Topic 4 - Changes to estate distribution after death

Question 1

What is the Inheritance (Provision for Family and Dependants) Act 1975?

Answer 1

An act that allows close relatives to apply to the court for financial provision from a deceased’s estate if they feel unreasonably left out.

Question 2

What does English law recognize regarding the disposal of assets by will?

Answer 2

Individuals have the freedom to dispose of their assets by will as they wish, with default succession rules only applying in cases of intestacy.

Question 3

What must an applicant demonstrate to make a claim under the IPFDA 1975?

Answer 3

• Be within the jurisdiction of the IPFDA 1975
• Fall within a recognised category of eligible applicants
• Make their claim within the prescribed time limit.

Question 4

Where does the IPFDA 1975 apply?

Answer 4

It applies where the deceased died domiciled in England and Wales.

Question 5

What is domicile?

Answer 5

Domicile is different from nationality or residence and is determined at birth based on parents’ domicile.

Question 6

What are the types of domicile?

Answer 6

• Domicile of origin
• Domicile of dependency
• Domicile of choice

Question 7

Who can apply under the IPFDA 1975?

Answer 7

• Spouse / civil partner of the deceased
• Former spouse / civil partner not remarried
• Cohabitee for two years prior to death
• Child of the deceased
• Person treated as a child of the family
• Any person maintained by the deceased

Question 8

What does ‘maintenance’ refer to in the context of the IPFDA 1975?

Answer 8

Financial maintenance, not emotional or other forms of support.

Question 9

What is the time limit for making an application under the IPFDA 1975?

Answer 9

An application cannot be made more than six months after the grant of representation.

Question 10

Can the Court extend the time limit for making a claim?

Answer 10

Yes, the Court has discretion to extend the time limit for special reasons.

Question 11

What is the two-stage test for IPFDA 1975 claims?

Answer 11

• Did the deceased fail to make reasonable financial provision for the applicant?
• What award should the court make?

Question 12

What are the two standards of reasonable financial provision under the IPFDA 1975?

Answer 12

• Surviving spouse standard
• Maintenance standard

Question 13

What is the key difference between the surviving spouse standard and the maintenance standard?

Answer 13

The surviving spouse standard considers what is reasonable for the applicant to receive, while the maintenance standard focuses on what is needed for their maintenance.

Question 14

What guidelines must the court consider under section 3 of the IPFDA 1975?

Answer 14

• Applicant’s financial resources and needs
• Financial resources and needs of other applicants
• Financial resources and needs of beneficiaries
• Deceased’s obligations towards applicants or beneficiaries
• Size and nature of the net estate
• Physical or mental disabilities of applicants or beneficiaries
• Any other relevant matters

Question 15

What specific factors does the court consider for spouses/civil partners under section 3(2)?

Answer 15

• Applicant’s age and duration of marriage
• Contribution made to the family’s welfare
• Expected provision in divorce proceedings

Question 16

What additional factor is considered for children of the deceased under section 3(3)?

Answer 16

The manner in which the applicant was educated or trained.

Question 17

What is the effect of any order made under the IPFDA 1975?

Answer 17

Orders are effective from the deceased’s death and treated as if the deceased made the dispositions at death.

Question 18

What does section 2(1) of the IPFDA 1975 allow the court to order?

Answer 18

• Periodical payments
• Lump sum
• Transfer of property
• Settlement of property
• Acquisition of property for transfer
• Variation of marriage settlements
• Variation of civil partnership settlements
• Variation of trusts on which the estate is held

Question 19

Is it possible for an application to be made before a grant is issued?

Answer 19

Yes, an application can be made before the grant is issued.

Question 20

What must an applicant show to extend the time limit for making a claim?

Answer 20

Special reasons for having exceeded the time limit.

Question 21

What must the court consider if the applicant is a child of the deceased under s 3(3)?

Answer 21

The manner in which the applicant was (or might expect to be) educated or trained

This applies only if the applicant is a child of the deceased.

Question 22

What factors must the court consider if the applicant was not a child of the deceased but was treated as such?

Answer 22

• Whether and on what basis the deceased maintained the applicant
• For what time they did so
• The extent of their contribution
• Whether the deceased assumed responsibility for the applicant’s maintenance
• Whether the deceased did so knowing the applicant was not their child
• The liability of any other person to maintain the applicant

These considerations are outlined in s 3(3).

Question 23

Under section 3(4), what must the court take into account if the applicant was maintained by the deceased?

Answer 23

• The length of time for which the deceased maintained the applicant
• The basis on which the deceased maintained the applicant
• The extent of the contribution made by way of maintenance

This applies to applicants who do not fall within the previous categories.

Question 24

What does section 1(3) state about applicants who are treated as maintained by the deceased?

Answer 24

An applicant is treated as being maintained only if the deceased made a substantial contribution towards their reasonable needs

This excludes contributions made for full valuable consideration.

Question 25

What are the two components to consider when determining what award should be made to the applicant?

Answer 25

* Quantum: How much should the applicant receive? * Form of award: What form should the award take? ## Footnote Considerations depend on the category of the applicant and all relevant factors must be given equal weight.

Question 26

What is necessary to assess the value of a claim?

Answer 26

A list of the applicant’s assets and liabilities, including future assets or liabilities ## Footnote This helps to determine the amount and nature of the award.

Question 27

What orders can the court make under section 2(1) of the IPFDA 1975?

