Wills And Bankruptcy

Question 1

Executor duties

Answer 1

🔖 Determine assets and liabilities of estate
🔖 Collect assets and pay any debts
🔖 Settle tax liabilities
🔖 Complete necessary accounts
🔖 Obtain probate
🔖 Distribute estate in accordance with will once probate has been issued
🔖 Complete IHT account and pay before probate

Question 2

What two ways can a will be amended after death which is effective for IHT.

Answer 2

Deed of variation - controls who inherits

Disclaimer - Legally renounce entitlement - passes back into residue of estate - no control over who inherits

Question 3

What property can a debtor retain?

Answer 3

🛠 Tools, books, vehicles and other equipment required for use in employment, business, vocation

👚 Clothing, bedding, furniture, household equipment, provisions necessary for basic needs of bankrupt and family

📜 Property held in trust for others

Question 4

What other property can trustee in bankruptcy claim?

Answer 4

Property acquired between adjudication and discharge - such as inheritance

Question 5

Under intestacy who inherits when Spouse/CP and no issue

Answer 5

👫 Spouse/CP and no issues = spouse/CP everything absolutely

Question 6

Under intestacy who inherits when Spouse/CP and issue?

Answer 6

🧍🏻‍♀️Spouse/CP takes personal chattels + £322,000 (prior to 5/7/23 it was £270,000) + half rest of estate absolutely

👨‍👧‍👧 Children receive other half absolutely, if minors held on statutory trust until 18 or marry younger

Question 7

Under intestacy rules who inherits if no spouse/CP?

Answer 7

👨‍👦‍👦 Issue takes all

🧍🏻‍♀️ No issue following order:

💰 Grandchildren
💰 Parents
💰 Brothers and Sisters or their issue

👑 No relatives = the crown

Question 8

What makes a valid will?

Answer 8

In writing

Signed by testator

Signed and Witnessed by 2 independent people

Testator must be over 18 and of sound mind

Under no pressure to make a will

Question 9

What is a disclaimer and how can it be effective for IHT purposes?

Answer 9

Person legally renounces inherited property

Disclaimer must be in writing within 2 years of death

No consideration for money or moneys worth

Must contain a statement that the disclaimer is to have effect that disclaimed benefit was never conferred

Passes back into residue of estate and property treated as not passing to disclaiming individual

Individual disclaiming has no control over who inherits

Can only be used if inheritance has not been accepted

Question 10

What makes a deed of variation effective for IHT purposes?

Answer 10

Must refer to will/intestacy being varied

Must be in writing

Signed by those who would/might benefit from original provisons

Executed within 2 years of death

Contain statement variation is to have effect for IHT purposes signed by all persons making variation - must be signed by pers reps if IHT increases as a result.

No cosideration for money or moneys worth

Person varying will must be over 18 and of sound mind

Question 11

Benefit of being a secure creditor?

Answer 11

Can enforce security to pay debt if equal or greater than debt

Don’t have to take part in bankruptcy proceedings

Question 12

What happens if a security is not enough to pay debt in full?

Answer 12

Creditor can:

Value security and take part in proceeding for unsecured part

Give up security for benefit of all creditors and the part in proceedings for full debt

Realise security and take part for the balance - most common as maximises payment

Question 13

Who is taxable on a chargeable gain on a life policy in trust (includes bonds)?

Answer 13

If settlor alive/UK resident immediacy before event:

🤨 Gain treated as part of settlor income
🤨 Highest marginal rate/topslicing
🤨 Can recover any tax paid from trustees - can be deemed transfer of value for IHT

Settlor dead/outside UK and trustees UK resident:

🧐 Trustees chargeable = 45% tax rate in excess of standard rate band (20%)
🧐 25% on UK (onshore) policies due to tax credit of 20%

Non resident trustees and settlor etc.

🤩 Beneficiary receiving benefit taxed at marginal rate

Question 14

What is the process for administering estate under intestacy/executor unable to act

Answer 14

Probate registry/court appoints Administrators/executors

Administer/distribute estate

Question 15

What impact does divorce have on a will?

