Wills and Administration of Estates Flashcards
Assets not included in the succession estate:
- DMCs
- Insurance policies written in trust for someone else
- Interest in discretionary trust
- Statutory nominations
- Property held as joint tenants (including bank accounts)
Statutory order of priority - intestacy rules:
- Issue and spouse
- Parents
- Siblings (whole blood)
- Siblings (half blood)
- Grandparents
- Aunts/uncles (whole)
- Aunts/uncles (half)
- Crown as bona vacantia
Requirements for a DMC?
- Donor makes gift in the belief she is imminently dying
- Makes gift conditional upon death
- Parts with property or something representing it
Statutory legacy for spouses:
£322,000
What does the spouse get on intestacy?
When can the spouse inherit?
What if the spouse wants to continue to live in the matrimonial home?
£322,000 + half residue + chattels
Chattels does NOT include:
- cash/securities
- property used mainly or solely for business purposes
- property held by intestate solely for investment purposes
When?
- inherits after 28 days of surviving the spouse
Matrimonial home:
- spouse has a statutory right to appropriate the matrimonial home in satisfaction of their entitlement
What is the rule in Milroy v Lord? Are there exceptions?
Milroy v Lord - if title has not vested on death then transfer cannot take effect
Exceptons:
1. Re Rose - where D has done everything in their power to effect the transfer
2. Strong v Bird - 3 requirements:
(i) D must have had intention to make an immediate gift
(ii) intention must be continuing up until death
(iii) donee must become executor or PR
3. DMC
Requirements for a valid will (at its most general):
- Testamentary capacity
- Knowledge and approval
- Comply with formalities in s.9 Wills Act
How to determine if a testator has testamentary capacity?
What if someone wants to dispute testamentary capacity - is there a presumption?
Common law test comes from Banks v Goodfellow
- Does T appreciate the nature of the act?
- Does T appreciate the extent of his estate?
- Does T appreciate the moral claims that ought to give give effect to?
- T not suffering from a disorder of the mind
Presumption of testamentary capacity IF will is rational and duly executed
- Someone can rebut if raise sufficient evidence to raise doubt
- Burden on Executor to prove T had testamentary capacity in line with the B v G test
Requirements for T to have requisite knowledge and approval for a valid will?
When will there be NO presumption of K&A?
How to get around this?
T must:
1. Read will
2. Understand it
3. Intend for signature to effect the terms
No presumption when T:
1. blind or illiterate
2. suspicious circumstances
3. signed by someone else on behalf of T
Ways around:
- At time of signing - attestation clause reflecting how was executed
- Affidavit evidence when will submitted to probate detailing how the will was executed
Section 9 formality requirements for a valid will?
- In writing
- Signed by T or signed by someone a T’s direction in his presence
- T intended to give effect - generally shown by signature being at the end of the will
- Signed in the presence of 2 witnesses each of whom either attests or acknowledges - don’t need to be in presence of each other
Order of dispositive clauses/gifts:
- Specific gifts
- General gifts
- Pecuniary gifts
- Residuary gifts
What happens if a type of gift is left in the will e.g. a Sony camera but this does not form part of the estate?
Executors can purchase it and give it to B
When will the class close for inheritance under a will in the event will is silent?
Class closing rules = closes when first B’s interest vests
- if no contingency rule applies then class closes on date of death
Contingent v vested?
Vested interest is not about age - if there are no conditions on B inheriting in the will then will vest immediately
- may still be held on trust if B is under 18 as B cannot give good receipt
Contingent - B’s entitlement is dependent on them satisfying certain conditions e.g. in an intestacy situation, on them attaining the age of 18 - if die before then, does not form part of estate
When does s.33 apply?
S.33 is the substitution clause in wills
- if T leaves a legacy to someone who dies before T, the rules of subsitution mean that this gift can pass down through B’s linear descendants
Initial requirements for someone to bring an IPFDA claim:
- Deceased was resident within jurisdiction
- C falls within a recognised category
- C applies within time limit - 6 months from grant of rep
Categories of applicant under IPFDA?
