IHT And Trusts Flashcards
(39 cards)
1
Q
Rules for a valid will (5)
A
W - witnesses and written (by 2 people at same place + same time) I- intention L - legal capacity (18+ and sane) L - lasts even after divorce S - signed or marked
2
Q
When is a will revoked? (7)
A
- on execution of a new will
- destruction by the testator
- marriage (unless the will anticipates marriage)
- divorce
- cancels benefit to former spouse ONLY (unless the will states otherwise)
- cancels appointment of former spouse as executor - if original will was found not to have been executed correctly I
3
Q
Rules of Deed of variation (7)
A
BENEFICIARIES:
- All beneficiaries affected by the variation must AGREE and SIGN
- beneficiaries must be 18+ and sane
THE DEED:
- must be executed within two years of testators death
- must specifically REFER TO THE WILL
- must state the variation is for the purpose of IHT
GENERAL:
- there must be no consideration for money or money’s worth
- legal reps must sign if IHT (or more IHT) becomes payable
4
Q
Residence NRB
A
- introduced on 6/4/17
- £125k each person for main residence in 18/19
As long as passed to direct descendants (children, grandchildren, step children, foster children) or any of their spouses / civil partnership - increasing by £25,000 to max £175k
- transferable on death as per standard NRB
- even if 1st spouse died before 6/4/17
-estates in excess of £2mn will suffer from tapering of RNR - £1 for every £2 exceeded
5
Q
Benefits of using a Discretionary Will Trust (8)
Works best with assets that are likely to grow by more than NRB!!
A
- effective immediately
- clients retain full access to access during their lifetime
- provides flexibility to accommodate for future changes in circumstances
- no ongoing costs (but set up charges)
- no age or health restrictions
- once made, assets grow outside the estate
- on second death more or spouses NRB may be available
- it provides protection against business creditors and on divorce
- previous lily deceased spouse / CP NRB could be utilised (triple NRB!)
6
Q
Drawbacks of DWT (5)
A
- unmarried couples can not benefit
- married couples who are about to divorce
- married couples who have a domicile mismatch
- couples who do not want complex wills
- where the local authority is being asked to fund care costs - could be seen are deliberate deprivation of assets
7
Q
Options to insure an IHT liability
A
- PETS within NRB and CLT’s within NRB = level term assurance (to protect the NRB)
- Excess PETS = gift inter vivos plan (7 years in trust to executors of the will to pay the liability)
- long term liability beyond 7 years = WOL in trust to executors of the will
8
Q
Options in battle against IHT (7)
A
- will/DOV (DWT, charity gifts are exempt)
- exempt gift reliefs (£4K, £250, Gifts out of NI, charity, intra-spouse, BR
- gifts into trust
- loan trusts
- DGT
- outright gifts
- Insure the liability
9
Q
SJP Later Life Planning Scheme - facts
A
X
10
Q
Considerations when meeting an attorney of a new client (6)
A
- do they have authority to represent the client
- LPA document has appropriate Office of Public Guardian (OPG) stamp on each page
- Type of POA
- Restrictions
- number of attorneys/replacement attorneys
- Are the attorneys appointed to act Jointly or Jointly and Severally
11
Q
Conditions that need to be met for a disabled persons trust (2)
A
- beneficiary must be eligible to receive AA/DLA/PIP / qualify under the mental health act 1983
- trust property can only be applied for the benefit of the disabled person and the beneficiary must be entitled to receive any income arising from the trust property
12
Q
Tax advantages of a disabled personals trust (10)
A
General:
- income and gains are taxed as a normal DT but trustees can reclaim the difference between what tax was paid and what the disabled person would have paid if they held the property in their own name
CGT:
- reduced amount of CGT is payable than usually within a DT
- because the disabled person has a CGT exemption of £11,700 and basic rate CG tax is payable on the element in the basic rate band
IT:
- a lower amount of IT is payable than normal within a DT
- because income is tax as if received personally by the disabled person
- therefore he can use his PA, PSA and DA
IHT:
- payments into the trust are a PET so no IHT is payable immediately
- even if exceeds the donors NRB’s
- no period or exit charges apply
13
Q
Benefits of a WOL plan (3)
A
- sum assure will cover all/most of IHT liability
