Wills & Intestacy

Question 1

What makes a valid will?

Answer 1

Testator (person making will) over 18, of sound mind, under no pressure

• Written
• Signed by testator
• Signature witnessed by 2 independent witnesses - cannot benefit from will or be spouse/civil partner of a beneficiary
• Ideally dated, kept in safe place, executors keep copy

Question 2

What is the procedure where a valid will is left?

Answer 2

• Executors administer estate

• Collect debts
• Pay tax
• Distribute assets to beneficiaries
• If there’s a will trust, usually named as trustees, they administer trust in line with terms in will
• Most ‘prove’ will to Probate Registry to get grant of probate (GOP) - GOP enables estate to be distributed (administered)
• Scotland - grant of confirmation issued by commissary department of local sheriff’s court

Question 3

What are the duties of an executor?

Answer 3

Duties of executors include;

o Determine assets and liabilities of estate
o Get probate
o Collet assets and pay debts
o Settle tax liabilities (income,CGT)
o Complete account for HMRC
􏰐 List of assets
􏰐 Gifts made in 7 years
􏰐 Gifts with Reservation of Benefit
• Tax due if sum of above exceeds nil rate plus, where
applicable, residence nil rate band
• IHT due must usually be paid before probate granted

o If executor unable / unwilling to act, Probate Registry will appoint an administrator to act in their place

Question 4

Why have a will?

Answer 4

• If no will, laws of intestacy apply and estate may be administered in a way that does not reflect what deceased would have wanted

• E.g. co-habitees/ unmarried partners have no rights
• Intestacy rules may not be tax efficient - cannot plan to maximise use of exemptions and reliefs
• To leave instructions for care / guardianship of children under 18

Question 5

What is a mirror will?

Answer 5

• Most common form for couples
• Each party leaves everything to the other on their death and to the children thereafter.

eg. Where the husband dies first, his estate goes to his wife and on her subsequent death her estate goes to the children + vice versa
- No obligation on the surviving spouse to leave their estate to their children.
- If they change their mind, they are free to do so by writing a new will after the death of their spouse.

Question 6

What is a mutual will?

Answer 6

• A mutual will allows for two people to dispose of their estates in a particular and identical way.

For example, to the surviving spouse on first death and to a charity on the second.

• Can be revoked prior to the first death, but not after, because at this point a constructive trust is established on behalf of the ultimate beneficiary – in this scenario, the charity.

The charity could sue the surviving spouse for breach of contract if they later attempt to revoke their will.

• Mutual wills are not usually recommended.

Question 7

What is a deed of variation?

Answer 7

• IHT planning tool that allows alteration of an inheritance within two years of death.

The most common occurrence of this question is where someone who already has a potential IHT issue has inherited a reasonable amount from a parent. In this case a deed of variation can be used to skip a generation and pass the inheritance directly to grandchildren so that it doesn’t worsen the existing IHT issue.

Question 8

Deed of variation - key features

Answer 8

• Heirs must be over 18 and of sound mind
• Deed is to state how estate was originally distributed and how it is being varied and who will now benefit from this variation
• If variation is intended to take effect for IHT purposes then must be a written statement to that effect
• If it is intended to take effect for CGT purposes (i.e. not treated as a disposal from the former beneficiary) it must be a written statement to that effect
• Variation must be made within two years of death, in writing and signed by the affected beneficiary(ies) - agreed only by beneficiaries inheriting less. (beneficiaries whose inheritance remains unaffected don’t need to agree)
• If it means more IHT is payable, then executors or administrators must also sign and agree to the variation
o They can only decline to sign if they do not have
enough money to pay extra tax
• No consideration for money / money’s worth
• Doesn’t actually need to have been a will; an inheritance by virtue of intestacy can still be varied
• An estate can only be varied once
• If a parent gives up their inheritance for a minor child it will be treated as a parental settlement and therefore any income over £100 charged to tax at parent’s rate

If successful, those giving up their inheritances are not deemed to have made a transfer of value – the effect is as if they had never received their inheritance – the will / intestacy is, in effect, rewritten.

Question 9

What is a deed of disclaimer?

Answer 9

• Similar to a deed of variation but applies to the situation where a person inherits property but does not wish to accept it.
• They must not already have accepted the property.
• Within two years of death.
• There must be no consideration for money or money’s worth.
• Statement that it is to have effect for IHT as if the disclaimed benefit had never been conferred.