- Spouse
- Child
- Someone treated as child
- Former spouse not remarried
- Someone living as though spouse with deceased for 2+ years
- Someone maintained by D
Ground for IPFDA claims:
Will does not make reasonable financial provision for them
2 standards:
- Surviving spouse standard = reasonable in all circumstances whether or not it is required for maintenance
- NB, court has discretion to apply this standard where:
(i) former spouse not remarried
(ii) judicially separated within last 12 months
(iii) not received financial provision from ancillary proceedings - Maintenance standard = reasonable in all circumstances for maintenance of C
Guidelines the court MUST follow under s.3 IPFDA:
ALL applicants
- financial position of applicant, Bs and other applicants
- size of D’s estate
- obligations on D
- disability of B
- other relevant factors
Spouse
- how long married
- whether spouse contributed to family
- what spouse might reasonably have expected to receive
Cohabitee
- how long cohabited
- on what basis
Child
- nature of eduction/training
- non-blood treated as child:
- did D know not their child
- on what basis were they maintained
- did D assume responsibility for maintenance
- who else is liable for the child
Other applicants
- how long maintained
- extent responsibility assumed for maintenance
Requirements for successful variation of inheritance?
- In writing
- State that s.142 applies
- Made within 2 years of date of death
- Not made for consideration of money’s worth
What are the differences between the effects of a variation vs disclaimer?
Variation:
1. Can be of whole or part of inheritance
2. Can choose who the inheritance goes to
3. Happens after acceptance of the gift
4. Have to comply with formalities
Disclaimer
1. Cannot accept the gift
2. Must disclaim the whole gift
3. Cannot choose who it goes to
4. Disclaiming the rights under will does not disclaim rights under intestacy
5. Treated as though gift failed
Who is a direct descendant for the purpose of RNRB?
A lineal descendant (child, grandchild) or a spouse of a lineal descendant
What is included in taxable estate which is not included in the succession estate?
- Properties held as joint tenants - deemed severance on DOD
- GROB
- DMCs
- Interest in possession trust before 22 March 2006 - taxed on capital value of interest
- Interest in possession trust after 22 March 2006 - when life T with immediate post death interest dies(cap value not included if trust created during settlor’s lifetime)
How to value the taxable estate:
- Assets valued as at DOD
- ‘Related property’ - e.g. part of a collection owned with spouse, will be valued at proportion of value as a whole collection
- Property co-owned - reduced by 10% to reflect difficulty in selling EXCEPT where owned by spouses
Death rate:
40% UNLESS at east 10% left to charity then reduced to 36%
Value of the marriage exemption:
- £5,000 from a parent to a child
- £2,500 from a grandparent to a grandchild
- £2,500 from spouse to spouse
- £1,000 in any other event
How does BPR work to reduce IHT payable?
Reduces in proportion to value of asset BPR applies to at rate of:
- Unquoted shares - 100%
- Quoted shares - 50%
- Interest in business/partnership - 100%
- Assets used for business but owned by deceased - 50%
Must have owned continuously for 2 years prior to death
- if spouse dies then other spouse inherits from date S bought
- if sell and replace with QBI then counts as continuous
What are the conditions for BPR to apply and what is the effect?
Business property relief reduces IHT payable by amount of QBP it relates to e.g.:
- Unquoted shares - 100%
- Quoted shares - 50%
- Interest in business (sole trader or partnership) - 100%
- Assets owned by taxpayer but used for business - 50%
Must have been owned for 2 years continuously prior to death
What are the conditions for APR to apply?
