Wills and Intestacy Practice

Question 1

List assets that pass outside the terms of wills and intestacy

Answer 1

Joint property (survivorship)

Insurance policies

Pension benefits

Trust property

Question 2

What is the test for having Capacity for a will and who has burden of proving?

Answer 2

Testator or Testatrix must be

• over 18
• have soundness of mind, memory and understanding

Can still have capacity if above satisfied when giving instructions, even if capacity is lost when executing will

General rule is executors have burden to prove will is valid

• Can rely on the presumption that will is valid which shifts the burden to the person seeking to challenge validity

Question 3

What is the test for having Intention for a will and who has burden of proving?

Answer 3

Person making will must have both general and specific intention of creating a will (intend to make a will, and intend to make this specific will)

Burden again on executors but another presumption can apply which shifts burden
- if Testator has capacity and has read and executed the will, then presumed to have intention

Question 4

What are the formalities of a valid will?

Answer 4

s.9 Wills act

Must be in writing and signed by testator

Testator must have intended (by signing) to give effect to will

Testator must have their signature witnessed by two independent witnesses (who then sign themselves or acknowledge their signature)

Question 5

What is the test for execution of a will?

Answer 5

The will must conform with the formalities outlined in s.9 Wills Act

There is a presumption of due execution

• must include an execution clause
• ‘Signed by the testatrix in our joint presence and then by us in hers’

Question 6

Can a court rectify a will?

Answer 6

yes but in limited situations. It can’t rewrite the will but has limited power to correct a will (if intentions were clear but the wording does not give effect to those intentions)

A court may rectify if a will is so expressed that it fails to carry out the testator’s intentions, in consequence—
1. of a clerical error; or
2. of a failure to understand his instructions

Question 7

For gifts contained in a will, how are they read?

Answer 7

A will is read from the date of death unless contrary words are used

Ex. A gift of my personal car is read at the date of death, so if a car is sold after the will is made and a new car is bought before the death, it is the new car that forms the gift

If words are used that suggest the gift is read from the time of making the will, then that suffices
- ‘the house which I now own’

Question 8

For beneficiaries contained in a will, how is the will read?

Answer 8

Unlike gifts, beneficiaries are ascertained from the date of writing the will, not the death of the testator

Question 9

What are the different ways in which a gift can fail?

Answer 9

Uncertainty -> If the gift is uncertain or the beneficiary is uncertain (cant establish what the gift is or who it is intended for)

Beneficiary witnesses a will -> will still valid but the gift to that beneficiary fails. Gift forms part of residuary estate

Divorce or dissolution -> If gift to a beneficiary and that beneficiary divorces the testator(trix), then the gft passes to residuary

Ademption -> Gift fails because at time of testators death, they no longer own that gift

Lapse -> gift is there but the beneficiary who it was intended for predeceases the testator. If the gift is made to more than one beneficiary jointly, all those beneficiaries must die before the gift lapses, otherwise it passes to the other beneficiaries in bigger shares. If in ‘equal shares’ and not jointly, then this does not apply. Also, if gift is to a direct issue of testator and the beneficiary dies, it can pass under s.33 to their issue (essentially passes to the grandchildren of the testator)

Question 10

What are the three main methods of revoking a will?

Answer 10

By making a new will or codicil

By destruction

By marriage / forming a civil partnership

Question 11

What are the requirements for revoking a will by destruction

Answer 11

Testator must have necessary capacity and intention to destroy

Must be physical destruction and not symbolic (cant just cross out lines on the will and state revoked, this shows intention but the physical destruction has not occurred, so will may be deemed valid)

Question 12

What is a codicil and what is its effect?

Answer 12

A codicil allows a testator to make amendments or additions to a will without having to rewrite a new one

The effect is that a codicil republishes a will to be read at the date of the codicil
- This can impact who the beneficiaries are and availability of certain gifts

Question 13

Can a will be altered without a new will or codicil?

Answer 13

Yes, but the alterations must be executed like a will -> ie testator must sign and so must witness (initials in margins is okay)

If not, alteration is invalid and the original gift stands so long as the wording is ‘optically apparent’

If testator obliterates words (regardless of executed properly or not), then that gift will be removed and will is still valid without it

Question 14

Rules of intestacy with spouse and issue

Answer 14

Spouse must survive 28 days after death of intestate

Spouse receives chattels absolutely

Spouse receives statutory legacy (£322,000)

Rest of estate is divided equally between spouse and issue

Question 15

Rules of intestacy with spouse but no issue

Answer 15

Spouse or civil partner takes the whole estate

must survive 28 days after death of intestate

Question 16

Rules of intestacy with no spouse but issue

Answer 16

The estate goes to the person in the highest category of this hierarchy

• Issue
• Parents
• Brothers + Sisters
• Half Brothers + Sisters
• Grandparents
• Uncles + Aunts
• Half Uncles + Aunts
• The Crown

Question 17

What is the default position for IHT on a given estate? Where is it taken from?

