * Renunciation made using form PA15:  Renunciation must be filed with HMCTS.  Must be signed by the person renouncing and signature then witnessed. * Executors who are also appointed as trustees will remain trustees despite renouncing the executorship. If they want to act in neither capacity they will have to disclaim the trusteeship as well.

Answer 22

* No limit on how many executors can be appointed by the will. * Probate will be granted to a maximum of four executors in respect of the same property.  Power may be reserved to the other(s) to take out a grant in the future if a vacancy arises. * Limited Grant of Probate = Where particular expertise is required to deal with certain assets (like an author’s literary estate), up to four executors can be appointed to deal with the limited assets. Up to four executors can then take the grant dealing with the rest of the general estate.

Answer 23

Entitlement to the grant of letters: Order of priority of the person(s) entitled to a grant of letters administration with the will annexed (governed by NCPR 1987, r 20): a) A trustee of the residuary estate b) Any other residuary beneficiary under the will or anyone entitled to a share of the residue under the intestacy rules; or if none; c) The personal representative of someone in (b) other than a life tenant of the residue; or if none; d) Any other beneficiary or creditor; or if none; e) The personal representative of anyone in (d). Note – A person in a lower-ranked category may apply only if there is nobody in a higher category willing and able to take the grant. Applicant must explain the basis of their own entitlement to the grant and explain why no one in a higher category is applying.

Answer 24

Where there is more than one person of equal rank, but one has a vested and one has a contingent interest in the estate, the court prefers an application by the beneficiary with the vested interest.

Answer 25

Minors cannot act as administrators with will annexed. * Minors also cannot apply for a grant. * Other people entitled in the same category as the minor will apply. If there are no such persons, the minor’s parent(s) or guardian(s) may apply for a grant ‘for the minor’s use and benefit’ on their behalf. * Grant is limited until the minor attains the age of 18.

Answer 26

Minimum of 2 and a maximum of 4.

Answer 27

* Anyone entitled to apply for a grant of letters of administration with will annexed can renounce (in the same way as executor), using Form PA16. * Administrator does not lose the right to renounce by intermeddling. * Renunciation does not affect any beneficial entitlemtn of the administrator or any appointment as a trustee.

Answer 28

Entitlement to the grant – Non-contentious probate rules Sets out the order of entitlement to apply for the grant: a) The surviving spouse/civil partner; then b) The children of the deceased, or the issue of any who have predeceased; then c) The deceased’s parents; then d) The deceased’s brothers and sisters of the whole blood, or the issue of any who have predeceased; then e) The deceased’s grandparents; then f) The deceased’s uncles/aunts of the whole blood, or the issue of any who have predeceased; then g) The deceased’s uncles and aunts of the half blood, or the issue of any who have predeceased; then h) Where the crown is claiming bona vacantia, the treasury solicitor; and finally i) A creditor of the deceased. Note – stepchildren / step-brothers /sisters are not entitled to any property on intestacy and therefore, cannot take a grant. Note – Unless the applicant is the Treasury Solicitor or a creditor, they must have a beneficial interest in the estate by virtue of the intestacy rules.  People in the lower categories can take the grant only if there is nobody in the higher categories.  In Form PA1A, the applicants establish their entitlement to the grant by: a) Explaining why no one in the higher categories in Rule 22 is taking the grant (‘clearing off’). b) Applicant also has to state in the form whether the deceased left a surviving spouse or civil partner & which other relatives in the rule 22 survived; and c) Stating the applicants’ relationship to the deceased.

Answer 29

* At least two administrators are required whenever there is a minority or life interest arising out of the estate. * If the entire estate consists of adults with absolute interests, one administrator will suffice. * A maximum of four administrators. Not possible to have ‘power-reserved’ to a non-proving administrator. * A grant can be made on the application of any one of the administrators without notice to the others.

Answer 30

The net estate value is the gross estate minus liabilities, such as debts and funeral expenses, before Inheritance Tax exemptions have been applied.