Wills and the Administration of Estates Flashcards
complete
What are the 3 requirements for a testator to make a valid will?
- Capacity at the time of making the will
- Intention to make a will
- Execute the will with certain formalities
What is the minimum age to make a will and what are the exceptions?
- 18
- Armed forces member on active service or seamen at sea
What is the test for (lack of) capacity by statute?
3
- At the material time
- The person is unable to make a decision for themselves in relation to the matter in question
- Because of an impairment of the mind or brain
What are the 3 things a person must have understood at time of making their will to have mental capacity?
- The nature of the act
- The extent of their property
- The claim to which they ought to give effect (persons they would ordinarily give gifts to)
Intention to make a will is present if a testator had:
2
- A general intention to make a will
- A specific intention to make that particular will
What general rebuttable presumption is applied to the testator?
Similar to capacity
General rebuttable presumption of knowledge and approval
A challenger has the burden of proving lack of proper intention (e.g. fear, fraud, undue influence, or mistake)
What is an attestation clause?
Clause stating will was read to testator and they approved
What should a solicitor do if the testator intends to make a gift to them or a member of their family to avoid a conflict of interest?
Refuse to act if the gift is significant unless the client seeks independent legal advice
How can a will made under duress be admitted to probate (valid)?
If the court pronounces the will is valid and issues a grant in solemn form
What does it mean to propound a will?
To take legal action to have the will authenticated as part of the probate process
What must be done for the court to issue a grant in solemn form?
The executor, or any person interested in the will, propounds the will in a claim in which they ask the court to determine the validity of the will
What is the term for a will being made as a consequence of force, fear, fraud, or undue influence?
Duress
What are the 3 formalities required for a will to be valid?
- In writing
- Signed by the testator in the presence of 2 or more witnesses at the same time
- Signed by each witness in the presence of the testator
To which type of will do the formalities rules not apply?
Privileged wills (made by a person who is in active military service)
Can be made informally, even orally
What type of clause is required to confirm the will formalities were followed?
Attestation clause
In the absence of an attestation clause, what must the proponent of the will provide?
Proof that the formalities were followed
Usually by having a witness testify
What type of clause is necessary to confirm formalities were followed if the testator is bind or illiterate?
Special attestation clause
What are the requirements for another person signing on the testator’s behalf?
The signature is made in the presence of the testator and by their direction
May be one of the witnesses
Who cannot be witness to a will?
- A beneficiary of the will (or their spouse)
- Blind person
- Mentally unsound person
A will may indentify another document that becomes part of the will.
What are the 2 requirements?
- The document must exist at the date of the will
- The document must be referred to in the will
What is the term for a will amendment crossing out the original amount of gift with a thick line so the original wording is illegible?
Obliteration
How is a valid executed alteration properly performed?
- Drawing a line through the original gift
- Writing the new gift amount above it
- Testator signs name next to it
- 2 witnesses sign (witnessing testator’s signature)
What is a codicil?
Document that adds to, amends, or partially revokes an existing will
What can be used to remedy a gift which was void because the beneficiary witnessed the will?
Codicil
What are the 2 ways a will can be revoked?
- Automatically through the law
- By deliberate act of the testator
What happens to a will if the testator marries after executing a will?
The will is revoked
Unless it expressly appears from the will that the testator was expecting to marry a particular person at the date of the will and intended for will to not be revoked by the marriage
How does the law treat a spouse or civil partner of the testator following a dissolution of a civil partnership or decree absolute of divorce or nullity?
As having died on the date of divorce or dissolution
What happens to gifts to a former spouse or civil partner after divorce or dissolution of civil partnership?
Revoked
A will is revoked (partially or wholly) by a later will, codicil, or writing intending to revoke to the extent that it is inconsistent with or repeats the terms of the earlier document. What clause is used to avoid doubt?
Express revocation clause
What is the effect of the testator intentionally burning, tearing, or otherwise destroying the will?
Will is revoked
Testator must have intended to revoke the will
How can the destruction of the will by someone other than the testator revoke the will?
If the destruction is done in the testator’s presence and at the testator’s direction
What is the presumption if the will is found mutilated at the date of death?
Rebuttably presumed to have been done by the testator with the intention of revoking it
What is the presumption if the will is missing at the date of death and was last known to be in the testator’s possession?
Rebuttably presumed the testator intended to revoke it
When will the court apply the doctrine of Dependant Relative Revocation to save a will?