- assets in the estate will not need to be sold to pay IHT
- Maintains use of other assets during lifetime
- if placed in trust then it will not add to the estate liable for IHT
- if the premiums is classed as a gift out of normal expenditure then it will reduce the value of the estate
14
Q
Drawbacks of WOL (3)
A
- can be expensive
- no guarantee IHT liability will be covered
- if eatatw remains above £2mn then RNRB will still be affected
15
Q
Benefits of lifetime gifts (3)
A
- no cost involved
- donees can benefit immediately
- exempt from IHT if donor survives 7 years
- can make use of exemptions (e.g annual exemption or GOONES)
- growth on gifted amount is immediately outside the estate
- can help to reclaim RNRB
16
Q
Drawbacks of lifetime gifts (3)
A
- loss of access to funds
- maybe left with insufficient funds and have to access pension
- assessable to IHT if die within 7 years
- gifts maybe accessible by others that it was intended e.g. children’s spouses on death of child
17
Q
Why is it beneficial to replace a advance decision with health and care LOA? (5)
A
- Advance decision is legally binding
- but can be challenged
- only covers end of life care decisions
- may be old/out of date???
-LPA can not be challenged (if properly prepared)
- allows them to set out health care wishes in a number of areas
-LPA will ensure they have an attorney to act on their behalf in event if losing mental capacity
-
18
Q
Benefits of making gifts into a trust via a DoV (3)
A
- if gift into trust is within NRB then no IHT payable
- by using the DoV then gift will immediately outside survivors estate
- growth on the assets will be outside of estates
19
Q
How is a gift with reservation of benefit be treated?
A
- eg gifting house but still live there for two years
- if market rent is not paid then is a gift with reservation
- as a result, the current value plus and growth in next two years
- will still be in estate
- as the 7 year clock will not start until she moves out
20
Q
Factors to consider in paying POAT or market rent
A
- the amount assessable under POAT is added to income for the year and taxed according to marginal rates
- paying market rate may well cost more in the long run
- paying market rent will provide the recipient with an income
- and will help reduce donor’s estate
- income will be subject to tax at marginal rate
- can they afford the rental payments?
- if so do the want to pay rent?
21
Q
How do you insure a gift of business shares? (5)
A
- gift is a PET
- LTA needed on Donor, 7 year term, for 40% of available NRB (130k)
- Gift Intervivos on Donor to cover IHT on balance above NRB LESS any available exemptions
- both placed in trust
- LTA in favour of executors
- GIV in favour of beneficiaries
22
Q
How is Mrs X ‘s estate distributed if her wills leaves everything to her deceased husband? (4)
A
- as mrs x left everything to mr x in the will
- and he has already died
- she would die intestate
- her estate would be then shared equally amongst any children
23
Q
Reasons why SJP partner should not be an attorney to a client
A
- conflict of interest
- and therefore not appropriate
- an attorney has a duty to avoid conflicts of interest
- providing advice potentially creates a conflict of interest
- an attorney has a duty to account to the donor for any profit they make from a third party and has to keep records. This restricts the ability to provide advice and / or receive remuneration for it
- PII is recommended to cover these responsibilities
24
Q
Income considered/not considered for state care benefits
A
INCOME CONSIDERED
- investment income
- BTL income
- savings
- pension income
- notional income
NOT CONSIDERED - maintainence payments - income from capital - some state benefits e.g. attendance allowance and PIP/DLA -£5/10 of warnings (single / couple) -
25
Carers allowance
- payable to anyone spending at least 35 hours per week caring for a disabled person (someone receiving DLA/PIP or AA)
- taxable
- means tested
26
Attendance allowance
- Paid to disabled people who need help with personal care
- must be over 65
- must have been suffering disability for 6 months or more
- two rates
- higher - care needed 24 hours
- lower- care needed day or night but not both
- tax free
- not means tested
- UK resident
- paid for fixed or indefinite period
27
Personal independence payment
- for age 16-64
And gave extra costs associated with long term illness / disability
