Wills And Administration Of Estates Flashcards
Three types of Inheritance Tax
Potentially Exempt Transfers (PET) - Lifetime transfers of value which could become chargeable to IHT depending on whether the transferor survives for seven years after the transfer. Only failed PETs (i.e. those where the transferor does not survive for seven years are chargeable.)
Lifetime Chargeable Transfers (LFT) - Lifetime transfers of value which are immediately chargeable to IT at the lifetime rate. These are also reassessed if the transferor dies within seven years.
Death - When a person dies there is a deemed transfer of all the assets that they own (s 4 IHTA). IHT is chargeable on this transfer of value.
Nil Rate Bands
Basic Nil Rate Band (‘NRB’) of £325,000 (0% tax payable)
The surviving spouse can inherit the unused proportion of the nil rate band, this is known as the Transferable Nil Rate Band (‘TNRB’)
Additional nil rate band (death post April 2017) for individuals who leave their family home to a direct descendant. This is the Residence Nil Rate Band (‘RNRB’) of £175,000
An individuals spouse can inherit the unused proportion of the RNRB as well.
Lifetime Chargeable Transfers ‘LCT’
All lifetime transfers of value made by a person into a trust on or after 22 March 2006 will give rise to an LCT.
The tax treatment is as follows:
• An LCT is a chargeable transfer when it is made. IHT is payable on the chargeable value of the LCT at the lifetime rate of 20%.
• If the transferor survives 7 years following the LCT there is no further charge to tax.
• If the transferor dies within 7 years, the LCT will be reassessed to tax at the death rate of 40%, using the NRB at the date of death.
Death
When a person dies there is a deemed transfer of all the assets that they own at
the date of their death (s 4 IHTA). It is this deemed transfer that gives rise to
the IHT charge on death. Property in the taxable estate is valued at the price it might reasonably be expected to fetch if sold on the open market
immediately before the death (s 160
IHTA). It is important to note that the taxable death estate is not the same as the succession estate so a separate
calculation of the value of the estate for
IHT purposes will be needed. IHT is payable on a person’s death estate at the death rate of 40% of the value of the
estate above the available NRB. In addition to the IT for the death estate, any PETs or LCTs made in the 7 years before death must be re-assessed to IHT
as well.
Potentially Exempt Transfers ‘PET’
A PET is a lifetime transfer of value to another individual. If the transferor does not survive for 7 years after making the transfer, it becomes chargeable alongside their death estate. The rationale behind PET is to prevent individuals avoiding IHT by giving away property shortly before their death.
The tax treatment of a PET is as follows:
• The transfer is not chargeable at the point it is made. No IHT is payable yet.
• It becomes fully exempt if the transferor survives seven years from the date of the PET.
• If the transferor dies within seven years of making the PET, the PET ‘fails’ and
becomes a chargeable transfer and thus subject to IHT.
Excepted estates for IHT
An estate that qualifies as an excepted estate is one which the executors do not have to submit a full IHT account
If the estate is an excepted estate, the PRs must complete a form IHT205 to send to the Probate Registry with the application for the grant.
Three types of excepted estate:
1. Low value / small estates
2. Exempt estates
3. Non-domiciled estates
If an excepted estate is found to not be one, a form IHT400 must be submitted within 6 months
Valuation of assets and liabilities
A deceaseds persons PR must value the deceaseds estate at the date of their death to determine its liability to IHT and report the value to HMRC.
When an individual dies they are considered to have made a transfer of value equal to the value of their estate immediately before their death (s4(1) inheritance tax act 1984) with the result that the estate may be liable to IHT
The statutory trusts (intestacy rules)
Apart from the spouse, parents and grandparents each category of relatives takes the residuary estate subject to the statutory trusts.
Statutory trusts contain 3 main provisions:
- Class of beneficiaries
Held on trust in equal shares for relatives in the relevant category who are living at the time of the deceaseds death. - Contingency
Interests of beneficiaries are contingent on reaching 18. - Substitution
If a member of the relevant category dies before the intestate leaving issue, the issue takes their deceased parents share, in equal shares of more than one, contingently on reaching 18 years or earlier marriage or civil partnership.
Application Procedure to Probate Registry
To obtain the grant of representation send:
1. Original will and any codicil if deceased died testate.
2. If required affidavit evidence or a witness statement supported by a statement of truth to support:
2.1. Due execution where there is some doubt about the proper execution of the will;
2.2. Knowledge and approval of the contents of the will if the testator was blind, illiterate or suspicious circumstances;
2.3. The plight and condition of an altered or damaged will;
2.4. A lost or accidentally destroyed will where a copy has been submitted.
3. Completed form IHT205 if the estate is ‘excepted’. If not accepted estate, and IHT is payable, a form IHT400 must be submitted to the HMRC with the payment of any IHT due before the grant. HMRC will also write to the PRs providing a unique code and estate values that they must include in the grant application form.
4. A form PA1P (if will) or Form PA1A (no will) applying for the right to take a grant
5. Probate fee
6. Any renunciations of the right to act as executor (provided they have not inter-meddled in the estate) or administrator (intermeddling not applicable to administrators).
7. Application for a grant under Rule 20 or 22 must swear why those with priority are unable or unwilling to apply for the grant (known as clearing off).
What is the need for a grant of representation?
Grant of representation is obtained from the court to prove the legal authority of the person to deal with a deceased person’s estate.
If will appoints PR, they are known as the executor and the grants of representation are known as the grant of probate.
If no will, PR is known as administrator and they obtain a grant of representation called the letters of administration.
Non-contentious probate business
Relevant to;
- Estates where the validity of a will is not at issue; and
- There is no dispute about who is entitled to a grant of representation.
Operation of Non-contentious probate - valid will
Valid will but nobody willing to act.
No question as to validity - grant of probate said to be made in ‘common form’.
No other parties involved and the only evidence relied on is that of the applicant.
Executors appointed by will and take a grant of probate.
Nobody willing to act - grant will be letters of administration with the will annexed.
Order of priority - Rule 20 Non-Contentious Probate Rules 1987.
Operation non-contentious probate rules - no will - died totally intestate.
Persons entitled to apply for the grant of letters of representation are the same as those beneficiaries on the order of intestacy.
