Wills and Admin of Estates

Question 1

What are the two basic presumptions of testators’ intentions in relation to the language itself?

Answer 1

1) ordinary words will bear their ordinary meaning

2) technical words will bear their technical meaning
(e.g. “personal estate” excludes realty)

Question 2

In what limited circumstances can the court look at extrinsic evidence to ascertain the testators’ intentions?

Answer 2

(a) in so far as any part of it is meaningless;
(b) in so far as the language used in any part of it is ambiguous on the face of it;
(c) in so far as evidence, other than evidence of the testator’s intention, shows that the language used in any part of it is ambiguous in the light of surrounding circumstances.

Question 3

when can a will be rectified after death?

Answer 3

if it fails to carry out the testators’ intentions due to
(a) a clerical error
(b) a failure to understand instructions
NB rectification is very narrow and cannot be used to change the testators’ intention

Question 4

When is a will taken to “speak from”?

Answer 4

The date of death, unless a contrary intention is shown (e.g. “present estate, my current car”, “those children that are known to me at this time”)

Question 5

David obtains a full gender recognition certificate as a woman (Diana) in 2019.
Ann dies in 2023 with a will leaving everything to ‘my nieces equally’. The will was made on 8 April 2005

What does Diana get?

Answer 5

If the will is made before 4 April 2005, Diana cannot share in Ann’s estate but she can if the will is made on or after that date.

NB: where a disposition is different from what it would be but for the gender change, an application may be made to the High Court where expectations have been defeated. Where the court is satisfied that it is just to make an order, it has a wide discretion as to the appropriate order to make.

Question 6

Yasmin leaves her entire estate to Melanie, her daughter. Yasmin asks Melanie’s wife, Clara to witness the will. What happens?

What if Melanie’s son, Martins, witnesses the will?

What if Yasmin makes a codicil confirming the will where Clara is not the witness?

What if Clara witnessed but never signed?

Answer 6

a) Melanie gets nothing and the gift fails. If a beneficiary (or their spouse) witnesses the will, the gift to the beneficiary will fail

b) only the relation of spouse will destroy the gift to the beneficiary. A child, friend, or even cohabitant are valid witnesses

c) The original gift shall be validated

d) the gift shall be valid (assuming there are two other witnesses who sign)

Question 7

Shaniqua creates a valid will: “I leave everything to Ben, but if he should die before me, I leave everything to my children”

What happens if Shaniqua and Ben divorce?

Answer 7

The gift to Ben passes to Shaniqua’s children, as if he had died

‘any property which, or an interest in which, is devised or bequeathed to the former spouse or civil partner shall pass as if the former spouse or civil partner had died’ on the date of the dissolution

Question 8

What is “ademption” for the purpose of wills?

Answer 8

A specific legacy (ie a gift of a particular item or group of items of property) will fail if the testator no longer owns that property at death. The gift is said to be ‘adeemed’.

Question 9

Thea makes a will leaving ‘all my jewellery’ to her niece, Nilu. After the date of the will, all her jewellery is stolen. Six months later she receives money from her insurance company and buys new jewellery. Then she dies.

What does Nilu get?

Answer 9

The new jewellry: Thea has used a phrase which is capable of increase and decrease, she is treated as intending to pass whatever jewellery she has at the date of her death. Nilu
will, therefore, take the replacement items.

Had the gift been of ‘my pearl necklace’, Thea would probably be treated as
intending to pass only the necklace she owned at the date of the will. Nilu would not have taken any replacement necklace.

Had Thea died after receiving the insurance money but before buying replacement assets, Nilu would have taken nothing. She has no right to the insurance money underthe terms of the gift.

Question 10

Maya makes a will, leaving her entire estate to “my eldest son”. She is married to Joana, and has three children, Mark, Luke and John.

Mark dies before Maya and she dies a week later. Who gets what?

Answer 10

The will fails because only Mark satisfies the description of the ‘eldest son’ at the time of death. The gift does not pass to the eldest ‘surviving’ child (unless the terms are replicated in a codicil).