When the testator’s intention to revoke their will was conditional upon a future event (e.g. later execution of a new will) and that event did not take place
Will still valid if destroyed if it can be reconstructed from a copy or draft
To what extent is a will revoked following a later will, codicil, or an Express Revocation writing?
To the extent it is inconsistent with or repeats in the later will or codicil
To what extent is a will revoked due to inconsistent provisions?
To the extent it is inconsistent with provisions in subsequent instruments
To what extent is a will revoked if:
- A provision is destroyed (cannot be read)
- An important part is destroyed (e.g. signatures)
- To the extent the provision is destroyed
- Entire will is revoked
Type of will made by 2 or more persons, usually with the same clauses, further to an agreement between them to make such a will and not revoke it without the consent of the other?
Mutual will
A mutual will creates a constructive trust. What is the effect of this constructive trust?
If one testator dies and the other changes their will, a beneficiary harmed by the change may apply to the court for an order for the recipient of the changed gift to transfer it to the original beneficiary
Who are the objects of a will?
Beneficiaries
Terms for gifts of
- Personalty
- Real property
- Legacy
- Devise
What is a specific legacy?
A gift of a specified part of the estate that is clearly defined at the time of the will’s execution
Which type of legacies is the doctrine of ademption applied to?
Specific legacies
What is the effect on the legacy if no longer part of the estate at date of death?
Adeems
Specific legacies are subject to the doctrine of ademption.
What type of legacy are pecuniary legacies?
General legacy
What is a demonstrative legacy?
A general legacy which identifies the source from which the gift is to be made
What is a residual legacy?
Everything of the deceased’s estate left undisposed
In which three cases does a gift adeem?
- If it is no longer part of the testator’s estate
- If it is subject to a binding order for sale
- If it no longer meets the description in the will (change in subject matter)
From what date does the will speak unless a contrary intention is apparent in the will?
Basic rule of succession
From the date of death
What is the term for the effect on a gift to a beneficiary who predeceases the testator?
Lapse
When does a gift to a predeceased non-issue beneficiary not lapse?
If a substitutional gift is included in the will
Gift goes to the substitute beneficiary
When is it presumed the will is construed from?
Date of execution
What is the effect of a gift by will to 2 or more people if one dies before the testator if
- made jointly
- the gift includes words of severance
- Whole gift passes to the other
- Deceased’s share lapses
Where it is impossible to determine who dies first out of the testator and a beneficiary, what does the law of commorientes provide for succession purposes?
The younger person survives the elder
Assume the elder died first
When is a child considered living issue from?
From conception
Children who are conceieved but unborn are called en ventre sa mere
What does per stirpes provide?
The issue of the deceased beneficiary will split the deceased beneficiary’s share
Only applies if the beneficiary is the testator’s issue
In which case can a gift to a witness, or witness’ spouse/civil partner, be valid?
If there are at least 2 other witnesses who are not beneficiaries
What type of children are not included when considering gifts to children?
Stepchildren
Term for a gift to be divided among beneficiaries who fulfill a general description
Class gift
What does ‘vested gift’ mean?
No condition needs to be satisfied
What does ‘contingent gift’ mean?
A gift which only takes effect if a certain condition, ‘the contingency’, is met
e.g. attaining a certain age
When does a class usually close?
When the testator dies.
If no beneficiary has a vested interest at the testator’s death, then when there is at least one beneficiary with a vested interest
In the intestacy rules provided by Section 46 Administration of Estates Act 1925, by how long must a spouse survive the deceased to obtain beneficial entitlement?
At least 28 days
In intestacy, what happens to an estate when there is a surviving spouse but no issue?
Spouse entitled to entire estate
In intestacy, what does the spouse take if there are surviving issue?
- Personal chattels absolutely
- £322,000
- One-half of the residue absolutely
Deceased’s issue split the other half of residue upon attaining 18
What is the order of intestate inheritance if tehre is no surviving spouse?
- Issue
- Parents
- Siblings of the whole blood
- Siblings of the half blood
- Grandparents
- Uncles and aunts of the whole blood
- Uncles and aunts of the half blood
- The Crown as ‘bona vacantia’
Earlier classes take to the exclusion of later classes
What does statutory trusts mean?
For all classes, other than parents and grandparents, a class member’s issue takes their parents’ share ‘per stirpes’ if the class member has predeceased
To which situation do statutory trusts apply?
