Post-Death Arrangements Flashcards
(21 cards)
What are the three main post-death mechanisms to adjust estate distribution (outside of court)?
- Variations
- Disclaimers
- Precatory trusts
What is a variation?
A direction by a beneficiary to the PRs to transfer their entitlement to another person, changing the distribution of the estate.
What are the IHT benefits of a variation?
If it meets s.142 IHTA 1984 conditions, the gift is ‘read back’ and treated as if made by the deceased, not the beneficiary.
What are the conditions for a valid variation?
- Made in writing
- Made within 2 years of death
- Contains an express s.142 election
- Not made for consideration in money or money’s worth
What happens if a spouse varies their inheritance to include a non-exempt beneficiary?
The estate becomes partially taxable, since spouse exemption is lost (e.g., giving a painting to a friend).
What happens if a variation introduces a charitable gift?
Charity exemption may apply, potentially reducing IHT and qualifying for a refund (e.g., £50,000 to charity).
What if the variation gives part of the estate within the NRB to a child?
No IHT arises, but part of the deceased’s NRB is used up, affecting any transferable NRB.
When does a variation trigger CGT?
When the variation involves a non-cash asset that has increased in value since death.
How can CGT be avoided through variation?
If a valid variation is made, the gain is read back to the date of death, and no disposal by the original beneficiary occurs.
Can a beneficiary elect to apply s.142 for IHT but not s.62 for CGT?
Yes. Elections for IHT and CGT are separate and can be applied independently.
Can a minor or person lacking capacity make a variation?
No. Court approval is needed
How many times can an asset be varied?
Only once. HMRC will not allow a second variation of the same asset for tax purposes.
What types of property can be subject to variation?
- Property passing by will or intestacy
- Interests in joint property (severable share)
What property cannot be varied post-death?
- Property the deceased held as life tenant
- Property that was a gift with reservation of benefit
If the original beneficiary continues to enjoy the asset after varying it, is there a reservation of benefit?
No—because for tax purposes, the deceased is treated as the donor, not the beneficiary.
What is a disclaimer?
A refusal by a beneficiary to accept a gift before accepting any part of it.
What are the limits of a disclaimer?
- Must disclaim the entire gift
- Must be done before acceptance
- Cannot control where the gift goes after disclaimer
Do disclaimers have the same tax treatment as variations?
Yes. If within 2 years and meeting the conditions, they fall under s.142 IHTA and s.62 TCGA.
What is a precatory trust?
A gift with an expression of wishes from the testator that the beneficiary pass it on, but not legally binding.
What is the IHT effect of complying with a precatory trust?
If the beneficiary acts on the testator’s wishes within 2 years, the gift is treated as made by the deceased, not the beneficiary.
What is the CGT treatment of a precatory trust?
There is no equivalent read-back under CGT law, so the transfer is a disposal by the beneficiary.
