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SQE 1 - FLK 2 > Wills and Administration of Estates > Flashcards

Wills and Administration of Estates Flashcards

1
Q

What is needed for a testator to have capacity?

A

Must be over 18 and understand:
a) the nature of their act and its broad effect
b) extent of their property
c) moral claims they ought to consider (do they have a child and have left nothing to them?)

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2
Q

When does the presumption of testamentary capacity arise?

A

If the will appears rational and there is nothing on the facts which calls the will into question

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3
Q

When does the presumption of knowledge and approval arise? What are the exceptions?

A

If the testator had capacity and executed the will having read it

Exceptions: testator is blind, illiterate, not signed personally or there are suspicious circumstances

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4
Q

What formalities are required to execute a valid will? What is an exception to these formalities?

A

Must be:

  1. In writing
  2. Signed by the testator/someone else in the testator’s presence and direction
  3. Signature is made/acknowledged in the presence of 2 witnesses present at the same time
  4. Each witness must attest and sign the will in the presence of the testator
    - Witnesses do not have to be in each other’s presence, but they do have to be in the testator’s presence

Exception: made on military service/by a mariner/seaman in any form (privileged wills)

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5
Q

When does the presumption of due execution arise? If the presumption does not apply, what are the next steps?

A

Arises if there is an attestation clause

Next steps: an affidavit of due execution from a witness/any other person who was present during the execution will be needed

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6
Q

How do the intestacy rules operate when there is a surviving spouse and a surviving issue?

A
  1. Spouse receives all personal chattels absolutely
  2. Spouse receives a statutory legacy of £322,000 (taken from estate)
  3. Residuary estate is divided in half, held for the spouse absolutely and for the issue on statutory trust

Must survive the deceased by 28 days

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7
Q

What happens to the family home if the testator held the interest in their sole name/as tenants in common (and they are married)?

A

Interest will form part of the residuary estate

Spouse must ask PRs to appropriate family home in full/partial satisfaction of their interests in the estate
- They must be living in the property to exercise this right
- If the house is worth more than their entitlement, will be required to pay equality money to the estate

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8
Q

What is the order of entitlement under the intestacy rules where there is no living spouse?

A
  1. Issue under statutory trust
  2. Parents
  3. Siblings
  4. Half siblings
  5. Grandparents
  6. Uncles/aunts
  7. Half uncles/aunts
  8. Crown/Duchy of Lancaster/Cornwall
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9
Q

When are property and beneficiaries determined under a will?

A

Property = those in existence at the date of death
- Exception: if the provision in the will refers to a specific thing (eg: a car), then the asset is from the date of execution
- As long as the assets are able to increase and decrease in size (eg: jewellery), then the will speaks from the date of death

Beneficiaries = speaks from date of execution

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10
Q

What is ademption?

A

Where a gift fails because the testator no longer owns property at death

If there has been a change in substance the gift will be adeemed, if not it may stand

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11
Q

When does a gift lapse? Explain the effects of s 184 LPA 1925 and s 33 WA 1837.

A

A gift lapses if the beneficiary dies before the testator

s 184 LPA 1925: if testator and beneficiary die close together and it cannot be discerned who died first, eldest will be deemed to have died first

s 33 WA 1837: gift to testator’s child, but child dies before testator, if they leave an issue who survives the testator, the gift does not lapse but passes to the beneficiary’s issue
- Does NOT apply to child of anyone other than testator

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12
Q

What are the 3 ways to revoke a will? Explain each of them.

A
  1. By later will/codicil
    - Usually a declaration in later will
    - Conditional revocation = revocation may be held to be invalid if it is not validly executed
    => The original wording will stand
  2. Destruction
    - Destroyed by testator/someone in their presence and they intended to do so
    - NOT a requirement for there to be witness (although it may be useful)
  3. Marriage
    - Marrying after executing a will revokes that will
    - Exceptions: (1) expectation of a forthcoming marriage to a particular person (2) testator must intend that the will is not revoked by marriage
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13
Q

Describe how an alteration in a will can be validly made. What happens if an alteration is invalid?