Therefore, Joana receives everything under the intestacy rules

Question 11

Vinay (65) and Phoebe (58) hold their house as beneficial joint tenants. It is both of their second marriages, and they both have children from prior marriages. A gas leak causes them to die. Forensic evidence cannot prove the order of deaths. What happens to their estate?

Answer 11

Phoebe’s child takes the house by survivorship.

If the order of their deaths cannot be proved, the elder of the two is deemed to have died first.

Question 12

what are the three main occasions when IHT may be charged?

Answer 12

1) Death (death estate)
2) Lifetime gifts to individuals (PETs)
3) Lifetime gifts to a trust or company (LCTs) (unless for a disabled person - classed as a PET)

Question 13

What is the method for calculating IHT?

Answer 13

1) Identify the transfer of value
2) Find the value transferred
3) Apply any relevant exemptions or reliefs
4) Calculate tax at the appropriate rate

Question 14

What value is the nil rate band?

And how does ‘cumulation affect how much of the nil rate band is applicable to any given transfer (including transfer of death estate)?

Answer 14

a) £325,000

b) Look back seven years immediately preceding the transfer. Any chargeable transfers made by the transferor during that period must be taken
into account in order to determine how much of the nil rate band remains available.

Question 15

What value is the residence nil rate band?

Answer 15

a) £175,000

Question 16

What property is included within the definition of ‘estate’ for IHT purposes?

Answer 16

a) property which passes under the deceased’s will or on intestacy
b) Property to which the deceased was ‘beneficially entitled’ immediately before death but which does not pass under by will or on intestacy.
c) (c) Property included because of special statutory provisions. (e.g. certain trust property, property given away subject to a reservation)

Question 17

What, in terms of trust property for the purposes of IHT, is a ‘qualifying interest in possession’

Answer 17

A person who is entitled to the income from a trust is treated for IHT purposes as ‘beneficially entitled’ to the capital which produces that income

where a beneficiary who is entitled to all the income from such a trust (or to enjoy possession in some other way, such as living in it) dies, the trust fund is taxed as if it were part of the beneficiary’s estate.

Question 18

On what date did the ‘qualifying interest in possession’ become limited in its applicable circumstances?

Answer 18

22 March 2006

The main example is where the interest is an
‘immediate post-death interest’ (IPDI). An IPDI is, broadly, an interest in possession arising on
the death of the settlor under their will or intestacy.

Question 19

What is property subject to a reservation?

Answer 19

The rule applies where the deceased gave away property during their lifetime but did not transfer ‘possession and enjoyment’ of the property to the
donee or was not entirely excluded from enjoying the property. The donor is treated as being ‘beneficially entitled’ to the property.

This often occurs when someone transfers legal title but continues to enjoy the property

Question 20

What is a reversionary interest, and how is it treated for the purposes of IHT?

Answer 20

a future interest under a settlement, for example an interest in remainder under a trust, created before 22 March 2006.

It is excluded from the IHT calculation

Question 21

How are life assurance policies written in trust for a named beneficiary treated for IHT purposes?

Answer 21

They are not part of the IHT calculation because the proceeds are no longer payable to the deceased’s estate

Question 22

How are discretionary lump sum payments made from a pension fund to the deceased’s family treated for IHT purposes?

Answer 22

They are not part of the IHT calculation because the trustees are not obliged to pay it to the deceased’s estate

Question 23

What is the ‘basic valuation principle’ for IHT purposes?

Answer 23

Assets in the estate are valued for IHT purposes at ‘the price which the property might reasonably be expected to fetch if sold in the open market’ immediately before the death (s160 IHTA 1984).

NB: Negotiations may be required with HMRC in order to reach an agreed valuation.

Question 24

Under the basic valuation principle, how is the probate value of jointly owned property treated for the purposes of IHT calculation?

