Unit 6 Administration: Family Provision and Post-Death Variations Flashcards
Inheritance (Provision for Family and Dependants) Act 1975
Allows certain categories of people who may be aggrieved because they have been left out of a will or dissatisfied with the amount, or are not inheriting on an intestacy, to apply to the court for a benefit from the estate following the testator’s or intestate’s death.
Inheritance (Provision for Family and Dependants) Act 1975 - categories of applicant
(a) the spouse or civil partner of the deceased
(b) a former spouse or civil partner of the deceased who has not remarried (except where, on the making of the final order of divorce/dissolution or nullity, the court made an order barring the former spouse or civil partner from making a claim);
(c) a child of the deceased (whatever the child’s age)
(d) any person treated by the deceased as a child of the family in relation to any marriage or civil partnership of the deceased, or otherwise in relation to any family in which the deceased at any time stood in the role of a parent (eg a step- child or child of a cohabitee)
(e) any person who, immediately before the death of the deceased, was being maintained by the deceased either wholly or in part. A person is ‘maintained’ if ‘the deceased was making a substantial contribution in money or money’s worth towards the reasonable needs of that person, other than a contribution made for full valuable consideration pursuant to an arrangement of a commercial nature’
(f) any person who, during the whole of the period of two years ending immediately before the date when the deceased died, was living:
(i) in the same household as the deceased, and
(ii) as the husband, wife or civil partner of the deceased.
Inheritance (Provision for Family and Dependants) Act 1975 - time limit
Applications must be made within six months from the date of the grant of representation. An application can be made before the grant is issued.
A potential applicant can make an online or postal search of the probate records to discover whether a grant has already been issued. It is also possible to make a ‘standing search’ which ensures that the applicant is notified of any grant which issues in the following six months.
Court has a discretion to extend the time limit if there is a good reason for the delay.
Inheritance (Provision for Family and Dependants) Act 1975 - ground for claim
Ground for a claim is that ‘the disposition of the deceased’s estate effected by his will or the law relating to intestacy, or a combination of his will and that law, is not such as to make reasonable financial provision for the applicant’.
1st step - whether the estate makes reasonable financial provision for the applicant.
Objective test.
Burden is on the applicant.
2 standards for judging ‘reasonable financial provision’:
(i) ‘The surviving spouse standard’ allows a surviving spouse or civil partner such financial provision as is reasonable in all the circumstances ‘whether or not that provision is required for his or her maintenance’.
(ii) ‘The ordinary standard’ applies to all other categories of applicant and allows ‘such financial provision as it would be reasonable in all the circumstances … for the applicant to receive for his maintenance’.
‘Maintenance’ = payments which enable the applicant to discharge the cost of their daily living at whatever standard of living is appropriate to them. So recurring expenses, such as rent, heating and food bills.
The limitation to maintenance in the ordinary standard means that a person who is able to pay for their living expenses out of their own resources will not obtain an award.
Inheritance (Provision for Family and Dependants) Act 1975 - guidelines
s3 common guidelines for court:
(i) the financial resources and needs of the applicant, other applicants and beneficiaries of the estate now and in the foreseeable future;
(ii) the deceased’s obligations towards any applicant or beneficiary;
(iii) the size and nature of the estate;
(iv) the physical or mental disability of any applicant or beneficiary;
(v) anything else which may be relevant, such as the conduct of the applicant.
Inheritance (Provision for Family and Dependants) Act 1975 - special guidelines
- Where the applicant is the surviving spouse or civil partner, the court takes into account the applicant’s age and contribution to the welfare of the family (including looking after the home or caring for the family), the duration of the marriage or civil partnership and the likely financial settlement if the marriage or civil partnership had ended in divorce or dissolution rather than death.
- On an application by a child of the deceased the applicant’s education or training requirements are considered.
- Where the application is by a cohabitant, the court should take account of the applicant’s age, the length of the period of cohabitation and the contribution made by the cohabitant to the welfare of the family (including looking after the home or caring for the family).
Inheritance (Provision for Family and Dependants) Act 1975 - orders
The court has wide powers to make orders against the ‘net estate’ of the deceased, including orders for periodical payments, lump sum payments or the transfer of specific property to the applicant.
The ‘net estate’ against which an order can be made includes not only property which the deceased has, or could have, disposed of by will, but also the deceased’s share of joint property passing by survivorship if the court so orders.
In making an order for family provision, the court will declare how the burden of the order is to be borne, ie which beneficiary is to lose part or all of the property they would otherwise have taken.
For IHT purposes, the altered disposition of the estate is treated as taking effect from death. The IHT paid on death may have to be recalculated.
Inheritance (Provision for Family and Dependants) Act 1975 - protecting the PRs
If PRs distribute the estate within six months of the grant and the court allows a claim for family provision, the PRs will be personally liable to satisfy the claim if insufficient assets remain in the estate.
Inheritance (Provision for Family and Dependants) Act 1975 - anti avoidance
To avoid this a person might be tempted to give away their property in their lifetime so that on their death, it does not form part of their ‘net estate’.
Court can avoid gifts made less than six years before death with the intention of defeating a claim under the Act.
Redirecting property - lifetime gift
A lifetime gift by the beneficiary of an inheritance under a will or under an intestacy
Jack is given a house in his late father’s will. Jack could accept the devise of the house and then make a lifetime gift of the house to Ben.
Redirecting property - post death disclaimers
Disclaimers amount to a rejection of the assets inherited under the will or the intestacy law or by survivorship.
The disclaimed assets then pass as though the original beneficiary had predeceased.
Redirecting property - post- death variations
A beneficiary can direct where benefit is to go and on what terms.
Effectively, re- writes the deceased’s will or intestacy rules. Variations can also be used to redirect the deceased’s interest in joint property which passes by survivorship.
The original beneficiary who effects the variation must be aged 18 or more and have mental capacity. If the beneficiary is not legally capable of effecting the variation, an application could be made to the court.
Court has the power to consent for infants and people who lack capacity and cannot consent for themselves, provided the variation is for their benefit.
Redirecting property - IHT considerations
If you disclaim your legacy or varies it in favour of someone else this counts as a PET.
To overcome the taxation problem, variations can be ‘read back’ into the will. In these circumstances, it is as if the testator gave the legacy direct to the new beneficiary.
The conditions are that the disclaimer or variation:
(a) is in writing and signed by the original beneficiary;
(b) is within two years of the deceased’s death; and
(c) is not made for a consideration in money or money’s worth.
Variations must state that s 142 IHTA 1984 is to apply.
Redirecting property - CGT considerations
CGT is charged on ‘disposals’ of assets (not cash). Disposals include sales and lifetime gifts of assets but not transfers on death. On a disposal, CGT is charged on any gain.
A disclaimer or variation within two years of the deceased’s death can be read back to the deceased’s will for CGT purposes so that there is no disposal by the original beneficiary and no CGT charge.
Conditions similar to those in relation to IHT.
