Wills and Estates Law Flashcards
What are the formal requirements for a Will?
-The testator must have testementary capacity
-The testator has a general and specififc intention to make the Will
-The testators signature and the form of the will must comply with the required formalities
What is meant by testamentary capacity? Banks v Goodfellow test
The testator must understand:
- the nature of the act;
-the extent of the property of which they are disposing;
-the claims to which they ought to give effect
What happens if the personal does not have adequate capacity at the time they signed the Will, but they had sufficient capacity at the time they gave instructions to the person preparing it?
If the will was prepared in accordance with those instructions and, at the time of execution, the testator understood they were signing a will for which instructions had previously been given, the testator will be deemed to have acted with capacity.
What is the requisite intention for a valid Will to be created?
-a general intention to make a will, and
-a specific intention to make the particular will; in other words, the testator must have known and approved the contents of the will when they executed it.
What are the exceptions to the rebuttable presumption of knowledge and approval if the testator has the required mental capacity?
- if the testator is blind or illiterate or the Will is signed on the testators behalf (it is usual to include an attestation clause in these cases to state the Will was read to them and they have knowledge and approve the contents); and
-if there are suspicious circumstances, such as where the Will drafter substantially benefits from the Will, the gift will fail unless evidence of the testators knowledge and approval of the gift is offered by the person putting forward the Will.
How to renounce?
A renunciation of executorship must be in writing, be signed by the executor and contain a statement that the person has not intermeddled. It must be signed by a disinterested witness. It
must be filed at the Probate Registry, normally by the personal representatives who are applying for a grant.
What is a specific legacy?
A gift forming part of the testator’s estate at death and distinguished in the Will from other property of the same kind.
What is a general legacy?
A gift of property not distinguished in the Will from other property of the same kind i.e. the sum of 3,000 shares in ABC plc.
What is a demonstrative legacy?
Payable out of a specific designated fund i.e. £5,000 out of my bank account with HSBC Bank.
What is a pecuniary legacy?
Gift of money which may be specific, general, or demonstrative. Most are general i.e. £1000 to NSPCC.
What is a residuary legacy?
The residue of what is left after debts, liabilities, legacies and other expenses have been paid.
What is ademption?
Means that a specific gift will fail if it is no longer part of a testator’s estate, is subject to a binding contract for sale or no longer meets the description in the Will.
What happens if a beneficiary predeceases a testator?
The gift will lapse (fail). Usual to include a substitutional gift, and if so, then the gift will go to the substitutional beneficiary and the gift will not lapse. Otherwise the subject matter falls into the residue. If a residual gift lapses then it passes under intestacy.
What are the rules around survivorship?
Common for gifts in Wills to be made conditional upon the survival of a beneficiary (other than a surviving spouse) for a specified period of time (usually 28-30days) after the testators death. The gift fails if the beneficiary fails to survive.
Where it is impossible to determine who died first out of two or more people, the law provides that the younger person survives the elder.
What is the spouse / civil partner entitled to from the deceased’s estate where there is no Will?
Personal chattles
Statutory legacy
One half of the residue
What is the statutory legacy?
6 Feb 2020-25 July 2023 - £270k
26 July 2023 - Present - £322k
Must survive the deceased by 28 days
Which property does not pass through the Will and passes outside of the estate?
- Property owned as a beneficial joint tenant - passes to the survivor could be a bank account or matrimonial home.
- Life assurance policies - held on trust or assigned to beneficiaries.
- Pension Scheme death benefits - may be subject to discretionary trusts, but sometimes the death in service benefit forms part of the estate for the Will or intestacy rules.
- Nominated property- possible to transfer property held on death in friendly societies, the National Savings Bank and National Savings Certificates, applies for deposits not exceeding £5000.
-Life interests in trust property - the trust fund will pass according to the trust.
How does a gift where the donor has reserved benefit work?
Where D has given something away, but retained some benefit in the gifted property. Tax consequence, but it does not belong to the deceased for succession purposes.
Jointly owned property, life interests in trust property and gifts with reservation of benefit do form part of the deceased’s estate for tax purposes, even though they are not payable to the personal representative.
If there is someone better entitled to apply for the grant, which form do you need to fill out?
Forms PA1P and PA1A
What is needed for a PA1P form? (application for probate with a Will or Will annexed)
- Details of the applicant(s) for the grant
- Details of the deceased
- The Will and any codicils
- Details of relatives of the deceased
- If you are applying as an attorney
- Foreign domicile (where relevant)
- IHT summary (based on the IHT form that is submitted online)
- Legal statement - signd and dated by the applicants
What is different about the PA1A form? (intestacy/ applying for LOA)
Similar to PA1P, but does not contain the Will/codicil section.
Main difference is more information is needed in the details about relatives of the deceased section as this may be required to determine who is entitled to take out the grant.
What goes into the total value of the estate for IHT purposes?
All assets, any gifts made and the value of any trust where a person had a beneficial interest.
When do you need to send full details of the excepted estate’s value even though no tax is due?