- tax free
- not means tested
- assume the carries out by a health professional
- two elements to the benefit. Daily living component and mobility element
28
DLA
- old version of PIP
- not open to new claimants
- being transferred over from DLA to PIP on claim anniversaries
29
what capital is assessed for care funding
- cash
- savings
- investments
- property
- business assets
- land and buildings etc
Main property is disregarded if:
- less than 12 weeks
- care is expected to be temporary
- spouse still lives there
- relative over 60 still lives there
- incapacitate relative
- child under 16 still lives there
Other excluded assets:
- life policies surrender values
- personal possessions
-
30
Recommend and justify actions to take to minimise IHT
- write new wills
- ti ensure estate is distributed as they wish
- set up a DWT
- house should be tenants in common
- set up APT
- take income as loans
- creating a debt to be repaid on second death
- use annual gift exemptions
- as immediately outside estate
- make PET
- exempt after 7 years
31
Benefits of setting up a loan plan (7)
- no IHT on set up
- all growth outside of the estate
- can take 5% of original capital invested
- as tax deferred withdrawals
- reducing the loan
- if capital is needed then Full or partial repayment of the loan can be demanded at any time
- can add younger lives assured for intergenerational planning
- loan can be waived in the future in order to create a PET or CLT
- suitable if in good health
- suitable if meets ATR and CFL
- gain access to SJP IMA
32
Why recommend a variable DT when making a gift to fund uni fees (under NRB) (9)
NB previously made Outright gifts
- no immediate IHT charge
- as gift is within. NRB
- and previous gifts are PETs
- and not included towards NRB
- can complete letter of wishes
33
Explain why no IHT is payable when making gifts in to DT (
- value of gift is less than £325k
- NRB is available
- previous gifts are pets
- and don’t affect NRB cumulative figure
34
Explain why exit and periodic charges maybe charge to trust assets in future (6)
- value of assets may grow
- to be above NRB
- at future 10 year anniversary
- or on exit
- if died within 7 years any PETS will become chargeable
- this will reduce NRB available for the trust
35
Factors to consider when advising on increase to existing WOL plan (7)
- RNRB will in crease
- existing PETs will drop out of estate in time
- so more NRB will become available
- future gifts will be PETS and outside of estate after 7 years
- care costs may deplete / will reduce estate
- is there an option to increase the existing plan / guaranteed insurability
- cost/affordability/ willingness to pay for additional cover
36
Who qualifies for a vulnerable persons trust ie is a vulnerable beneficiary (3)
- under 18 and parent died
- unable to manage their own finances because of a mental health condition under the mental health act
- a disabled person in reciept of certain benefits (AA, PIP)
37
Why is it unlikely a WOL plan would exactly match liability (4)
- not possible to accurately predict the IHT
- can not predict future values of assets
- May make gifts in future
- tax treatment may change in the future
- estate may be depleted by more than expected in the future eg by care costs/ may increase by more than expected in the future
38
downsizing for RNRB
- where the downsized property
- together with other assets to the equivalent value of the ‘lost’ RNRB
- has been left to direct descendants
- or have sold the house and assets equivalent to the value have been left to direct descendants
39
Qualifying conditions for RNRB (8)
- must have died on or after 6th April 2017
- property must have owned by the individual and it would have qualified for the RNRB had the individual retained it
- the subsequent property or other assets if the property has been disposed of, are in the deceased’s estate
- a lower property value and / or assets of equivalent value are inherited by the individuals direct descendants on that persons death
- the downsizing or disposal must have happened on or after 8th July 2015
- value of the property is the net value after deducting debts eg mortgage on the property
- the downsizing RNRB is tapered away in the same RNRB for estates over £2mn
- a claim must be maid for the downsizing RNRB
- if the deceased disposed of more than one house on /after 8th July 15 then the personal representatives can choose which disposal to take into account