Answer 24

Its value may be discounted:
- normally up to
10% for commercial property;
- normally up to 15% for residential property;
- a higher percentage may be applied if the share is very small

Question 25

What is the ‘probate value’ for the purposes of IHT?

Answer 25

The value of an asset for IHT purposes

Question 26

Adam has paid £2,000 to insure his life for £50,000. The benefit of the policy belongs to him. He dies. What is the probate value of the life insurance?

Answer 26

£50,000

where the death causes the value of an asset in the
estate to increase or decrease, that change in value should be taken into account. In this case the ‘maturity value’ is applied for IHT purposes

Question 27

How are quoted shares valued for IHT purposes?

Answer 27

• taken from the Stock Exchange Daily Official List for the date of death (or the nearest trading day).
• take one-quarter of the difference between the lower and higher price and add it to the lower
  price.
• So, for example, if at the date of death, the quoted price per share is 102p/106p, the
  value of each share for IHT is 103p.

Question 28

how are liabilities owed treated for tax purposes?

Answer 28

they are deductible from the death estate

(including reasonable funeral expenses)

Question 29

What is the IHT status of death estate property passing to a spouse/civil partner?

Answer 29

• It is exempt from IHT
• However, if the spouse/civil partner is domiciled outside the UK, the exemption is limited to £325,000 (unless they elect to be UK-domiciled for IHT purposes).

The exemption does not apply to cohabitants

Question 30

What is the IHT status of transfers (including on the death estate) given to charity?

What about a life interest in trust property which passes to charity under the terms of the will?

Answer 30

a) They are exempt.
- The IHT rate will also be 36% (rather than 40%) if at least 10% of a defined component (after deductions, reliefs and NRB) of their estate passes to charity

b) also exempt from IHT

NB: the rate is only applicable to one component, although they can be merged so that the combined component qualifies for the reduced tax rate

Question 31

What is the effect of transfers (including on the death estate) given to political parties?

Answer 31

They are exempt from IHT. This applies to various national bodies providing for public benefit, such as museums and art galleries

Question 32

What are the three ‘components’ of an estate?

Answer 32

1) the survivorship component (e.g. beneficial joint tenancies)
2) the settled property component (e.g. immediate post-death interests)
3) the general component (everything else) (e.g. free estates, property owned as tenant in common)

NB: Property in which a reservation of benefit subsists is not a distinct category but can be merged with other components

Question 33

What are the rates of tax on death?

What are the rates of tax on lifetime chargeable transfers?

Answer 33

a) 40%

b) 20%

Question 34

To whom does the RNRB apply?

Answer 34

To the estates of individuals occurring after 6 April 2017;
owning a ‘qualifying residential interest’ which is ‘closely inherited’

NB: any unused RNRB may be claimed by a surviving spouse, regardless of whether their spouse died before 6 April 2017

Question 35

When calculating tax, in what order do you tax:
NRB
Death estate
RNRB

Answer 35

RNRB is taxed first at 0%,
then NRB at 0% (subject to cumulation),
then the death estate at 40%

Question 36

a) At what estate value is RNRB adjusted, and

b)by how much?

Answer 36

a) £2 million

b) by £1 for every £2 over the £2 million threshold

Question 37

For a property to be ‘closely inherited’, it must pass to:

Answer 37

(i) a child, grandchild or other lineal descendant of the deceased outright or on certain types of trust. Lineal descendants are defined as children, step-children, adopted
children, foster children, or children where the deceased had been appointed as a guardian;
(ii) the current spouse or civil partner of the deceased’s lineal descendants; or
(iii) the widow, widower or surviving civil partner of a lineal descendant who
predeceased the deceased, unless such persons such persons have remarried or formed a new
civil partnership before the deceased’s death.

Question 38

Donald moves out of his manor house (£1,000,000) and into a small cottage (£175,000) on 29 June 2015, and dies 6 April 2018. His wife, Melanie, whom did not own any residence, predeceased him in 2012. Donald left everything to his daughter, Ivanka.