Intestacy
What is required of a potential beneficiary who predeceases the testator for statutory trust to consider them a beneficiary?
Having children
Without children, treated as having never existed
When would a deceased’s real property not pass via the testator’s will or intestacy?
When owned as joint tenant
Does not aply to tenants in common
Which types of property passing outside the will or intestacy still form part of the deceased’s estate for IHT purposes despite not being payable to PRs?
3
- Jointly owned property
- Life interests in trust property
- Gifts with reservation of benefit
When does an executor lose their right to renounce office?
- By taking a grant of probate
- By intermeddling in the estate (showing intention to accept office. e.g. selling assets)
What are the formalities for renouncing appointment as executor?
4
- In writing
- Signed by executor
- Contain statement saying person has not intermeddled
- Signed by disinterested witness
What does it mean for an executor who does not wish to act in the estate’s administration to have power reserved?
They will not be involved until other executor(s) cannot perform, when they can apply for grant of probate. No automatic substitution
What does a grant of representation do?
Authorises PRs to deal with deceased’s estate and transfer assets to beneficiaries
Applies to both grant of probate (valid will) and grant of letters of administration (will is invalid or incomplete)
Which courts hear contentious probate cases?
- Chancery Division of the High Court
- County Court (if estate below £30,000)
What amount can usually be withdrawn from National Savings Bank accounts, National Savings Certificates, Premium Savings Bonds, or building societies by producing a death certificate?
£5,000
What is the maximum number of executors?
4
What letter is applied for when there is a problem concerning the appointment of the executors in the will?
Letters of Administration with Will Annexed
Who has the primary rights to apply for a grant of letters of administration with will annexed?
The residual beneficiary
Minimum number of beneficiaries required if if there is a minor beneficiary or a life interest under the will
2
What is clearing off?
A person applying for a grant accounting for those having a better right for the grant (e.g. by confirming they have renounced)
Need not inform or clear off those with same standing to apply
When are letters of administration required?
When the deceased dies intestate, or when all gifts have failed
What is the requirement for a person to apply for a grant of letters of administration?
Requirement of the person
They must have a beneficial interest in the estate
Term for when a PR’s PR takes over estate administration
Chain of representation
What is a grant of administration de bonis non?
A second grant made to complete the administration of the deceased’s estate following the death of the sole or last surviving PR, or when a previous grant has been revoked
Not required if a chain of representation exists. PR’s PR becomes PR
What is applied for if the only or last surviving executor is a minor, or suffering from mental incapacity?
A limited grant of letters of administration
Limits the authority of the administrator to the designated area specified in the grant
When applying to the court, how many copies of the will (and any codicils) are required along with the original?
2
What is required when applying to the court and the original will has been accidentally destroyed or lost?
A copy/reconstruction of the will and an affidavit explaining
What should an application to the court for a grant be accompanied by?
4
- The will (and any codicils)
- Official copy of death certificate
- Further supporting documents if required
- Payment for probate fees
How can a witness present at signing provide evidence of due execution of the will?
Via an affidavit of due execution
What additional evidence is usually required when applying to the court and there is uncertainty about the date of will execution or the testator’s full name (e.g. will signed with shortened name)?
What two documents can be accepted instead?
- Affidavit from a witness
- Statement of truth
What can someone lodge with HMCTS Probate Service to prevent the issue of a grant of representation?
e.g. by a beneficiary who believes the executor named in the will lacks mental capacity
Caveat
How long is a caveat valid for?
Up to 6 months
In which situation is a citation to take probate issued by the court?
When an executor has lost their right to renounce probate by intermeddling in the estate, but has not applied for a grant and does not intend to do so
What is the effect of the court issuing a citation to take probate?
Once cited by HMCTS Probate, the executor must proceed with an application for a grant of probate. If they still refuse to act, the citor can apply for a court order allowing the executor to be passed over.
What would be applied for following an executor being passed over (e.g. via citation to take probate)?
A grant of letters of administration with will annexed
What is a citation to accept or refuse grant used for?
To clear off a person with a prior right to grant who has not applied for a grant and shows no intention of doing so
Not used if executor has intermeddled. If they have, use citation to take probate
What is a quicker alternative to a citation to accept or refuse grant?
Applying to HMCTS for an order passing over an unwilling applicant in favour of someone else
When must the PRs deliver an account to HMRC?
Within 12 months of the end of the month of the deceased’s death
When does interest on an estate’s IHT run from?