If they gave away over £250,000 in the 7 years before they died
Gave gifts and then continued to benefit from them in the 7 yrs before death
Left an estate worth more than £3m
Was ‘deemed domiciled’ in the UK
Had foreign assets of more than £100,000
Was living permanently outside the UK when they died but had previously lived in the UK
Had a life insurance policy that paid out to someone other than their spouse/CP and also had an annuity
Has increased the value of a lump sum from a personal pension to be paid after their death whilst they were terminally ill or in poor health
Had agree that property they’d given away during their lifetime would be part of their estate rather than pau a pre-owned asset charge.
ALSO neeed to complete a full account if the deceased:
gave gifts that were paid into trust, had assets worth over 250k in a trust, and held more than one trust.
ALSO if assets held in trust passed to a surviving spouse/CP or charity and the trust was worth 1m or more, 250k or more after the amount passing to spouse/CP/charity was deducted.
What does the PR have to take into account when determining the residue?
Tax issues
Corrective accounts
Certificate of discharge
reasonable funeral expenses
Legal and professional costs
Personal representatives’ remuneration
What should the court consider under IPFDA 1975 Act?
Financial resources and needs of the application (now or future)
Any moral obligation of the deceased to any applicant
The size and nature of the net estate of the deceased
The physical or mental disability of any applicant; and
any other relevant matter, including the conduct of any person.
What will the court additionally look at for a surviving spouse/ cohabiting partner?
Their age
Duration of marriage/relationship
Their contribution to the welfare of the deceased’s family
Spouse only - the provision which might have reasonably been expected on divorce as at the date of death.
Exempt transfers: Gifts to Spouses
Completely exempt from IHT. Only exception is if the donor spouse is UK domiciled and the recipient spouse is not. In this case, only the first £325k is exempt from IHT. The rest would be a PET.
Exempt transfers: Small gifts
£250 as a gift us exempt from IHT, all or nothing. No limit to the number of donees.
Exempt transfers: Gifts on marriage
A parent: £5000
A grandparent: £2500
Bride to the groom and vice versa (before the wedding): £2500
All others: £1,000
Exemptions are per marriage and not all or nothing, so only the amount over the threshold will be taxed.
What is the annual exemption?
£3000 is avaliable to reduce IHT value. Any individual can give away up to £3000 per year without giving rise to IHT.
If unused it can be carried forward one tax year, so you have £6000.
What are example of chargeable lifetime transfers?
A gift to a trust would usually be a CLT and IHT would be immediately payable. Excluding gift to charitable trust (exempt) and bare trust (PET).
A gift to a company would be a CLT
The value of the CLT can be reduced by any avaliable annual exemptions.
IHT is immediately payable and will be paid on the trasnfer by the donor or the trustees. Tax owed only if the gift exceeds the NRB after deducting annual exemptions. Taking into account gifts made in the last 7 years. Look at the value of the gift+the tax paid.
If trustees pay the tax, it is 20% lifetime rate, and if donor pays the tax, it is 25% lifetime rate.
What is the procedure for calculating lifetime tax?
-Identify the value transferred using the loss to donor principle
-Deduct annual exemptions to arrive at the CLT
-Identify NRB for year of transfer
-Deduct any other chargeable transfers made within 7 years before the gift to arrive at the NRB remaining; and
-Pay the excess lifetime transfer over the NRB at 20% or 25%.
What is the death tax on PET’s?
No tax is paid at the time the PET is made. A PET will become chargeable only if the donor dies within 7 years of the gift.
More than three years between the date of the PET and donor’s DOD, then it is tapered reducing the tax payable percentage as below:
0-3 - Nil
3-4- 20%
4-5- 40%
5-6- 60%
6-7- 80%
Additional tax on chargeable lifetime gifts?
Donor pays tax immediately on gift, but if they die within 7 years, more tax is payable. You start with the CLT and the calaculate the amount of NRB remaining to leave a transfer chargable to IHT. Tax is charged on the trustees at a death rate of 40%. If more than 3 years, then taper relief applies as with PETs.
What is meant by credits on lifetime tax paid?
Obviously with CLT’s as opposed to PETs, some tax has already been paid i.e. the lifetime tax. Trustees will recieve credit for any lifetime tax paid on the CLT and the difference between the death tax and the lifetime tax paid is the additional tax payable by the trustees. If the lifetime tax paid already exceeds the tax on death, then the difference is not re-paid. The IHT on death would just reduce to zero.
Which business assets qualify for 100% relief?
A sole trade business or partnership share interest, and
shares in an unlisted trading company
Which assets qualify for 50% relief?
Shares in a quoted trading company if the donor has voting control, and
Land, buildings, or plant and machinery owned by an individual and used either by a partnership of which they are a member or a company which they control.
Calaculating tax on death?
Start with the NRB for the year of death. The NRB is reduced by any chargeable transfers (potentially chargeable transfers and CLTs) made in the 7 years prior to death. We deduct the NRB remaining to leave the amount of the death estate that is chargeable to IHT. Tax is charged at 40%.
Remember: gifts to spouse or charity are exempt
How do we value shares at date of death?
We use the quarter up rule. Take the lowest value of the spread of prices on the given day and add on a quarter of the difference between the highest and lowest values. Or take the average of the highest and lowest marked bargains on the relevant day. A marked bargain is a price at which the relevant shares were traded that particular day, ignoring any transactions at special prices. To take the average you add the lowest figure and the highest figure and divide by two.