Assets applies to:
1. Agricultural land or buildings
2. Farmhouse/cottages
Qualifying period of ownership
- Occupied by transferor for agricultural purposes for 2 years continuously before death OR
- owned by transferor and occupied by transferor or another for a period of 7 years for agricultural purposes prior to death
Rate - generally 100%
Requirements for woodlands relief and for quick succession relief:
Woodlands:
1. Owned for 5 years
2. Value = value of timber
Quick succession
1. Estate contains inherited gifts
2. Inherited within last 5 years
3. Estate inherited from was subject to IHT
REMINDER!!!!!
Always write out the tax year when calculating IHT on lifetime transfers or death estate so can work out AE!!!
When will a PR/Admin not need to submit IHT 400?
- Low value excepted estate
- value of taxable estate is below the NRB - Exempt excepted estate
- assets left to charity/spouse
- gross value is not more than £3 million
AND
- no GROB
- foreign assets of not more than £100,000
- only 1 trust of value not more than £250,000
- lifetime transfers of not more than £250,000
- Can’t claim RNRB
How can PR/administrator raise funds to pay the IHT?
- Direct payment scheme
- use money in one of D’s bank accounts - bank will pay it directly
- Form IHT 423 - Loan from B or bank
- Main B often funds
- Could get loan from commercial bank but will charge rates
Duties of PR
Statutory:
1. Before grant
- Pay IHT
- Provide HMRC with info (IHT 400)
2. After grant
- Collect in- ID Bs, creditors and liabilities and secure possession
- Administer - distribute to Bs, pay liabilities, secure assets
- Provide inventory and estate accounts
ALSO
- duty of “due diligence” - and have to commence within 12 months of date of death
Under same duties as a trustee
- held to higher standard if professional PR
- can’t put self in position of conflict e.g. purchase from estate
- should not profit from position but if authorised under will or statute payments to PRs won’t breach
Powers of PRs:
How do joint PRs decide?
Statutory power:
- Sell, lease or charge assets
- Appropriate assets
- Insure assets
- Invest in assets
(i) duty to obtain advice if not area of expertise
(ii) permitted to acquire leasehold and freehold properties
(iii) must carry out regular reviews and have regard to standard investment criteria
- Charge for time (if appropriate)
(i) PRs need to be authorised in the will (although can get travel expenses paid out of the estate in any event)
- Delegate powers - cannot delegate:
(i) how and whether assets should be distributed
(ii) whether fees/costs payable from incomce
(iii) appointment of Ts/ Nominees/ Custodians
- Appoint trustees (for minor interests)
Common law
- Continue running a business (sell within a year)
Wills
- May be additional powers under will
Decisions of joint PRs must be UNANIMOUS - why it is advisable not to have more than 2
Liability of PRs - what is the claim called? What are the remedies? What are the basis on which someone could claim against PR?
Devastavit claim
Remedies:
- Loss caused to estate - obtain order from court requiring PR to make good out of own assets
- No loss but breach of fiduciary duty - require PR to account to estate for profits
Basis of claim:
1. Maladministration
- e.g. paying Bs before liabilities and not enough for creditors
- incorrectly distributing
- not identifying all Bs
2. Misuse of estate assets
- e.g. PR using for personal use
3. Negligence
- undue delay in distribution
- bad investment decisions
4. Breach of fiduciary duties
- self-dealing, profiting from position, conflict of interest
How can a PR be removed?
By order of court
What options are there for protection of PR?
- Directions of the court
- for the whole distribution - spenny - s.48 - legal opinion of the court on a particular matter
- Benjamin order
- Known Bs but can’t find
- Spenny - s.28 Notice - unknown Bs and Cs
- notice in Gazette and newspaper for 2 months - Presumption of death act - if B presumed to have been dead for 7+ years
- Payment into court
- Insurance against PR loss resulting from B being found
- Indemnity from B
- only as good as the person giving it and may be hard to track down - s.61 - exoneration by court - court will look to see that PR:
(i) acted honestly and reasonably and that
(ii) ought fairly to be excused of liability and for not obtaining court directions - Exemption clauses in will (can’t cover fraud)
What assets do not need a grant?