From 6 months of the end of the month of the deceased’s death
What must the PRs do before they can obtain a grant?
Pay off all the IHT
Which 2 types of estates are exempt from IHT and no formal account need be filed for the estate unless HMRC request one?
- Small estate: Estate which does not exceed the IHT threshold of £325,000 (NRB)
- Exempt estate: Estate which does not exceed £3 million and the net chargeable estate does not exceed the NRB (deducting liabilities, spouse/charity exemptions etc.)
What is the IHT threshold for the estate of a deceased who was a non-UK domiciled?
£150,000
Must consist solely of cash and/or quoted shares
Which assets do PRs not have a duty to collect?
Assets which pass directly to beneficiaries
What PR duty of care does the Trustee Act 2000 establish?
3
- Act with reasonable care and skill (taking account of any specialist knowledge or experience)
- Act in the best interests of beneficiaries
- Comply with the terms of any trust imposed
In which situation would the court relieve a PR from liability for breach of duty?
If it is satisfied the PR acted honestly and reasonably and ought fairly to be excused for the breach
Term for a PR power to use an asset to satisfy a legacy or interest in the estate provided the beneficiary consents
Power to appropriate
When is a PR liable for acts an agent they delegate functions to?
If the PR failed to adhere to to trheir statutory duty of care in appointing or reviewing the agent
The Trustee Act 2000 provides PRs can make any kind of investment they like. What are the 2 statutory exceptions?
- Purchase of land abroad
- Purchase of an interest in land with someone else
PRs’ investments can be reviewed under the Standard Investment Criteria which are:
- The suitability to the trust of the investment
- The need for diversification of the trust’s investments
Section 31 Trustee Act 1925 provides which 2 options are available for property held for a minor beneficiary and the gift carries the right to intermediate income?
- Income used for maintenance, education and benefit of the minor
- Accumulate the income
Received by beneficiary when he reaches 18 and satisfies any contingent interest
What type of authority do joint PRs have?
Joint and several authority
The act of one binds the others
What act must all PRs join for?
Decision cannot be made by an individual PR if there are multiple
Transfer of land and shares
How can PRs protect themselves from liability for claims of unknown beneficiaries or creditors?
Placing adverts in the London Gazette, a local newspaper, and any other appropriate newspaper, requesting any interested person to get in contact within a minimum of 2 months
When PRs cannot find a known beneficiary or creditor, what is the risk of obtaining an indemnity from the beneficiaries?
The indemnity is worthless if the beneficiary who gave it has no funds
Which court order gives PRs leave to distribute the estate based on an assumption set out in the order. Gives full protection to PRs
Benjamin Order
Which type of protection for PRs against unfindable beneficiary/creditor claims is cheaper and quicker than applying to the court?
Purchasing insurance against the risk of a missing claimant appearing
Which 4 options do PRs have to protect themselves against claims by missing beneficiaries or creditors?
- Pay amount owed to beneficiary/creditor to the court
- Distribute everything with an indemnity from the beneficiaries
- Seek a Benjamin Order
- Purchase insurance against the risk of missing claimant appearing
To protect themselves from a financial provision claim, how long should PRs wait from issue of grant before distributing the estate?
Financial provision = Inheritance Act 1975
6 months
If an asset is vested in a beneficiary, at what value does the beneficiary acquire it?
The value on the date of death
What is a solvent estate?
An estate where the reasonable funeral, testementary, and administration expenses, debts and other liabilities can be paid in full
In what order of the estate’s assets should unsecured creditors be paid?
- Property undisposed of by the will
- Residue
Which equitable doctrine provides a disappointed beneficiary will be compensated from the residue for their loss?
Marshalling
A gift of a property “free of mortgage” means the mortgage on the property will be paid from where?
The residue
What do beneficiaries receive in an insolvent estate?
Nothing
What is this the prescribed order for?
- Reasonable funeral and administration expenses
- Preferred debts (wages and salaries of deceased’s employees in 4 months before death up to £800 each)
- Ordinary debts
- Interest on preferred and ordinary debts
- Deferred debts (loans from deceased’s spouse)
Order for payment of unsecured creditors in an insolvent estate
In which case will a PR not be personally liable for paying an unsecured creditor of an inferior debt and consequently had insufficient funds to pay a creditor of a higher level debt?
If they paid the inferior debt without notice of the higher level debt and did not do so with undue haste
A disclaimer can be made orally or in writing. What is the advantage of a disclaimer in writing?