A

Will be valid if alterations are executed like a will
- Initials of testator and 2 witnesses will suffice

If it is invalid, the original wording stands (if it can be deciphered)

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14
Q

What are the 4 exemptions/reliefs that apply to both lifetime transfers and upon death?

A
  1. Spouse exemption = can transfer an unlimited value of property between spouses (nil rate band can also be transferred)
  2. Charity exemption = any gifts made to charities/political parties with at least one elected representative
    - DEDUCT this from the chargeable estate
  3. Business property relief = must be a trading company; must have owned shares for at least 2 years at time of transfer
    - 100% reduction if (a) business/business interest (b) unquoted shares
    - 50% reduction if (a) quoted company shares if transferor had voting control (over 50%) (b) land/buildings/machinery/plant owned by transferor personally but used for business purposes by company where transferor had voting control
  4. Agricultural property relief = reduction of 100% for anything beginning on/after 1 September 1995; reduction of 50% on everything else
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15
Q

What are the exemptions/reliefs that only apply to lifetime transfers?

A
  1. Annual exemption = can transfer £3,000 each year; exemption can be carried forward one year
  2. Small gifts = make an unlimited number of gifts of £250 as long as they are not given to the same person in one tax year
  3. Normal expenditure of income
  4. Gifts in consideration of marriage = (a) £5,000 from parents (b) £2,500 from remoter ancestor (c) £1,000 in any other case
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16
Q

When is tapering relief available and what are the rates?

A

When a PET becomes chargeable, tapering relief is available if transferor survives more than 3 years after transfer

  1. 3-4 years = pay 80%
  2. 4-5 years = pay 60%
  3. 5-6 years = pay 40%
  4. 6-7 years = pay 20%
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17
Q

When must IHT be paid?

A

6 months from death

LCTs made after 5 April and before 1 October become due 30 April in the following year
- If not made between those dates, becomes due in 6 months

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18
Q

Under what situations will the following be the correct grant to apply for?:
1. Grant of probate
2. Grant of letters of administration with the will annexed
3. Letters of administration

A
  1. Deceased left a valid will which appoints executors who are willing/able to act
    - PA1P
  2. Deceased left a valid will but there are no executors who are able/willing to act
    - PA1P
  3. Deceased left no valid will and their estate is to pass under the intestacy rules
    - PA1A
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19
Q

What assets may pass to PRs without a grant?

A
  1. Payments of assets to those beneficially entitled not exceeding £5,000
    - EG: money in National/Trustee Savings Banks, money in building societies
  2. Chattels
  3. Cash in deceased’s possession (ie: not in a bank account)
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20
Q

How can an executor apply for a grant of probate?

A

Using form PA1P, submitted online

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21
Q

When and how can an executor renounce their right to take grant?

A

Can renounce their right if they have not intermeddled with the estate
- Intermeddling = conducting tasks which a PR might do (eg: gathering information about the estate)

File PA15 with HMCTS

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22
Q

What is the order of priority of persons when applying for a grant of letters of administration with will annexed?

A
  1. A trustee of the residuary estate
  2. Any other residuary beneficiary under the will or anyone entitled to a share of the residue under the intestacy rules
  3. PR of someone in (2) other than a life tenant of the residue
  4. Any other beneficiary or creditor
  5. PR of anyone in (4)
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23
Q

What is the fee when applying for a grant?

A

If the estate is worth more than £5,000 = £273

If the estate is worth less than £5,000, there is no fee

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24
Q

What is the calculation for IHT of non-instalment property?

A

Value of non-instalment property x (IHT divided by the chargeable estate)

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25
Q

What are the three excepted estates where an IHT form does not need to be filed with HMRC when obtaining a grant?

A
  1. Small estates = gross value of estate, plus specified (exempt) transfers in 7 years prior to death does not exceed the nil rate band
  2. Exempt estates:
    a) Bulk of estate attracts spouse/charity exemption
    b) The gross value does not exceed £3 million
    c) The net chargeable estate after deduction of exemptions does not exceed nil rate band
  3. Non-domiciled estates

Gross value of estate = value transferred before deducting debts/exemptions/reliefs

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26
Q

What is the process for the direct payment scheme for funding IHT?