The disclaimer is not treated as a transfer of value and the property is treated as if it had not been passed to the original recipient, it goes back into the will to be distributed to other beneficiaries.

Unlike a deed of variation, the person disclaiming has no choice regarding who then inherits the property.

Question 10

How can a will be revoked?

Answer 10

• Destroying an old will
• New will and specifically revoking all previous wills.
• Getting married or entering into a civil partnership will usually revoke a previous will, unless the will was set up in anticipation of that marriage or partnership.
• To revoke a will voluntarily, the testator must have
  mental capacity, must intend to revoke the will and must affect the revocation by physically destroying the old will or via a formal document.
• Where a couple gets divorced, the divorce cancels
  executor position and any benefits due unless the wording says otherwise.
• Divorce does not, however, invalidate the rest of the will.
• A dissolution of a civil partnership is treated in the same way.

Question 11

Challenging a will

Answer 11

• Challenge under Inheritance (Provision for Family and
  Dependants) Act 1975
• Permits certain people to apply for financial provision from an estate if the will / intestacy did not make reasonable financial provision for them (family, dependants, co-habitants)
• Unlikely to succeed - very rare but possible under the act
• Costly process

Question 12

What is intestacy?

Answer 12

• If die without a valid will, die ‘intestate’
• Distribution of estate governed by
  o Administration of Estates Act 1925
  o As modified by Inheritance and Trustees Powers Bill 2014
• Person wanting to administer estate (administrator) applies to Probate Registry for grant of letters of administration
• Duties of administrator identical to those of executor listed earlier
• Once they have paid IHT due and obtained grant they can distribute estate in line with intestacy rules

Question 13

What are the intestacy distribution rules?

Answer 13

1. Spouse or Civil Partner no issue (children / grandchildren and so on)
   - Spouse or Civil partner entitled to everything absolutely.
2. Spouse or Civil Partner and issue
   - Spouse or Civil Partner takes personal chattels, first £270,000 of estate (statutory legacy) and 50% of remaining estate absolutely.
   - Children take remaining 50% of estate absolutely.
   - Any children below 18, estate held on statutory trust on their behalf until they reach 18 or marry before then.
3. No Spouse or Civil Partner Children take estate absolutely. If no children, then:

• Grandchildren take place of parents; but if none:
• Parents; but if none:
• Brothers and sisters - full blood first, then half blood - (their children take their place if
deceased); if none:
• Grandparents in equal shares; if none:
• Uncles and aunts - full blood first, then half blood - (their children take their place if
deceased).

4. No relatives Crown takes estate.

Question 14

What is the Inheritance and Trustees Powers Act 2014?

Answer 14

Applies since 1 October 2014

• Previously a spouse without children had to share the estate with the deceased’s close relatives if it was in excess of the statutory legacy amount, a spouse with children was only entitled to an income from half of the residue (with the capital held under trust for the children until second death)
• Purpose of Bill to reflect needs and expectations of modern families

• Personal chattels definition now includes all tangible moveable property except for;
o Cash/cash securities, property solely/ mainly in
deceased’s estate for business purpose and property
held solely as an investment

• Inheritance (Cohabitants) Bill
o Gives rights under intestacy rules to unmarried partners after;
􏰐 5 years
􏰐 2 years if have child together

Not yet enacted, so not law yet

Question 15

Laws of intestacy in Scotland - Statutory prior rights

Answer 15

o After debts + other liabilities, rights of surviving spouse/ civil partner
o Deceased’s main residence (up to value of £473,000)
􏰐 Plus furnishings (up to £29,000)
o Plus
􏰐 First £50,000 if deceased has children / grandchildren
􏰐 First £89,000 if deceased has no issue o

Take precedence over legal rights

Question 16

Laws of intestacy in Scotland - Legal rights

Answer 16

Prior rights claimed first, then Legal rights.