It is effective for IHT and CGT purposes
What happens to a gift following a disclaimer?
It falls into the residue
What is the advantage of a variation over a disclaimer?
The beneficiary has control over where their gift goes in a variation
What are the 3 requirements of a variation?
A variation allows a beneficiary to change who receives their inheritance
- In writing
- Made within 2 years of death
- Not made for monetary consideration
Who bears the cost of transferring specific legacies and devises?
The beneficiary
The beneficiary is entitled to income generated from an asset gifted to them from which date?
From the deceased’s death
Where are pecuniary legacies usually paid from?
The residue
Term for proportional reduction of legacies when there are insufficient funds
Abatement
Term: when a beneficiary asks the PRs to use a particular asset to satisfy a pecuniary legacy
Appropriation
What will PRs obtain from beneficiaries to prove they have satisfied their obligations?
A receipt from the beneficiary
Which type of beneficiary cannot give a good receipt unless the will specifies otherwise?
Minor (under 18)
How do PRs transfer a pecuniary legacy which is made “subject to tax”?
The PRs withold the tax and pay the net legacy to the beneficiary
PRs should always ensure the tax is taken care of before vesting assets in beneficiaries
What assumption is made by succession law of a specific gift of UK property?
That it is free of tax unless the will states otherwise
What assumption is made by succession law of a specific gift of overseas assets?
That it is subject to tax unless the will states otherwise
What is filed when the incorrect amount of IHT is paid?
A corrective account
What do PRs obtain from HMRC to avoid further IHT liability?
Certificate of Discharge
What 4 situations render a Certificate of Discharge ineffective?
- Fraud
- Failure to disclose material facts
- Subsequent discovery of further assets
- Changes in the IHT liability due to variation
What do PRs obtain from HMRC to avoid further IHT liability if the PRs opt to pay IHT in instalments?
Limited Certificate of Discharge
How long after a grant of representation is there an automatic discharge for PRs’ IHT liability?
35 days
Unless circumstances change
Which type of clause in the will covers remuneration of professional PRs?
Removes the need for other trustees’ agreement to payment if there are several trustees
Express charging clause
PRs are not automatically entitled to charge for their services.
What are the 4 ways PRs can be paid?
- Legacy to proving executors
- Express charging clauses
- Agreement with beneficiaries
- Court-authorised remuneration
What is the procedure discharging the PRs for gifts to residuary beneficiaries
- PRs endorse the account
- Residuary beneficiaries endorse the account (if they refuse, PRs may ask court to approve or pay beneficiary’s share into court)
- Residuary beneficiaries formally discharge the PRs with an indemnity agreement
When is a beneficiary entitled to rents and other income from an assent?
From the date of death
What are the 3 requirements for an assent?
- In writing
- Signed by PRs
- Name the beneficiary
What do PRs require if they are to hold land as trustees under trusts arising via the will or intestacy?
An assent
How does a buyer of land that has been transferred by assent protect themselves if the seller is
- A PR
- A beneficiary
- With a statement in the conveyance that no previous assent has been made
- With an assent in the beneficiary’s favour from the PRs (shows the beneficiary is entitled to the legal estate)
When do contingent pecuniary legacies carry a right to income?
When the gift is to a child with entitlement at age 18
What 3 remedies are beneficiaries entitled to when pursuing administration proceedings to recover loss suffered?
- Personal action against PRs
- Tracing
- Other personal actions (against persons who have wrongly received assets)
When is the right of beneficiaries to trace and recover property of the estate from PRs or any other recipient lost?
When there is a bona fide purchaser or if it is inequitable to do so
Applications for family provision asking the court to vary will terms or intestacy of a person who died domiciled in England and Wales must be made within what period from the grant of representation to the PRs?
6 months, or later with leave of the court
In which case will PRs be protected from any personal liability arising under any late permitted claim?
If they waited 6 months from date of the grant of representation before distributing the estate to beneficiaries
Who are the 5 groups entitled to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975?
- Surviving spouse/civil partner
- Former spouse/civil partner who has not remarried/formed civil partnership and no clean break divorce
- A child of the deceased (or treated as such e.g. stepchild)
- Person who was maintained by deceased
- Person who lived with deceased within 2 years immediately before death as spouse/partner
When is a child of the deceased (or person treated as such) unlikely to be successful with a claim under the Inheritance (Provision for Family and Dependants) Act 1975?