A

Bank/building societies are signed up to this voluntary scheme

  1. Provide relevant information to bank
  2. PRs complete IHT423
  3. Send this form to banks at the same time as IHT400 is sent to HMRC
  4. Banks send the money directly to HMRC
  5. HMRC email receipt (IHT421) to HMCTS and notify the solicitor
27
Q

How can a beneficiary prevent an issue of grant?

A

Can lodge a caveat at HMCTS through form PA8A

Will lasts 6 months

Applicant for grant can issue a warning to the caveator
- If the caveator does not enter an appearance setting out their interest within 14 days, the applicant can remove the caveat

28
Q

How can a beneficiary compel the issue of a grant?

A

Citation to take probate: once cited, executor must take out grant of probate. If not, citor can apply to the court allowing the executor to be passed over
- From here, a grant of letters of administration with will annexed will be issued to the person entitled to take it

Citation to accept/refuse a grant: if the person cited does not take steps to take out the grant, may be issued to the citor

29
Q

How can a beneficiary pass over an executor?

A

Apply to the court under s 116 Senior Courts Act 1981 for an order passing over the unwilling executor in favour of someone else

30
Q

What are the defences to a devastavit?

A
  1. s 61 TA 1925: court has discretion if PR acted honestly and reasonably
  2. Exclusion clause in the will
  3. Acquiescence of beneficiaries: adult beneficiaries who, with full knowledge of the facts, consented to PR’s breach of duty
  4. Protection against unknown/missing claimants: personally liable if omitted beneficiary brings a claim; can escape liability if they placed adverts, which directs the claim to the other beneficiaries
  5. Limitation: unpaid/underpaid beneficiaries cannot recover a share/interest in estate after 12 years from date on which right to receive accrued
31
Q

How can PRs protect themselves from unknown beneficiaries/creditors?

A

Place a s 27 notice in
a) London Gazette
b) Local newspaper
c) Any other appropriate notices
Specifying a date in at least 2 months’ time as a deadline for claims

The notice must require any person who wishes to make a claim to send the PRs the particulars of their claim within the time specified in the notice

Should also make searches a prudent purchaser of land would make

32
Q

How can PRs protect themselves from missing beneficiaries/creditors?

A

Do not have protection of s 27

Can take any of the following additional steps to protect themselves:

  1. Keeping back a proportion of the assets
  2. Taking an indemnity from the other beneficiaries
  3. Taking out insurance to cover potential liability
  4. Apply for a Benjamin order from the court to distribute assets
  5. Paying into the court the property to which the missing beneficiary is entitled to
33
Q

How can PRs protect themselves from claims under I(PFD)A 1975?

A

Wait 6 months from the date of grant before distributing assets

34
Q

If the estate is solvent and the will is silent, what order are the assets applied to settle debts/expenses of the estate?

A
  1. Property undisposed of by the will
  2. Property included in residuary gift (subject to retention of fund to pay pecuniary legacies)
  3. Property charged with payment of debt, but no direction for what is left over
  4. Property charged with debt, but there is a direction for what is left over
35
Q

What is the priority of payments in an insolvent estate? What happens if there are insufficient funds to pay unsecured creditors?

A

Funeral/testamentary expenses prioritise unsecured debts

If there are insufficient funds to pay unsecured creditors, they will abate equally

36
Q

What are the general rule and exceptions for the time for payment of pecuniary legacies?

A

General rule = at end of executor’s year

Exceptions: legacies that are:

  1. Payable in satisfaction of a debt owed by testator to creditor
  2. Charged on land owned by testator
  3. Payable to testator’s minor child, where no other funds exist for that child’s maintenance
  4. Payable to any minor where the intention is to provide the maintenance of that minor
37
Q

In what circumstances does ‘loss relief’ arise for IHT purposes?

A

When qualifying investments are sold within 12 months of death for less than their market value at date of death
- Sale price can be substituted for market value at death

Qualifying investments:
1. Shares/securities which are quoted
2. Holdings in authorised unit trusts

38
Q

What is the general rule and exception for PR’s liability on payment of IHT on:
a) Instalments
b) Lifetime transfer

A

a) PRs continue to be liable even after transferring asset

b) General rule = donee of lifetime transfer are liable for tax
Exception = if donee has not paid tax for 12 months after end of month in which donor died, PR becomes liable

39
Q

What are PRs liability in relation to income tax?