- Anything passing outside succession estate
- though may need death certificate to effect transfer - Assets under the Assets of Estate (Small Payments) Act
- Personal household possessions (chattels - passed by physical transfer)
- Cash
Assets under AESPA
- national savings
- friendly and industrial society deposit accounts
- arrears of salary/wages
- pensions - army, navy etc
- UP TO VALUE OF £5,000 per asset
- may still need to show death certificate
- in practice banks may require the grant
What are the preliminary steps a PR will need to take regarding administration?
- Obtain a death certificate [funeral - family usually do this]
- send to HMRC, DVLA and DWP - Secure estate assets
- Locate will/codicils
- need the original will and codicils - probate will not accept a copy except in v exceptional circumstances - Provide Bs with a realistic timescale
- Schedule of assets and liabilities
- send schedule as well as death certificate to banks and request value of asset at date of death and instructions for closing accounts
- value the assets (over £500 should be formally valued as should shares/land)
- look for lifetime transfers
- identify liabilities and creditors
Entitlement to grant of representation as an executor:
- rules
- what if PR dies
Grant of probate
- All named on must apply for grant or if not must explain why not applied
- Can have a max of 4 executors on the grant
- If too many can reserve power and if a vacancy becomes available can apply for grant of double probate
If PR dies
- If another PR appointed will continue to act
- if no other PR and deceased PR has appointed executor of estate, can become executor of both original deceased and deceased PR’s estates
Entitlement of administrators to apply for grant and rules:
With will
- Follows this patters:
(i) executors
(ii) trustee of residuary (if there is one)
(iii) residuary beneficiary or B through intestacy rules if applicable
(iv) PR of any above except trustee
(v) any other B or C
(vi) PR of above
- someone in a lower category must clear off higher categories to apply
- need only 1 unless minor interests and then need 2
Without will
- follow intestacy rules
- also need to show familial relationship and beneficial entitlement to estate
- same rules as above on number and clearing off
EXECUTOR’s options when it is unwilling to act:
- Renounce
- final and cannot then apply for grant
- must not have intermeddled [NB: this position is different for administrators]
- needs to sign a certificate of renunciation and this will be sent to probate when other Es apply
- advise to renounce as administrator at the same time - Reserve power
- can reserve power and later tae out a grant of double probate
- other Es need to be willing to act
- need to inform probate and will be noted on the grant - Appoint an attorney under POA
- can be done after grant obtained and gives attorney 12 months AND must notify other Es (12 months can be extended)
- can appoint attorney to take out grant - will apply for a letter of admin (with will)
Options where administrator unwilling to act:
- Renounce
- form of renunciation sent to probate
- IS allowed to intermeddle and can renounce at any time before the grant is issued - Appoint an attorney
- NOT ALLOWED TO RESERVE POWER
What do probate want to see before issuing the grant in relation to IHT?
They will want the IHT 421 which is a receipt from HMRC that IHT has been paid on the estate
What needs to be send to the probate registry with the application for the grant?
Where relevant:
1. Fee (no fee where estate value below £5000)
2. Testamentary documents
3. IHT 421
4. Form of renunciation
5. Power of attorney
6. If personal (not professional) then death certificate
7. Affidavit evidence
What is an affidavit?
Formal written statement of truth signed under oath
Order to use to pay off UNSECURED debts unless otherwise specified in the will:
(not of huge concern to creditors as if it is solvent then will get paid)
- Intestacy entitlement
- Residue
- Any provision in the will for debts to be paid out of
- Pecuniary funds
- Specific gifts (e.g. chattels)
Choosing assets to sell to pay off debts:
Need to think about:
- CGT consequences
- PRs acquire assets at market value on DOD
- Bad idea to sell ones increasing in value as will give rise to CGT whereas can transfer these to Bs without CGT consequences
- def sell ones decreasing as need to preserve value of estate - Speed/ease of sale
- B’s wishes (not obliged to follow but should take into account)
- Chattel exemption (no CGT when assets valued at £6,000 or less)
Are PRs liable to pay CGT on sale of chattels?