If they are an adult, able-bodied child in employment
What 2 questions are asked when determining what constitutes reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975?
- Have the will or interstacy rules failed to make reasonable financial provision for the applicant?
- If so, what would be such a provision?
When will the court apply the surviving spouse standard to a former spouse in a claim under the Inheritance (Provision for Family and Dependants) Act 1975?
If death occurs within 12 months of the decree absolute and no final order has been made in the divorce proceedings
Under the Inheritance (Provision for Family and Dependants) Act 1975, what standard is used for
- Spouses
- Other applicants
- Such financial provision as would be reasonable in all the circumstances
- Such provision required for their maintenance
What is the nil-rate band (NRB) threshold for IHT?
£325,000
What is the IHT rate?
40%
Which lifetime transfers are always chargeable to IHT when made?
May suffer additional tax if transferor dies within 7 years
Transfers to trusts and companies
When are lifetime transfers to individuals chargeable to IHT?
If they exceed the NRB and are made within 7 years of donor’s death
To what extent are individuals domiciled outside the UK liable to IHT?
Only on transfers of their UK assets
What intent makes a lifetime transfer chargeable to IHT?
Gratuitous intent
Which principle provides the loss suffered by the donor’s estate must be calculated to determine IHT rather than the gain to recipient of the gift since IHT is a tax on what the donor has given away?
The Loss to Donor Principle
Term for lifetime gifts between individuals which may be chargeable depending on whether the donor dies within 7 years of making the gift
Potentially Exempt Transfers (PETs)
A transfer to one’s spouse/civil partner is usually completely exempt from IHT. What is the exception?
In which case only the first £325,000 is exempt
If the donor spouse is domiciled in the UK and the recipient spouse is domiciled outside the UK
Gifts to charities are exempt from IHT without any monetary limit. Where must they be based?
UK or European Economic Area
Lifetime gifts to any donee in a tax year are exempt up to what amount per donee?
£250
All or nothing exemption
What are the maximum tax-exempt limits for gifts on marriage from
- A parent
- A grandparent
- Bride to groom and vice versa
- All others
- £5,000
- £2,500
- £2,500
- £1,000
A lifetime transfer is exempt if it constitutes ‘normal expenditure out of income’. What is meant by ‘normal’?
Habitual or regular
Gifted every year without affecting the donor’s standard of living
What is the maximum limit for the normal expenditure out of income exemption?
No limit
What is the annual IHT exemption for lifetime transfers?
£3,000
How long can the annual IHT exemption for lifetime transfers be carried forward for?
1 year
If a PET becomes a chargeable transfer, who pays the IHT?
The recipient of the gift
Term for trust where the beneficiary has complete ownership and control over the trust assets, with the trustee having no discretion in managing or distributing them
Bare trust
When is IHT chargeable on a CLT?
Immediately
Which 2 types of gifts are CLTs?
- Gifts to trusts (excluding charitable trusts (exempt) and bare trusts (PETs))
- Gifts to companies (rare)
What is the lifetime IHT rate if paid by
- Trustees
- Donor
- 20%
- 25%
How long is the cumulation period for CLTs?
7 years
Which type of lifetime transfers can use up the nil rate band?
CLTs
PETs are not chargeable transfers, so do not use up NRB
What are the 5 steps 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 other chargeable transfers made within the 7 years before gift to find remaining NRB
- Pay the excess lifetime transfer over NRB at 20% or 25%
What relief is available if there are more than 3 years between date of PET and donor’s death?
Taper relief
What are the taper relief percentages when the times between date of gift and date of death are:
- 0-3 years
- 3-4 years
- 4-5 years
- 5-6 years
- 6-7 years
- Nil
- 20%
- 40%
- 60%
- 80%
What is the death rate percentage?
40%
Form(s) of tax charged on a CLT if the donor dies within 7 years of making the gift?
Lifetime IHT and death tax
What do trustees who pay a donor’s lifetime tax receive which affects the additional tax payable?
Credit
What tax is payable if the lifetime tax already paid by trustees exceeds the tax on death?
The additional IHT is reduced to zero (difference is not repaid)
What 2 tax reliefs are available for lifetime transfers?
- Business relief
- Agricultural relief
Which assets qualify for 100% Business Relief?
- A sole-trade business or a partnership interest
- Shares in an unlisted trading company
Which assets qualify for 50% Business Relief?