Answer 17

The default position is that IHT is paid out of the residuary estate

This can be changed by using words such as ‘subject to tax’

words like ‘free from tax’ just confirm the default position

Question 18

What is the default position for an asset that is mortgaged? Who bears the burden of paying the mortgage?

Answer 18

The default position is the beneficiary entitled to the gift that is mortgage will bear the burden

This can be changed using words such as ‘free from tax’

Question 19

Survivorship clauses for intestacy

Answer 19

a beneficiary only has to be alive at the death of the testator to acquire a vested interest

If the beneficiary and testator die at the same time, the gift passes according to the beneficiary’s will or intestacy

Can include a survivorship clause to change this

“If beneficiary survives 28 days, but if they do not survive me then to my sister”

Question 20

What powers should be included in a will?

Answer 20

Power to charge
- allows executors to charge for remuneration

Power to appropriate assets without consent of legatee
- PRs can allow beneficiary to take chattels or other assets up to the value of legacy

Power to insure assets

Power to accept good receipts from or on behalf of minors

Self Dealing
- useful when executors are also beneficiaries

Question 21

Who is entitled to income and who is entitled to the capital?

A will creates a trust for the deceased’s widow, Sarah, for life, remainder to his son, Paul

Answer 21

Sarah is entitled to income

Paul is entitled to the capital

(If Paul were to get an advancement of capital, Trustees would need to seek consent from Sarah)

Question 22

Can beneficiaries remove trustees?

Answer 22

Yes, under s.19 TLATA 1996

If all beneficiaries are above 18 and have mental capacity, they can direct the trustees to retire

Question 23

What is an attestation clause?

Answer 23

This is a clause that confirms the formalities listed under s.9 WA have been complied with.

If included, an attestation clause raises the presumption of due execution

Signed by me [testator’s name]
in our joint presence and then by us in [his/ hers]

Question 24

What are some common professional conduct situations with Wills and Intestacy?

Answer 24

A third party giving instructions

Legacies or gifts to the solicitor for drafting the will

Solicitor being appointed executor (possible but also potential for own interest conflict as the solicitor will likely charge for their efforts)

Question 25

What are the broad steps for calculating IHT?

Answer 25

Check if the transfer was a chargeable transfer 1. Identify the transfer for value 2. Find the value transferred 3. Apply any exemptions or reliefs 4. Calculate appropriate tax rate

Question 26

Are there any discounts when valuing property for the sake of IHT for land held jointly?

Answer 26

Yes, if land is held jointly between two people who are not married or in civil partnership then a discount of 15% is usually applied Further, for commercial property held jointly, there is a 10% discount

Question 27

Are debts and expenses deductible for IHT purposes?

Answer 27

Yes Liabilities owed by the deceased at the time of death are deductible for IHT purposes provided that they were incurred for money or money’s worth Reasonable funeral expenses are also deductible

Question 28

Exemptions and reliefs - Spousal exemption

Answer 28

Any property that passes to a spouse is exempt from IHT calculations

Question 29

Exemptions and reliefs - Charity exemption

Answer 29

Any property that passes to a charity on death is exempt from IHT calculations

Question 30

Exemptions and reliefs - Business Property Relief

Answer 30

Only applies where the business is ‘trading’ in nature 100% for shares in private companies which have been owned for at least 2 years 50% for shares in public companies which have been owned for at least 2 years

Question 31

Exemptions and reliefs - Agricultural Property Relief

Answer 31

Similar to BPR 100% relief if transferor had right to vacant possession immediately before transfer 50% relief in other cases Transferor must have occupied for 2 years prior to transfer Have owned for 7 years prior to transfer with someone occupying for purposes of agriculture

Question 32

What is the Nil Rate Band and how much is it?

Answer 32

The NRB is an allotted tax free amount. Any transfers prior to death could potentially reduce the amount. Any remaining NRB is taxed at 0% and removed from value of estate NRB: £325,000 Ex. Estate = £500,000 Remaining NRB: £275,000 Therefore £275,000 taxed at 0% and the remaining value of estate (£225,000) taxed at IHT rates If unused NRB from spouse available after they pass away, can be transferred to surviving spouse

Question 33

What is the Residence Nil Rate Band?

