Family Provision and Post-Death Variations Flashcards
(25 cards)
What Act allows certain categories of people to make claims on the will or on the intestacy rules and in what circumstances?
Inheritance (Provision for Family and Dependants) Act 1975 (‘the Act’)
Allows categories of people to apply to court for a benefit from the estate, where:
- They don’t inherit under the will or on intestacy
- They inherit, but are dissatisfied with the amount
Only applies where the deceased died domiciled in E+W
Only certain categories of applicant can make a claim for family provision under the Act.
In summary, what are these categories?
(a) Spouse or civil partner – actually married
(b) Former spouse/civil partner who has not remarried, unless court barred at claim on making the final divorce order
(c) A child of the deceased (whatever their age)
(d) Person treated by the deceased as a child (Step-child or child of a cohabitee)
(e) Person who, immediately before the death, was being maintained by the deceased either wholly or in part
- Maintained = substantial contribution towards reasonable needs of that person
(f) Person who, during the whole period of 2 years prior to death, was living:
- In the same household as the deceased, and
- As if they are the husband, wife or civil partner of the deceased
Give some more details about how former spouses/civil partners who have not remarried can make a claim for family provision
Rare, as a financial settlement on divorce will normally be agreed
- Divorce court usually bars a family provision claim when making an order
Give some more details about how children of the deceased can make a claim for family provision
Adopted children fall here; stepchildren might under (d)
Infant children – should succeed
Adult children in employment with earning capacity for the foreseeable future – unlikely to succeed, unless there is a special circumstance:
- Adult child has a disability
- Adult child worked for the deceased for many years for a low wage
- Adult child made sacrifices to care for the deceased
Give some more details about how a person treated by the deceased as a child of the family can make a claim for family provision
Stepchildren can succeed, but must prove that the deceased acted as parent towards them
Give some more details about how any person (not listed in the categories above) who immediately before death was being maintained either wholly or partly, by the deceased, can make a claim for family provision
Catches anyone who doesn’t fall into the other categories, but can establish financial dependency on the deceased
There should be a settled basis or arrangement between the parties as regards maintenance, which means a substantial contribution towards reasonable needs of that person
- Temporary break prior to death (if deceased is in hospital) does not prevent a claim
- Providing rent-free accommodation was a substantial contribution in one case
Maintenance must not be part of a commercial arrangement
- Housekeeper or live-in carer could not claim
Give some more details about how any person who lived in the same household as the deceased and as their husband, wife or civil partner during the whole period of two years ending immediately before the deceased’s death, can make a claim for family provision
Relationship not formalised by marriage can apply if the 3 conditions met:
1) Living in the same household
- Living together as one unit, so they must be tied by their relationship, not just under the same roof
2) As the husband/wife or civil partner
- Relationship as a couple must be openly acknowledged and a reasonable person with normal perceptions would regard them as living together as if they were spouses/civil partners
3) Two years immediately before death
- Must be a degree of permanence and commitment
- Temporary break before death (if deceased is in hospital) does not prevent a claim
What is the time limit for making a claim for family provision?
Must make an application within 6 months from the date of the grant of representation
Could make an application before the grant is issued
Court has discretion to extend the time limit, but will only do so if there is a good reason for the delay
If a person falls within one of the eligible categories to make a claim, on what ground can they make a claim for family provision?
The only ground is that the will or intestacy rules don’t make reasonable financial provision for the applicant
- The test to determine whether the estate makes reasonable financial provision is an objective test and the burden is on the applicant
2 standards for judging ‘reasonable financial provision’
What are the 2 standards for judging whether reasonable financial provision has been made?
1) Surviving spouse standard
- Allows a surviving spouse or civil partner such financial provision as is reasonable in all the circumstances, whether or not needed for maintenance
- Consider what they might have expected on divorce
2) Ordinary standard
- Applies to all other categories of applicant and allows such financial provision as is reasonable in all the circumstances for the applicant to receive for their maintenance
- Maintenance = payments to meet recurring expenses; This means someone who can pay for their living expenses out of their own resources will not obtain an award
The common S3 guidelines/factors should be considered for every applicant and help the court determine if reasonable financial provision has already been made for the applicant.
What are the common s3 guidelines?
1) Financial resources and needs of the applicant, other applicants and beneficiaries of the estate now and in the foreseeable future
- Balances these and considers their earning capacity and financial obligations/responsibilities
- The effect of an order on any state benefits is also relevant
2) Deceased’s obligations towards any applicant or beneficiary
- Legal obligations (duty of parents to maintain their infant child) and moral obligations
3) The size and the nature of the estate
- Smaller the estate, the more difficult it is to provide for all claimants/beneficiaries
4) The physical and mental disability of any applicant or beneficiary
5) Anything else which may be relevant, including applicant’s conduct
- If the testator leaves reasons for excluding someone, this should be considered
- A beneficiary who kills T forfeits their entitlement, but they can claim for family provision
- An estranged relationship would also be relevant
There are also special guidelines considered for certain types of applicant, in order to judge what is reasonable financial provision.