Answer 15

Doesn’t invalidate will

Cancels any benefit to the spouse unless there is specific wording in the will that there should be no affect to entitlement

Spouse’s share distributed under rules of intestacy

Anyone else mention in will, will still receive entitlement

If spouse is executor they would be unable to continue to act

Question 16

What are the conditions for a debt relief order?

Answer 16

Unable to pay debts

Owe no more than £30,000

No assets with total value of more than £2,000

Disposable income no more than £75 per month

Live in England or Wales

Not been subject to a debt relief order in last 6 years

Not be involved in any other formal insolvency procedure at time of application

Question 17

How do you obtain spouse unused NRB?

Answer 17

Personal reps of estate must make a claim within 2 years of second death for NRB to be increased

By unused proportion of NRB (% not amount) regardless of when first person died and the NRB at the time

Question 18

What action can the trustee in bankruptcy take in regard to a Married Womens Property Act policy?

Answer 18

Can’t claim policy even if taken put to defraud creditors

If a regular premium policy can claim on premiums paid by bankrupt settlor.

Only if proven the policy was taken out to defraud creditors

Doesn’t extend to any beneficial interest of the bankrupt

Question 19

What personal requirements must someone have to make a valid will?

Answer 19

Over 18

Of sound mind

Under no pressure to make the will

Question 20

What circumstances revoke a will?

Answer 20

Physically destroying it

Making a new will revoking all previous wills

By marriage unless the will states it was made in anticipation of someone getting married.

Question 21

What are executor duties in dealing with IHT on an estate?

Answer 21

Must complete inheritance tax account showing assets and liabilities, plus gifts in last 7 years.

Show any gifts with reservation.

Must pay IHT by end of 6th month after death

Must be paid before grant of probate can be issued.

Question 22

What is a mutual will?

Answer 22

An agreement where a couple effect wills that dispose of their property in an identical way.

Can be revoked before first death if both parties consent.

After the first death the will of the survivor can’t be changed and on second death assets are left in accordance with will.

Survivor is bound by the arrangement.

Question 23

What is probate called under laws of intestacy?

Answer 23

Apply to probate registry for grant of letters of administration

Question 24

What are the conditions for normal expenditure exemption?

Answer 24

Regular/habitual

Made out of income

Gift should not reduce transferor’s standard of living

Made as part of transferors normal expenditure

Question 25

What is the impact on a trust of the bankruptcy of a trustee?

Answer 25

Has no effect on trust as property doesn’t belong to trustee

Can still act as trustee unless settlors/trustees wish to remove her if considered no longer suitable

Question 26

Impact on trust of settlor bankruptcy

Answer 26

Doesn’t affect trust unless can be attacked under prior transaction provisions - 2 years of transfer

Trustees in bankruptcy can obtain court order setting aside settlement without prove of insolvency at time/ done to deliberately defraud if within 5 years of transfer and beneficiaries are spouse/relative/business partner

Question 27

What is the bankruptcy procedure?

Answer 27

Creditors present petition - £5,000 on own or jointly

Must prove debtor is unable to pay, not complied with statutory demand/CCJ

Made online since 2016

Official receiver takes control of all assets (some exceptions)

Debtor submits stmt of affairs

Official receiver (insolvency practitioner) investigates and send report to creditors and decides whether to call a meeting to vote for insolvency practitioner as TIB

Must call meeting of 10%+ creditors demand it

OR becomes TIB if no meeting

Question 28

What are IPA and IPO?

Answer 28

IPA = income payment agreement ask bankrupt to sign

IPO = income payment order (apply to court)

Makes contributions from income if can

Question 29

What happens to bankrupts home?

Answer 29

If owns home = right to sell passes to TIB

Obtains an order for sale

If minor children must wait 1 year - has 3 years to deal with main home

After that reverts to bankrupt, to stop this must

Realise interest/apply for order of sale or possession/apply for charging order/enter into an agreement with the bankrupt

Can only claim debtors share if joint and court order required to sell, considering interest of creditors and spouse/children

Question 30

TIB role?