How does RNRB apply to Donald’s estate in this scenario?

Answer 38

• Donald dies after 6 April 2017 (when RNRB became applicable), which means Donald’s RNRB covers his small cottage (£175,000)
• Melanie’s unused RNRB may be applicable to Donald’s estate. It does not matter that the spouse died before 6 April 2017.
• The downsizing allowance means PRs can apply unused RNRB to a previously owned, larger property (£1,000,000) as long as it passes to a lineal descendant (Ivanka).
• However, Since Donald downsized before the downsizing allowance was introduced (8 July 2015) his PRs cannot claim Melanie’s unused RNRB

Question 39

Bethany makes a lifetime gift to her children. The first is for Joe (16) to continue private education. The second is to Robbie (25), who has just completed his university studies. The third is to Sophie (27) for her occupational therapy treatment. Bethany dies a week later after being struck by lightning.

How will these gifts be treated for IHT exemption purposes?

Answer 39

The gift to Joe is exempt because it is for the education of somebody under 18.

The gift to Robbie will not be exempt because he no longer in full-time education

The gift to Bethany will be exempt because it is for the maintenance of a dependent relative.

Question 40

What is ‘relevant business property’ for the purposes of BPR (IHT)? And what is the relief offered?

Answer 40

business that is ‘trading’ (not agricultural property or land)

100% reduction:
1) a business or an interest in a business (including a partnership share);
2) company shares that are not listed on a recognised stock exchange.

50% reduction:
1) company shares that are listed on a recognised stock exchange if the transferor had
voting control of the company immediately before the transfer;
2) land, buildings, machinery or plant owned by the transferor personally but used for
business purposes by a partnership of which the transferor is a member, or by a
company (whether quoted or unquoted) of which the transferor has voting control.

NB: separate shareholdings of spouses/civil partners may be included when considering ‘voting control’

Question 41

What is the time limit to attract BPR (IHT)?

Answer 41

the asset or assets in question must have been owned by the
transferor for at least two years at the time of the transfer or, broadly, must be a replacement
for relevant business property where the combined period of ownership is two years (inherited assets start from the date of acquisition after death).

Question 42

What is the ‘agricultural value’ of agricultural property for the purposes of APR (IHT)?

Answer 42

the value of the property if it were subject to a perpetual covenant prohibiting its use other than for agriculture.

Question 43

What are the conditions and the applicable relief for agricultural property relief?

Answer 43

For any relief:
1. the property was
occupied by the transferor for the purposes of agriculture for the two years prior to the transfer or;
2. it was owned by the transferor for the seven years prior to the transfer and was
occupied by someone throughout that period for the purposes of agriculture.

100% reduction if:

1. the transferor had the right to vacant
   possession immediately before the transfer or
2. where the property was subject to a letting commencing on or after 1 September 1995.

reduction of 50% in other cases.

Question 44

How does the annual exemption operate?

Answer 44

In any given year, the first £3,000 transferred by lifetime transfers is exempt. Any unused transfer from the prior year is included (up to £6,000).

Question 45

How do small gifts operate for the purposes of IHT?

Answer 45

Lifetime gifts of £250 or less are exempt. It cannot be set against a gift that exceeds £250

Question 46

What are the factors for exempt ‘normal expenditures out of income’

Answer 46

(a) part of the transferor’s normal expenditure; and
(b) made out of the transferor’s income; and
(c) the transferor was left with sufficient income to maintain their usual standard of living.

(e.g. parent paying regularly for child’s living expenses)

Question 47

How do gifts in consideration of marriage operate for IHT exemption purposes?

Answer 47

(a) £5,000 by a parent of a party to the marriage;
(b) £2,500 by a remoter ancestor of a party to the marriage (eg a grandparent); and
(c) £1,000 in any other case.