What are some of these special guidelines?
Special guidelines for spouse
- Their age, contribution to welfare of the family, duration of marriage and likelihood of financial settlement on any divorce
Special guidelines for child
- Education and/or training requirements considered
If a claim for family provision is successful, what orders can the court make as a result?
Court can make orders against the ‘net estate’, including orders for periodic or lump sum payments or transfer of specific property
- Net estate includes property passing by survivorship
Court will declare how the burden is to be borne (ie which beneficiary will lose their property)
For IHT purposes, the altered disposition is treated as taking effect from death and IHT may need recalculating
What anti-avoidance mechanism can the court use to prevent testators from frustrating possible family provision claims?
Court can void gifts made less than 6 years before death with the intention of defeating a claim
- This brings that property within the ‘net estate’ again
What should the PRs do to protect themselves from liability under family provision claims?
PRs should distribute the estate after 6 months from issue of grant, to avoid being personally liable to satisfy a claim under the Act if insufficient assets remain in the estate
Give a summary of the steps to consider when thinking about claims for family provision
1) Did the deceased die domiciled in E+W?
2) Does the applicant fall within a category of applicant?
3) Time limit – within 6 months from the date of the grant
4) Has the will/intestacy made reasonable provision for the applicant?
Ground
- Surviving spouse standard – reasonable provision whether or not needed for maintenance
- Ordinary standard – reasonable provision for maintenance
Apply guidelines (common + special)
5) Orders
- Periodic, lump sum payments or transfer of specific property
- Made against ‘net estate’ (could include interest in joint property passing by survivorship)
Why might the beneficiaries seek to alter the estate after death?
- To include another person or give them a larger legacy
- To save the stress and expense of someone applying to court for family provision
- To save on IHT/CGT
In what different ways can the beneficiaries redirect property after the testator’s death?
1) Lifetime gift by the beneficiary of an inheritance
- Beneficiary can accept a gift in the will and make their own gift of the property to someone else
2) Post-death disclaimer
3) Post-death variation
How do post-death disclaimers work?
Disclaiming means the beneficiary rejects the gift and it passes as if the original beneficiary had predeceased
- Only appropriate if the gift is going to who they wish, should they reject
Cannot disclaim part of a gift
Cannot disclaim once they have accepted a gift
How do post-death variations work?
Restrictions on disclaimers don’t apply to post-death variations
Effecting a variation is tantamount to re-writing the will/intestacy rules
Original beneficiary must be 18 or over + have mental capacity to effect a variation
- Can also apply to court if they don’t have legal capacity, but court will only consent if the variation is for their benefit
What IHT tax issue can arise through disclaimers or variations?
If the original beneficiary disclaims their entitlement or makes a variation, this is regarded as a PET, which would become chargeable if they were to die within 7 years
- This would result in the original gift being taxed twice – once on testator’s death and a second time on the PET
- It would either result in IHT to pay or a reduction of their nil rate band
How can the IHT tax issue on disclaimers and variations be overcome?
To overcome the tax problem, s142 IHT Act 1984 allows the variations can be ‘read back’ into the will, meaning it is as if the testator gave the legacy direct to the new beneficiary
Certain conditions for variation or disclaimer to be ‘read back’
- Must be in writing and be signed by the original beneficiary
- Must be made within 2 years of the deceased’s death; and
- Not made for a consideration in money or money’s worth
- Variations must state that s142 IHTA 1984 is to apply
When might it be preferable for the variation not to be ‘read back’ to the will?
Where the spousal exemption would apply, but a variation stops this, might be better to treat the variation as a PET
Where the residence nil rate band would apply, but a variation stops this, might be better to treat the variation as a PET
If more IHT is payable due to a variation, the deceased’s PRs must join in the written variation
What CGT considerations are there when a disclaimer or variation is made?
Disclaimer or redirection of an inheritance could give rise to CGT, as CGT applies on disposals, which includes lifetime gifts
Disclaimers or variations within 2 years of death can be read back to the will, so there is no disposal by the original beneficiary and no CGT charge
- Treated as though the testator gave the property direct to the new beneficiary
Same conditions for a variation or disclaimer to be ‘read back’ as for IHT:
- Must be in writing and be signed by the original beneficiary
- Must be made within 2 years of the deceased’s death; and
- Not made for a consideration in money or money’s worth
- Variations must contain an election that it is to be read back for CGT