Answer 30

Realise assets and share proceeds with creditors

In order:

Secured
Expenses of bankruptcy
Preferential debts
Creditors with floating charges
Unsecured creditors and other debts (includes tax)
Interest on debts since order
Debts to spouse/CP

Question 31

What is the impact of bankruptcy?

Answer 31

1 year

Can’t obtain credit of more than £500 without disclosure

Can’t Trade under any name except that which they were declared bankrupt, without disclosure

Act as director of company

Work as an insolvency practitioner

Act in certain professions

Question 32

Priority for payment of assets in bankruptcy?

Answer 32

Secured creditors

Expenses

Preferential debts

Creditor with floating charge

Unsecured creditors

Interest since bankruptcy order

Debts to spouse

Question 33

What is an IVA?

Answer 33

Secure low cost settlement
Individual applies to court to be helped by an IP

Repayment plan made by IP and the individual works out plan and calls meeting to pay part or all debts

Repayment plan proposed

Agreement of creditors holding 75% of debt by vote the proposal is accepted

Court appoints insolvency practitioner as supervisor if agreed

Monthly payments to IP who then pays creditors

Usually 5 years

Can seek bankruptcy if obligations not met

Question 34

What is a deed of arrangement?

Answer 34

Informal family arrangements

Assess how much can afford after essential living costs

Question 35

What is a debt relief order?

Answer 35

Suitable for those on low income, few assets and low debts

Managed by insolvency service/skilled debt advisers

12 months

Freed from debts of circumstances have met changed

Question 36

Conditions for a debt relief order?

Answer 36

Unable to pay

Owe no more than £30k

Assets no more than £2000

Disposable income no more than £75 a month

Dom in England and Wales

Not be subject to DRO in last 6 years

Question 37

Benefits of IVA over bankruptcy

Answer 37

Costs less than formal bankruptcy

Individual retains control over assets

Less stigma

Individual remains closely involved in process

Not subject to bankruptcy restrictions such as credit for £500 from single lender or acting as co director

Question 38

Can a will be challenged?

Answer 38

Yes under Inheritance (Provisions for family and dependents) act 1975

Must involve court proceedings

Could apply for financial provision on grounds that will did not make reasonable financial provision

Question 39

What is a bankruptcy restriction order?

Answer 39

Court may order a BRO if bankrupt has acted dishonestly

Claim made in 1 year of bankruptcy

Can last min 2 years and max 15 years

Annulled/reduced by court

Public register of BROs

Question 40

What are IHT implications of establishing a disc trust using a DOV

Answer 40

The original beneficiary is not treated as having made a transfer of value for IHT

Will be treated as if came direct from deceaseds estate for IHT purposes

Can’t use RNRB if goes in to disc trust as not passed to direct descendant. Can be used if goes to IPDI if direct descendants have interest in possession

Therefore IHT liability could increase

Question 41

What happens to a joint TIC property on bankruptcy?

Answer 41

Joint tenancy is severed

The bankrupts share can pass to the TIB who could sell Steve’s share to someone else (could be other TIC)

House can’t be sold without a court order- court will consider the needs of there other TIC as they have a legal interest in the property.

Court unlikely to order an immediate sale/postponed for 12 months

TIB has 3 years to deal with property

Question 42

What happens to investments on bankruptcy?

Answer 42

Will pass to TIB and the investments can be encashed for benefit of creditors.

Any income can be claimed by TIB

Any joint accounts the joint tenancy would be severed and the bankrupts share would pass to the bankruptcy estate

Question 43

What happens to a pension on bankruptcy?

Answer 43

Registered pension schemes are protected from bankruptcy- TIB can’t claim

If TIB believes the bankrupt has made an excessive contribution in the anticipation of being made bankrupt the court can order the pension provider to pay it to the TIB

TIB can force bankrupt to start taking an income to pay off his debt even if they are over 55 and able to access it

Bankrupt can continue to make investment decisions on a pension

Question 44

What different would it make if someone had set up a limited company rather than a sole trader if made bankrupt?

Answer 44

Limited liability to the value of shareholding

Personal assets would be protected as long as not given an personal guarantees or been negligent

Restrictions imposed on directors following the failure of a business