Answer 33

Similar to the NRB but only applies to property in land. It must be a dwelling house which was the deceased's residence and it must be closely inherited Closely inherited means it passes to - Child, grandchild or other lineal descendant - Current spouse or civil partner of deceased's lineal descendants - Widow or widower or lineal descendants if they predecease the deceased - RNRB : £ 175,000

Question 34

What are the two main types of lifetime transfers?

Answer 34

PETs: Potentially Exempt Transfers LCTs: Lifetime Chargeable Transfers

Question 35

Exemptions specifically for Lifetime Transfers

Answer 35

The main reliefs and exemptions apply but there are a few additional for LTs Annual exemption - (£3000 - unused from previous year can be carried forward so max of £6000) Small gifts - gifts in any one tax year of £250 or less to any one person are exempt (only for PETs) Normal expenditure out of income - ex a parents sending money to a child for living expenses while at uni Gifts in consideration of marriage - £5000 if from parent £2000 if from a more remote family member £1000 in any other case

Question 36

Difference between PET and LCT in terms of tax

Answer 36

A PET only becomes chargeable for tax purposes if the testator dies within 7 years of making the PET An LCT will be charged at 20% (subject to NRB) initially and then tax recalculated if testator dies within 7 years

Question 37

Tapering relief for PETs (and LCTs)

Answer 37

Tapering relief applies where the chargeable transfer was made a number years before death to reduce the tax If transfer made: - 3-4 years before death: 80% payable - 4-5 years before death: 60% payable - 5-6 years before death: 40% payable - 6-7 years before death: 20% payable

Question 38

Burden and liability for paying IHT on estate

Answer 38

PRs are usually the ones liable to pay IHT unless 'subject to tax' included in legacy Estate rate often used to calculate rate of IHT for individual assets Calculated by dividing the amount of IHT payable on estate, then dividing that amount by total value of estate

Question 39

Burden and liability for paying IHT on PET

Answer 39

Transferee is liable but PRs become liable if tax unpaid for 12 months PRs should therefore wait to distribute estate until IHT is paid on the lifetime transfers

Question 40

Burden and liability for paying IHT on LCT

Answer 40

Typically it is the transferor who is liable however it is common for Trustees to also be liable and will pay out of the trust property they receive

Question 41

When is IHT due on the estate?

Answer 41

Usual position is that IHT is due 6 months after the month of death PRs usually pay earlier though since IHT must be paid before grant of representation is obtained

Question 42

What assets can have IHT payments paid in instalments? (10 yearly instalments

Answer 42

Land Business or interest in business Shares (quoted or unquoted) which immediately following death give a controlling share unquoted shares which do not give control if: - form more than 10% and worth more than £20,000 - HMRC satisfied that hardship would result from payment - IHT on the shares and other instalment options amounts to at least 20% of IHT on estate

Question 43

What is the purpose of the Inheritance (Provision for Family and Dependants) Act 1975?

Answer 43

Individuals are typically free to dispose of their assets how they wish in their will This act allows certain categories of individuals to make claims on the estate because of their omission from the will

Question 44

What are the broad categories of people who can make a claim under the Provision for Family and Dependents Act 975?

Answer 44

Spouse or civil partner Former spouse or civil partner (not remarried) Child of the deceased Anyone treated as a child of the family (ie step-children) Anyone who immediately before death was being maintained by the deceased Anyone who during the whole two years prior to death, was living in the same household and acting as spouse or partner of deceased

Question 45

What is the time limit for someone to make a claim under the Provisions for Family and Dependents Act 1975?

Answer 45

Individuals have 6 months from the date of grant of representation to make a claim

Question 46

What are the two grounds on which to make a claim under the Provision for Family and Dependents Act 1975? (Hint: think about 'standards')

Answer 46

The two grounds are: - Spouse Standard -> Reasonable in all circumstances and not dependent on maintenance - Ordinary Standard -> Reasonable for the maintenance of the applicant (ie if they can support themselves, then likely unsuccessful in their claim)

Question 47

What guidelines are considered when deciding to grant an applicant their claim under the Provision for Family and Dependents Act 1975?

Answer 47

Courts will look at the following - Financial resources of applicant and other beneficiaries - Deceased's obligations to any applicants and beneficiaries - Size and nature of estate - Physical or mental disability of any applicant or beneficiary - Anything else that's relevant (ie conduct of applicant)

Question 48

Are there any consequences for the PRs in relation to claims under the Provision for Family and Dependents Act 1975?