Question 48

What are the rates of tax applicable to LCT’s? (the transferor is still alive)

Answer 48

(a) 0% on the first £325,000 (the nil rate band); and
(b) 20% on the balance of the chargeable transfer

NB: Chargeable transfers made in the seven years before the current chargeable transfer reduce the nil rate band available to that current transfer. PETS are ignored whilst they are still alive

Question 49

How long must a transferor survive for a PET to become exempt?

Answer 49

7 years

Question 50

How, upon death, do you calculate the cumulative total of transfers at the time of a LCT/PET?

Answer 50

Add:
1) any LCTs made in the seven years before the LCT/PET being assessed (up to 14 years back in total)
2) any PETs made during the seven years before the PET being assessed (which have become chargeable)

Question 51

How does tapering relief operate?

Answer 51

For PETs, Tax is reduced to the following percentages:
(a) 3-4 years: 80% of death charge
(b) 4-5 years before death: 60% of death charge
(c) 5-6 years before death: 40% of death charge
(d) 6-7 years before death: 20% of death charge

Question 52

How is IHT already paid (LCTs) treated when calculating IHT on the death estate?

Answer 52

The already-paid tax is deducted from the death estate tax (‘credit is given’).

However, if the recalculated bill is lower than the original amount paid, no tax is given

Question 53

What is the ‘estate rate’ for the purposes of IHT?

Answer 53

the average rate of tax applicable to each item of property
in the estate.

Question 54

What are the PRs liable to pay on the death estate?

Answer 54

(a) the property which vests in the PRs (will or intestacy property)
(b) property which the deceased was beneficially entitled to it immediately before
death (eg joint property)
NB: trustees normally pay trust property IHT

Question 55

are beneficiaries ever liable to pay IHT?

Answer 55

Beneficiaries (recipients) are concurrently liable and may be asked by HMRC to pay. This is relatively unusual in practice

Question 56

Who is liable to pay IHT on property which was ‘comprised in a settlement’?

Answer 56

Trustees, and beneficiaries are concurrently liable (though rarely asked to pay by HMRC)

Question 57

Who is liable to pay IHT on gifts with reservations?

Answer 57

The transferee is primarily liable. However, if the tax is unpaid 12 months after the end of month of death, the PRs will be liable

NB: the PRs liability is limited to the extent of assets they actually received

Question 58

Who is liable to pay IHT on LCTs?

Answer 58

The transferor is primarily liable. HMRC may claim the tax from the trustees.

NB: if the transferor pays, the tax will be higher

Question 59

What is the basic rule of when IHT is due on the death estate?

Answer 59

6 months after the end of the month of death

NB: If the tax is not paid on time, interest runs on the outstanding amount

Question 60

a) What land attracts the instalment option for the payment of IHT?

b) And when is it due?

Answer 60

a) 1) land
2) a business or an interest in a business;
(c) shares (quoted or unquoted) which immediately before death gave control of the company
(d) unquoted shares which do not give control if either:
(i) the holding is sufficiently large (at least 10% of the nominal value and worth more than £20,000); or
(ii) HMRC is satisfied that the tax cannot be paid in one sum without undue hardship; or
(iii) the IHT on the shares and any other instalment option property is at least 20% of the IHT payable on the estate.

b) 10 equal yearly
instalments, the first due six months after the end of the month of death.

Question 61

How is interest due on land (instalment option)?

Answer 61

interest is payable with each instalment (apart from the
first) on the amount of IHT which was outstanding for the previous year.

Question 62

How is interest due on shares, other business property or agricultural land (instalment option)?

Answer 62

instalments carry interest only from the date when each
instalment is payable. Thus, no interest is due on the outstanding tax provided that each
instalment is paid on the due date.

Question 63

what happens if the instalment option property is sold?

Answer 63

all outstanding tax and interest becomes payable.

Question 64

When is IHT on LCTs due?

a) at the time of transfer

b) upon death

Answer 64

a)
- IHT on LCTs made after 5 April and before 1 October in any year is due on the 30 April in the following year.
- IHT on LCTs not made between those dates is due six months after the end of the month in which the LCT is made.

b) six months after the end of the month of death.