Surviving spouse or civil partner and children are also entitled to certain ‘Legal rights’

o Heritable property = land and buildings
o Moveable property = cash, shares, cars, antiques
o Legal rights relate to moveable property

o ‘Jus relictae’/ ‘Jusrelict’ (rights of wife/husband)
􏰐 Surviving spouse/civil partner half deceased’s
moveable estate
􏰐 Reduces to a third if deceased left children entitled to
‘legitim’

o ‘Legitim’ (rights of children/ their children if they are deceased themselves)
􏰐 A third of deceased’s moveable estate if there’s a
surviving spouse/civil partner
􏰐 Otherwise half
􏰐 Each child has equal claim - known as representation
when a deceased child’s descendant makes a claim

Question 17

Laws of intestacy in Scotland - Precedence

Answer 17

Once statutory prior and legal rights are met the remaining property goes to issue then:

􏰐 Parents and siblings (50:50 split), or 100% to parents if no siblings,
100% to siblings if no parents
􏰐 Surviving spouse/civil partner
􏰐 Uncles and aunts
􏰐 Grandparents
􏰐 Siblings of grandparents
􏰐 Remoter ancestors
􏰐 Crown

Question 18

Laws of intestacy in Northern Ireland

Answer 18

1. Spouse or Civil Partner but no issue, parents, siblings, nephews or nieces
   - Spouse or Civil partner entitled to everything absolutely.
2. Spouse or Civil Partner and issue
   - Spouse or Civil Partner takes personal chattels, first £250,000 of estate (statutory legacy) and 50% of remaining estate absolutely (1 child), one third (more than 1 child).
   - Children take remaining 50% / one third absolutely.
3. Spouse or Civil Partner no issue but with parents, siblings, nephews or nieces
   - Spouse or Civil Partner takes personal chattels, first £450,000 of estate (statutory legacy) and 50% of remaining estate absolutely.
   - Parents, then siblings, then nephews and nieces take 50% of residue.
4. No Spouse or Civil Partner

• Issue;
• Parents;
• Brothers and sisters (their children take their place if deceased);
• Next of kin;
• Crown.

Question 19

Transferable Nil Rate Band

Answer 19

• Introduced Oct 2007
• Spouse can claim, within 2 years of death, for any unused portion of the nil rate band
• Claim based on the unused IHT nil rate band applicable on second death - £325k currently - regardless of when first death occurred
• The amount carried forward is a % so that it can be applied to the NRB in force when the surviving spouse dies, rather than remain a monetary amount or % of the NRB when the first spouse died.
• There is a maximum limit of 100% of the prevailing NRB at the time the surviving spouse dies. No-one can claim more than 2 x NRB against the value of their estate on death.• This situation would occur when someone was
  married (and widowed) more than once and inherited a % NRB from each spouse that could total more than
  100%.

Question 20

Residence Nil Rate Band

Answer 20

• Introduced 6 April 2017
• The band is worth £150,000 in 2019/20 (rising to £175,000 by 2020/21, increasing thereafter by CPI).
• It is available where an individual’s main residence is left to a direct descendent (e.g. child, grandchild, spouse/partner of child/grandchild).
• It is also available where an individual downsized/ceased to own their home after 7 July 2015 and left assets of an equivalent value to a direct descendant.
• The residence nil rate band is transferable if unused in full on first death of a spouse or civil partner where the second death occurs after 6 April 2017. It is irrelevant when the first death occurred.
• Estates with a net value over £2m will see the residence nil rate band reduced by £1 for every £2 over £2m threshold.

Note that if a property has a mortgage on it, the value of the mortgage must be deducted before applying the band. If the mortgage results in the property’s value being less than the available RNRB, then some of the RNRB will be wasted.

Question 21

Taxation of deceased’s estate - income tax

Answer 21

LPRs pay any debts

Income received up to date of death
• All usual allowances and reliefs can be claimed by LPR
• Tax calculated on usual basis
• Full personal allowance – even if die early in tax year

Income received after death
• No personal allowance, personal savings allowance or dividend allowance

• All taxed at basic rate
o 7.5%dividend income
o 20%all other income

Question 22

Taxation of deceased’s estate - CGT

Answer 22

• LPRs liable at 20% or 28% (depending on nature of asset disposed of) on disposals made by estate during administration period
• Charge on post-death gain only (LPR acquire asset at value on date of death)
• LPR benefit from annual exempt amount in tax year of date of death and following two tax years only
• LPR transfer asset to beneficiary is not a disposal for CGT purposes, beneficiary acquires asset at value on date of death (probate value)
• If LPR disposes of main residence used by a beneficiary before and after deceased’s death, main residence exemption applies if beneficiary will receive minimum 75% of sale proceeds
• LPRs can claim capital losses arising in tax year of date of death and carry them back against gains made in 3 tax years prior to death (later years first) – may be CGT refund

Question 23

Taxation of deceased’s estate - IHT

Answer 23

IHT due on estate over available nil rate band at 40%

36% if minimum 10% net estate (estate after reliefs and exemptions) left to charity in will