Answer 48

Yes, individuals have 6 months from the date of grant of representation to make a claim. If PRs distribute assets before 6 months and claim is made, PRs could be liable to pay if no assets remain Therefore PRs should be advised to wait 6 months from the date of grant of representation before distributing the assets

Question 49

What are the main ways in which a person can vary the legacies in a will?

Answer 49

Make a life time gift - accept gift from will and then make a gift yourself to the intended person Post-death disclaimer - rejection of gift then passes to residuary estate (cant disclaim part, and can't disclaim if already accepted a benefit from gift) Post-death variation - original beneficiary re-writes the deceased’s will or intestacy rules (must be over 18 and have capacity, otherwise application to court needed)

Question 50

What is 'reading back' in terms of post-death variations of a will?

Answer 50

If a beneficiary varies the legacy they were given, then tax is charged twice, once on whole estate on death, and second on the PET from the variation To avoid this, the variation can be 'read back' in the will (s.142 IHTA 1984) This has the effect of giving the gift to the new beneficiary as if the will had done so from the start (no tax implications here)

Question 51

What are the conditions for a variation or disclaimer to be read back in the will?

Answer 51

Is in writing and signed by original beneficiary Is within 2 years of deceased's death Was not made for consideration in money or money's worth Variation must state s.142 IHTA 1984 is to apply The above also applies for CGT purposes

Question 52

When is a grant of probate sought?

Answer 52

Grant of probate is sought by the executors of an estate which is governed by a valid will Form PA1P

Question 53

When is a grant of letters of administration with the will annexed sought?

Answer 53

Administrators will seek a grant of letters of administration with the will annexed where there is a valid will but no-one appointed to act as executor (or person appointed predeceases the deceased) Form PA1P

Question 54

When is a grant of (simple) letters of administration sought?

Answer 54

Administrators will seek a grant of (simple) letters of administration when the will is invalid or no will. Form PA1A

Question 55

Are there any differences between executors and administrators?

Answer 55

Other than which form they fill out, the main difference is that two administrators are usually required where one of the beneficiaries is an infant (‘a minority interest’) or only has a life interest

Question 56

What assets can pass to the PRs without the need for a grant?

Answer 56

If the value of some accounts such as building society accounts is less than £5,000, can ask for the money (but is discretionary) Cash Chattels (furniture, clothing, jewellery and cars etc)

Question 57

What is the position for obtaining a grant of probate and the payment of IHT?

Answer 57

If IHT is payable on an estate, this will most likely have to be paid off before the grant of probate is obtained. To obtain the grant, you need a special code from HMRC that proves IHT has already been paid (IHT400) So pay IHT first, then obtain grant

Question 58

List the possible methods of funding IHT when a grant of probate has not be taken out (the usual situation)

Answer 58

Direct payment scheme - voluntary scheme with some banks in the UK Life Assurance policies Administration of Estates (small payments) Act 1965 - some building societies can release funds as long as under £5,000 and is discretionary Loan from beneficiary Loan from bank National Savings and government stock Heritage property in lieu of tax

Question 59

How can executors stop being executors?

Answer 59

Before taking a grant of probate, they can renounce their right Can only renounce if they have not inter-meddled with the estate Renounce using form PA15 Can reserve the power (so not acting as executor but can act in future)

Question 60

If there is a valid will but no executor is able to act, who is then entitled to take the grant?

Answer 60

The executor Residuary legatee or devisee holding in trust for any other person Residuary legatee or devisee (beneficiary of residue) Residuary beneficiaries who survive the testator to take a vested interest in the estate but then die without having taken the grant Any other legatee or devisee - covers essentially anyone else

Question 61

If there is no valid will or no will at all, who is then entitled to take the grant?

Answer 61

The order of entitlement to take out the grant is the same order for intestacy Issue parents brothers + sisters Half brothers + sisters Grandparents Uncles + Aunts Half Uncles + Aunts The Crown

Question 62

What is the broad procedure for executors and administrators dealing with the estate?

Answer 62

(Pay IHT) (Obtain grant) Collect assets remaining assets Pay off costs, funeral and testamentary expenses / debts Distribute legacies Complete administration and distribute residuary estate

Question 63

How can an executor protect themselves from liability for failing to pay an unknown beneficiary or creditor?

Answer 63

s.27 TA 1925 affords protection Must advertise in London Gazette, a newspaper circulating in the proper district, and any other like notices Must then wait 2 months from date of notice (ad) before distributing (if not, still liable)

Question 64

How can an executor protect themselves from liability for failing to pay a known but missing beneficiary or creditor?