Question 65

How does an IHT scheme constitute a ‘notifiable arrangement’ under the regulation of DOTAS?

Answer 65

the main purpose, or one of the main purposes, of the arrangements must be to enable a person to obtain one or more of a list of specific advantages in relation to IHT (a tax advantage),

Question 66

When is a tax arrangement classified as ‘abusive’ under GAAR?

Answer 66

if the entering into or carrying out of the arrangement cannot reasonably be
regarded as a reasonable course of action (the double reasonableness test).

NB: It is for HMRC to
show that an arrangement is abusive.

Question 67

The deceased left a valid will and appointed executors. What type of grant should the executors apply for?

Answer 67

a grant of probate

Question 68

The deceased left a valid will but did not appoint any executors. What should the administrators apply for?

Answer 68

a grant of letters of administration with the will annexed

Question 69

The deceased left no valid will and did not appoint any executors. What should the administrators apply for?

Answer 69

a grant of (simple) letters of administration

Question 70

One of the beneficiaries of an estate is an infant, and the other only has a life interest. How many executors are required? (assume the will appoints an executor)

Answer 70

Only one executor is required. These circumstances (infant and life interest) only apply to administrators (requiring at least 2), not to executors.

Question 71

What assets may pass to the PRs without a grant of representation?

Answer 71

1) small assets not exceeding £5000
2) chattels
3) cash

Question 72

What property does not vest in the Personal Representatives?

Answer 72

Beneficial Joint Property , Insurance policies assigned or written in trust, Pension benefits

Question 73

How long should PRs wait between submitting IHT400 and the application of grant?

Answer 73

20 working days

Question 74

What is the fee for applying for a grant of probate?

Answer 74

Estate of £5,000 or less = no fee
Estate exceeds £5000 = £273

Question 75

The witnesses to a will watched via a video link. The attestation clause does not give details of this. What ought to be sent to HMCTS along with the probate application?

Answer 75

Further evidence of the validity of the will, such as:
1. An affidavit sworn by a solicitor who is not acting for the PRs or;
2. A witness statement verified by a statement of truth

Question 76

A testator was very ill and had dementia at the time of writing their will. The entire estate is given to the testators’ carer. What should be sent to HMCTS by the PRs along with the application for probate?

Answer 76

The affidavit of a doctor may be necessary to establish the defendant’s mental capacity

Question 77

What is form IHT400?

Answer 77

The form for claiming reliefs and exemptions and calculating the IHT payable. It sets out the inventory of the assets to which the deceased was beneficially entitled to and their liabilities.

Question 78

When should form IHT400 be delivered to HMCTS?

Answer 78

Within 12 months from the end of month of death, but 6 months to avoid paying interest

Question 79

When dealing with an excepted estate, how long do HMRC have after the issue of the grant to ask for additional information? What happens if they don’t?

Answer 79

60 days. If they don’t, the estate will receive automatic clearance

Question 80

What are the three categories of the excepted estate?

Answer 80

Category 1 – ‘small’ estates (gross value +7 years prior < NRB (NRB incl. unused spouse))
Category 2 – ‘exempt’ estates (gross value+7 years prior<3million, and net chargeable estate <NRB)
Category 3 – ‘non-domiciled’ estates (deceased was never domiciled in the UK)

Question 81

When is instalment option property due?

Answer 81

10 instalments. First instalment due within 6 months from end of month of death. The next nine are due annually

Question 82

List eight ways of funding the IHT

Answer 82

a) Direct payment scheme with banks and building societies,
b) Life assurance,
c) assets realisable without grant (£5,000 or less),
d) loans from beneficiaries,
e) bank borrowing,
f) national savings accounts and government stock proceeds,
g) Heritage property in lieu of tax,
h) obtaining a grant on credit

Question 83

Which form is used when the deceased left a valid will: PA1P or PA1A?

Answer 83

PA1P