- Shares in a quoted trading company if the donor has voting control (50%+ ordinary shares) and owned for 2+ years
- Land or buildings or plant and machinery owned by an individual and used either by a partnership of which they are a member or a company they control
How is business relief applied to a business which engages in passive investment activities?
It is not.
Business excluded from business relief
How long must the donor have owned the property for before business relief can be applied?
What is the 2 exceptions?
2 years
Replacing one business property asset with another within a 3-year period.
Inheriting business property assets from one’s spouse
Where must land be situated to be eligible for Agricultural Relief?
UK, Channel Islands, Isle of Man, or EEA
What are the 2 situations where Agricultural Relief is available?
- A farmer who owns the land and buildings and uses these assets in their own business
- A landowner who rents the land/buildings to a farmer
Which activities are excluded from Agricultural Relief?
- Grazing horses (except in connection with a stud farm)
- Land used for fishing, shooting, and other sporting rights
How long prior to transfer must agricultural property have been occupied by the transferor for the purposes of agriculture before agricultural relief can be applied?
2 years
How long prior to transfer must agricultural property have been owned by the transferor before agricultural relief can be applied if the land is let for the purposes of agriculture?
7 years
In which case is simultaneously applying agricultural and business relief not available?
If the farmland is leased to a tenant
Agricultural and business relief can be simultaneously applied for agricultural land. Which is given priority?
Agricultural Relief
Business relief may then be available on any land/buildings where agricultural relief does not apply, such as plant and machinery and business goodwill
Which gifts on death are completely exempt?
- Gift to UK-domiciled spouse
- Gift to UK/EEA charities
What is the value of the asset at the date of death?
Its open market value
How are reversionary interests (e.g. lease) under a life interest trust or interests in a discretionary trust categorised for IHT purposes?
Excluded property - outside the estate for IHT purposes
What is the effect on IHT when 10% or more of the deceased’s net estate is left to a charity?
Taxable estate charged at 36% instead of 40%
Who makes the application for transfer of deceased spouse’s unused NRB and when?
The executors on the death of the second spouse to die
In what form is a spouse’s unused NRB transferred to the other spouse?
As a percentage
The unused NRB of how many spouse’s can be transferred to the surviving spouse?
Up to 2
What is the maximum uplift a surviving spouse can have transferred to their NRB?
100%
What is the current limit of the Residential NRB?
£175,000
How is the Residential NRB calculated?
Dwelling value at time of death after deducting liabilities (such as mortgage) up to RNRB limit
Above which estate value threshold is the RNRB tapered?
How is it tapered?
If the estate’s net value is over £2 million
RNRB is tapered away at the rate of £1 for every £2 over the limit
What is the downsizing effect if the deceased sold a home worth more than 100% of the RNRB and bought a home worth less than the NRB?
The uplift will double the usable RNRB
When is quick succession relief applied?
When an individual’s estate has been increased by a chargeable transfer made to them in the 5 years before death
How much does quick succession relief decrease by for each year between the donor’s death and the recipient’s death?
20%
Must the gifted property still be owned by the deceased at date of death for quick succession relief to apply?
No
Relief is available if PRs sell quoted shares at a loss within what period of the date of death?
12 months
Relief is available for any sales of land and buildings at a loss within what period of the date of death?
3 years
How are quoted shares and land and buildings relief applied?
The loss is deducted from the value of the estate for IHT purposes
Relief is available if the deceased’s estate included woodland land in the UK and the deceased was beneficially entitled to the land within what period prior to the date of death?
5 years
How is woodlands relief applied?
Any IHT liability is deferred until the woodlands are disposed of
Term for anti-avoidance measures to prevent a donor from gifting an asset and continuing to benefit from it
Gifts with Reservation of Benefit Rules
When do the Gifts with Reservation of Benefit Rules not apply when the donor has gifted their house?
If the donor pays market rent
How can the Gifts with Reservation of Benefit Rules be avoided?
What would the gift be treated as in this case?
By releasing the reservation before they die (moving out)
Treated as a PET
What relief is available to avoid paying for tax on a property PET and gift with reservation of benefit on the same gift?
Double Taxation Relief
Pays the higher of the two
When do the Pre-Owned Asset Tax rules impose an income tax charge on benefits received by the former owner of a property?
- If the former owner benefits from an asset they previously owned
- The transfer is not within the gifts with reservation of benefit rules
When is IHT due on a CLT?