Answer 64

No protection under s.27 Must consider the following: - Holding back assets in case (not preferred for other beneficiaries) - Asking other beneficiaries for indemnity (not ideal as they may not be able to cover it all, shortfall covered by PR) - taking out insurance (expensive, may not cover all) - Benjamin order (usually best option, but still expensive)

Question 65

How can an executor protect themselves from liability for arising from an individual making a claim under the Provisions for Family and Dependants Act 1975?

Answer 65

A PR should wait 6 months from the grant of probate before distributing assets. This will shift the liability from the PRs to the beneficiaries

Question 66

What is a solvent estate?

Answer 66

A solvent estate is one in which the value of assets is enough to pay off all debts and expenses

Question 67

What is an insolvent estate

Answer 67

An insolvent estate is one in which there is not enough funds to pay off all debts and expenses Secured creditors get paid Expenses paid Unsecured creditors paid what is left, if anything

Question 68

If a beneficiary is given a legacy of stocks, what needs to be done to effect that legacy?

Answer 68

A stock transfer form should be filled out

Question 69

If a beneficiary is given a legacy of land (legal interest in flat or house etc), what needs to be done to effect that legacy?

Answer 69

A form of Assent should be filled out by the beneficiary and sent to the Land Registry

Question 70

When is a pecuniary legacy payable?

Answer 70

General rule is that a pecuniary legacy is payable at the end of the 'executors year', ie one year after the date of death Executors do not have to distribute legacy before the expiry of the executors year, but once it does expiry, beneficiary is entitled to interest by way of compensation

Question 71

What are the income tax rates that PRs pay?

Answer 71

An estate may have income producing assets (house which is rented and producing income) or it may be generated by an action the PRs take (putting cashing into a savings account which generates interest) PRs unable to benefit from allowance available to individuals PRs pay 8.75% on dividends 20% on other income If income < £500, no tax If income > £500, tax on whole amount

Question 72

What are the capital gains tax rates that PRs pay?

Answer 72

No chargeable transfer on death but PRs may make a chargeable transfer during the administration. On death, probate value becomes base value for future CGT purposes PRs pay 20% on all gains except residential property which is 24% PRs can claim the annual exemption for the tax year in which the deceased died and the following two tax years (if admin takes that long) If a PR transfers an asset to a beneficiary, this is not a disposal at that point. beneficiary may have to pay CGT if they then dispose of asset (market value at time of death = acquisition cost)

Question 73

When is CGT payable?

Answer 73

CGT is usually paid alongside income tax (if estate is not complex) If CGT on disposal of UK residential land, CGT must be paid within 60 days of completion

Question 74

How can beneficiaries prevent the issuing of a grant and why?

Answer 74

Beneficiaries can prevent a grant from being issued by lodging a 'caveat' at HMCTS Would occur, for example, where a beneficiary believes the executor named in the will lacks the mental capacity to act, or where the validity of the will is questioned Caveat lasts for 6 months but can be extended

Question 75

How can beneficiaries compel the issue of a grant (speed up the process essentially)

Answer 75

Beneficiaries can apply for a citation to be issued. There are a few types of citation available Citation to take probate - Ex. PR has intermeddled but still hasn't taken grant Citation to propound will - used where a person becomes aware that there may be a will that would diminish their entitlement under an earlier will or under an intestacy Citation to accept or refuse grant - standard method of clearing off a person with a prior right to any type of grant who has not applied, and shows no intention of applying Passing over - can apply to court under s.116 Senior Courts Act to pass over that person in favour of someone else

Question 76

How can beneficiaries sue PRs?

Answer 76

PRs are fiduciaries and can therefore breach their duties Beneficiaries can bring a Devastavit claim (wasting of assets). Claims may be based on: - misuse of assets - maladministration - negligence

Question 77

What defences are available to PRs for Devastavit claims?

Answer 77

s.61 TA 1925 - relieve a PR of personal liability if they acted honestly and reasonably and ought fairly to be excused for the devastavit Exclusion clause in will Acquiescence of beneficiaries Protection against missing or unknown claimants Limitation - 12 years from the date on which right to receive estate accrued

Question 78

Once PRs have accepted and obtained a grant, how can they be removed?

Answer 78

Office is for life unless court removes them Court has discretion to remove PRs (s.50 Administration of Justice Act 1985) PRs or a Beneficiary can make the application to court (who must ensure at least one PR remains)

Question 79

Can PRs be liable to creditors and how?

Answer 79

Yes, but only to the extent of the deceased's assets They could be liable to creditors for the following reasons - executors paying a legacy before advertising for creditors so that there was insufficient left to pay all the creditors; - failure to collect and preserve the deceased’s estate; - spending an excessive amount on the deceased’s funeral; - paying the debts of an insolvent estate in the wrong order