Not if the value of the chattels is £6,000 or less
Do PRs have allowances they can use on CGT and Income tax?
What are considerations PRs should take into account when deciding on most tax-efficient administration?
- Not for income tax - cannot use the personal allowance but ONLY pay basic rate
- CGT - can use the annual exemption
Tax efficiency:
- If B has already used tax-free allowance or is a higher rate tax payer - PR should sell asset and transfer value to B
- if PR has used up allowance - transfer to B to sell
- Only B can claim main property relief
- If sale will generate loss - look to see whether estate or B has gain to set off against
Order of payment of legacies
- Specific
- Pecuniary
- General
[4. Residuary]
Timing considerations for distribution
- Should really be done within a year (executor year)
- MIGHT want to wait 10 months though because individuals have 6 months to bring an IPFDA claim and then another 4 months after issue to serve
- Wait 2 months after s.27 notice
Where is IHT paid out of?
Residuary estate unless contrary intention expressed
Who is liable to pay IHT on a lifetime settlement into a trust?
The donee (trustees) will be liable OR the donor can elect - would essentially gross up the payment into the trust so would be value + IHT
- more IHT is paid this way
What payments does the maintenance exemption apply to?
Payments for maintenance of spouse, minor child (of either spouse), child over 18 if it is for education/training or dependent relative
NB: CANNOT COMBINE SMALL GIFTS WITH
ANNUAL EXEMPTION
Formula for calculating IHT on the death estate:
- Cumulative total
- Identify the taxable estate
- Value the taxable estate
- Pay debts and liabilities
- Exemptions and reliefs
- RNRB
- NRB [TNRB] and calculate tax
5 anti-avoidance regimes:
- Restriction on deduction of loans
- GROB
- Pre-owned assets charge
- General anti-abuse rules
- Disclosure of tax-avoidance schemes
Requirements for revocation of will by destruction to be valid:
T must destroy the will with the intention to destroy - one without the other is not enough
- Must have testamentary capacity to effect valid destruction
- If only part of will destroyed, look at what is left to see if it could take effect but if not whole thing will be treated as destroyed (e.g. if attestation clause destroyed with T’s signature)
- if another person destroys must be on T’s direction AND in T’s presence to take effect
Presumption where will missing or damaged:
- Missing - T presumed to destroy with intention to revoke unless proved otherwise
- Damaged/destroyed - T presumed to to with intent to revoke unless proved otherwise (with affidavit evidence)
If sufficient evidence can be provided to rebut the presumption then can submit a copy of the will to probate
Options for a testator wanting to amend their will:
- New will with express revocation clause - BEST OPTION
- Codicil
- Manuscript alterations - not advisable but can be a solution if amendments need to be made quickly - risk that effect will not be what T wanted
Manuscript alterations are not valid unless:
- Can’t see the underlying text - obliterated
- Executed as a will should be executed (witnessed and signed)
Alterations to will - presumptions on timing:
Any exceptions?
There is a rebuttable presumption that any alteration made to the will was made after the will was executed
- this means it would not be given effect to
- alterations pre execution are valid but need to raise sufficient evidence to show was made pre-exeuction
Exception:
- Where there was a blank space that was filled in - this is presumed to have been filled in pre-execution and therefore valid
Effect of obliteration on will:
- Where original wording cannot be made out, this is treated as revoked
- HOWEVER if extrinsic evidence can be provided to establish the original wording this should be given effect to
Effect of marriage and divorce on wills:
- Marriage - automatically revokes any will made pre-marriage unless:
- will is drafted in contemplation of marriage but must NAME future spouse and identify the INTENDED ceremony (cannot be a general contemplation of marriage) - Divorce - revokes the part of the will relating to former spouse e.g. as a B or an executor