The later of 6 months from end of month when CLT was made, and 30 April after tax year in which CLT was made
Who will HMRC pursue if the transferor of a CLT is liable but refuses to pay IHT?
Recipients of the transfer, or beneficiaries in extreme cases
When is any additional tax on death arising from CLTs and tax on PETs payable?
6 months after end of month in which death occurred
Who is liable for additional tax on death?
Why?
Trustees (with burden on trust fund)
Transferor is dead
Who is liable for tax on PETs?
The recipient
Who becomes liable for IHT from CLTs and PETs unpaid after 12 months from end of month of death?
PRs
When is IHT due?
6 months after the end of the month of death
How many instalments if IHT instalment option is claimed with HMRC?
10 equal annual instalments
For which period should the PR complete the deceased’s tax return for?
6 April to date of death
What is income tax and CGT owed by the deceased considered as for IHT purposes?
Liability
If assets within the death estate produce income, who does the income legally belong to?
To the PRs until the assets are distributed
PRs are bound by normal self-assessment rules. When must tax returns be filed by?
31 January
What are the CGT rates for PRs?
20% on general gains
28% on residential property
How many administrators are required if a minority or a life interest arises?
At least 2
If there is no attestation clause, what is required of a witness or other person present when the will was executed?
An affidavit of due execution
What must PRs file with HMRC unless the estate is excepted?
An inheritance account
If there are multiple PRs administering an estate, how many PRs are required to give a good receipt for the sale of land?
All of them
A testator who is the life tenant of a trust, makes a will leaving his entire estate to his wife. Will this include his interest in the trust?
No
What permission must a testator ask the person they are intending to appoint as executor before executing the will?
None, but it would be advisable to seek the intended executor’s permission to ensure that they will take on the role after the testator’s death
What type of grant of representation is required if the deceased left a valid will appointing an executor who is willing to act as PR?
Probate
What type of grant of representation is required if the deceased did not leave a will?
Letters of administration
What type of grant of representation is required if the deceased left a valid will, but there is no executor willing or able to act as PR?
Letters of administration with will annexed
What type of transfer is considered transfers of value for IHT?
Any gratuitous disposition by a person resulting in a diminution of the value of his estate
What type of trusts are commonly used in estate planning to provide for beneficiaries while ensuring that the trust assets ultimately pass to designated individuals or entities?
Interest in possession trusts
How may a CLT suffer both a lifetime IHT charge and an additional IHT on death?
If a CLT exceeds the available nil rate band, there will be a lifetime tax charge and a further death tax charge if the donor dies within seven years of making the gift
Which taxes must Personal Representatives settle prior to calculating and finalising the IHT liability?
- Capital gains tax
- Income tax
What are the following classed as: trading income, rental profits, employment income, and pension income?
Non-savings income
Which document can PRs rely on to avoid IHT liability unless there is fraud, failure to disclose material facts, subsequent discovery of further assets, or changes in IHT liability due to a variation?
Certificate of Discharge
If an Inheritance (Provision for Family and Dependants) Act 1975 claim is successful, can the court award a lump sum out of the deceased’s net estate and/or the deceased’s share in joint property, such as a house?
Yes
What tax are cars exempt from?
Gift tax
Not exempt from IHT
On which bases may a challenger to a will prove lack of intention?
- Fraud
- Undue influence
- Duress
In which case can PRs carry on the deceased’s sole trade?
In order to sell the business as a going concern
What is included in an application for grant of probate?
4
- 2 copies of the will
- Death certificate
- Tax form indicating IHT was paid or not payable
- Probate court fees
Similar process for grant of letters of administration and letters with will annexed
In which 2 circumstances does the general rebuttable presumption of knowledge and approval not apply?
- Testator is blind or illiterate, or will signed on their behalf
- Suspicious circumstances
What type of beneficiaries does a Benjamin Order protect PRs against?
Known beneficiaries
What type of claims does waiting six months from the issue of the grant of probate protect against?
Claims which seek to challenge estate distribution
Claims under the Inheritance (Provision for Family and Dependants) Act 1975 - i.e. the claimant must have been maintained by the deceased
How can PRs fully protect themselves against a claim by an unknown creditors and beneficiaries?
By advertising the deceased’s death in the London Gazette, a local newspaper, and any other appropriate newspaper
What label is given to PRs:
- when there is a valid will
- in intestacy
- Executor
- Administrator
In order to make a valid will, a testator must have legal and mental capacity. When does someone have legal capacity?
When they are over 18