Answer 27

* Periodical payments * Lump sum * Transfer of property * Settlement of property * Acquisition of property for transfer * Variation of marriage settlements * Variation of civil partnership settlements * Variation of trusts on which the deceased’s estate is held ## Footnote These orders are part of the court's power under the Act.

Question 28

True or False: An applicant who is a spouse or civil partner of the deceased automatically receives a 50% interest in the estate.

Answer 28

False ## Footnote The court considers various factors and there is no presumption of a clean break.

Question 29

What may a life interest under a trust indicate in terms of financial provision?

Answer 29

A life interest may amount to reasonable financial provision depending on the income produced by the property compared to the applicant’s needs ## Footnote The court can award a life interest under the IPFDA 1975 Act.

Question 30

What can beneficiaries do if they find the distribution of an estate under a will or intestacy unsatisfactory?

Answer 30

They can vary the distribution after the administration of the deceased’s estate ## Footnote This can be done through gifts, variations, disclaimers, or court orders.

Question 31

What are the IHT consequences of a variation under s.142 IHTA?

Answer 31

* The gift is treated as made by the deceased * The original beneficiary does not make a Potentially Exempt Transfer (PET) * IHT is recalculated based on the new beneficiary ## Footnote This allows for tax implications to be mitigated.

Question 32

What conditions must be met for a variation to achieve the IHT ‘writing-back’ effect?

Answer 32

* Made by the original beneficiary in writing * Within two years following the deceased’s death * Contains an express statement confirming s.142 should apply * Not made for consideration in money or money’s worth ## Footnote These conditions are outlined in s.142 IHTA.

Question 33

What is the effect of a beneficiary varying their entitlement to estate assets without PR approval?

Answer 33

The beneficiary can vary their entitlement without PR approval, but if it results in additional IHT, PRs must sign the variation ## Footnote PRs can refuse to sign only if they cannot discharge the additional tax.

Question 34

What is the basic principle of Capital Gains Tax (CGT)?

Answer 34

CGT is charged on the disposal of a non-cash asset ## Footnote This includes both selling and giving an asset away.

Question 35

What happens to the gain in value of an asset given as a gift for CGT purposes?

Answer 35

The transferor is deemed to make a gain based on the market value at the time of the gift ## Footnote No actual profit is realized upon gifting.

Question 36

What can happen if the original beneficiary does not comply with the conditions for writing back under s.62 TCGA?

Answer 36

The gift is treated as a disposal by the original beneficiary at the current market value ## Footnote This may trigger a CGT liability.

Question 37

What is the effect of choosing to use the writing back provisions for IHT and CGT?

Answer 37

The gift is treated as having been made by the deceased, and the new beneficiary is deemed to acquire the assets at their date of death value ## Footnote This prevents CGT liability for the original beneficiary.

Question 38

What are the restrictions on varying a will if the original beneficiary is a minor or lacks mental capacity?

Answer 38

They cannot make a variation without the consent of the court under the Variation of Trusts Act 1958

Question 39

Is there a limit to the number of times a will can be varied?

Answer 39

No, there is no limit to the number of times a will can be varied, but each asset can only be varied once

Question 40

What does HMRC state about instruments under s142 regarding redirection?

Answer 40

An instrument will not fall within s142 if it further redirects any item that has already been redirected under an earlier instrument

Question 41

What types of property can be subject to a variation?

Answer 41

* Property passing by will * Intestacy * Interests in joint property

Question 42

What property cannot be varied after death?

Answer 42

* Property in respect of which the deceased was a life tenant immediately before death * Property with a gift with reservation of benefit

Question 43

If the original beneficiary makes a variation but continues to enjoy the property, is it considered a gift with reservation of benefit?

Answer 43

No, because the writing back provisions treat the arrangement as a disposition by the deceased

Question 44

What is a disclaimer in the context of inheritance?

Answer 44

A disclaimer operates as a refusal to accept property to which a beneficiary is entitled

Question 45

What are the limitations of disclaimers?

Answer 45

* A beneficiary can only disclaim before acceptance * A beneficiary can only disclaim the whole gift * A disclaimer does not affect rights under intestacy

Question 46

What happens to inheritance when a beneficiary disclaims it?

Answer 46

The inheritance passes as if the gift to the original beneficiary had failed

Question 47

How are disclaimers treated for IHT and CGT purposes?

Answer 47

The provisions of s.142 IHTA and s.62 TCGA apply as they do to variations

Question 48

What is a precatory trust?

Answer 48

A gift made to a beneficiary by will with a wish expressed as to how the beneficiary should pass on those assets to others

Question 49

What is misleading about the term 'precatory trust'?

Answer 49

No formal trust is created due to an absence of intention, and the testator’s wishes are not binding

Question 50

What is the legal effect of a precatory trust for IHT purposes?

Answer 50

If the original beneficiary acts upon the testator’s wishes within 2 years, distributions are treated as gifts made by the testator’s will

Question 51

What is the condition for the writing back effect to apply under a precatory trust?

Answer 51

It happens automatically without a written election

Question 52

Are there equivalent CGT rules for precatory trusts?

Answer 52

No, s 62 TCGA does not apply

Question 53

What is a potential issue with the CGT treatment of redistributions under a precatory trust?

Answer 53

It would be treated as a disposal by the original beneficiary

Question 54

What is likely to mitigate CGT issues when redistributing under a precatory trust?

Answer 54

* Short time between death and distribution * Most chattels unlikely to increase significantly in value