A

PRs are subject to tax on any income paid to estate during administration

Do not pay higher rates
=> Dividends = 8.75%, other income = 20%

Once they invest income in a beneficiary and that beneficiary is a higher rate tax payer, the beneficiary is liable to pay eg: an extra 20% (the difference in the rates of tax)

PRs do NOT have a personal allowance

40
Q

What are the PRs/beneficiaries liability in relation to CGT?

A

On death, disposal does not give rise to CGT

If PR vests interest in beneficiary, no CGT is payable

Probative value becomes PRs/beneficiaries’ base cost for deceased assets

Can claim annual exemption in tax year of deceased’s death and following 2 tax years (if administration lasts that long)

41
Q

If an administration period is complex, you must make a return to HMRC. What constitutes a complex admin period?

A
  1. Value of estate exceeds £2.5 million
  2. Tax due for admin period exceeds £10,000; or
  3. Value of assets sold in tax year exceeds £500,000
42
Q

What are the categories of applicants that can make a claim under I(PFD)A 1975?

A
  1. Spouse/civil partner of deceased
  2. Former spouse/civil partner of deceased who has not remarried
  3. Child of deceased
  4. Relation to any family which the deceased at the time stood in the role of parent (eg: stepchildren)
  5. Any person who, immediately before death, was being maintained by the deceased
  6. Any person who, during 2 years before the date when the deceased died was:
    a) Living in the same household as the deceased; and
    b) As if the applicant was the spouse/civil partner of the deceased
43
Q

What is the time limit for making a claim under I(PFD)A 1975?

A

6 months from the date of the grant of representation

44
Q

What is the ground for making a claim under I(PFD)A 1975? What are the 2 standards in relation to this ground and when do they apply?

A

Disposition in deceased’s will and/or intestacy is not such as to make a reasonable financial provision of the applicant

a) Surviving spouse standard = financial provision as is reasonable in all the circumstances, whether or not that provision is required for their maintenance
- Only applies to category (a) (spouse/civil partner of deceased)

b) Ordinary standard = financial provision as would be reasonable for the applicant to receive their maintenance
- Applies to all other categories

45
Q

What are the common guidelines for a claim under I(PFD)A 1975?

A
  1. Financial resources and needs of applicant, other applicants and beneficiaries now and in the foreseeable future
  2. Deceased’s obligations towards any applicant or beneficiary
  3. Size and nature of the estate
    - Much easier to make a claim on a larger estate
    - If the estate is smaller, the costs of making a claim can take up a large proportion of the estate that is left
  4. Physical/mental disability of any applicant/beneficiary
  5. Anything else which may be relevant (eg: conduct of applicant)
45
Q

Describe the anti-avoidance policy the court have in relation to claims made under I(PFD)A 1975

A

Court can avoid gifts made less than 6 years before death, which had the intention of defeating a claim under the Act

The property will become part of the net estate

46
Q

What is a post-death disclaimer?

A

Amounts to a rejection of assets inherited

Assets passes as if the original beneficiary had predeceased

Only appropriate if they pass to the person whom the original beneficiary intends to benefit

47
Q

What is a post-death variation?

A

A beneficiary can vary and redirect where the benefit goes and on what terms

Original beneficiary who effects the variation must be 18+ and have mental capacity

48
Q

What is needed for a variation/disclaimer to be read back into the will for IHT and/or CGT purposes?

A

If the variation/disclaimer is:
1. In writing and signed by the beneficiary
2. Is within 2 years of deceased’s death; and
3. Is not made for consideration in money/money’s worth

Variation must state that s 142 (above) is to apply

49
Q

What would happen if a variation/disclaimer was not read back into the will for IHT/CGT purposes?

A

IHT: there would be a deemed transfer of value on the deceased’s death and a PET by the beneficiary

CGT: if the benefit is an asset (not cash), there would be a disposal by the beneficiary which will give rise to a CGT charge if the asset has increased in value

50
Q

Under what circumstances will a court rectify a provision in the will?

A

If the will fails to carry out the testator’s intention because there is:
a) A clerical error
b) Failure to understand the testator’s instructions

If a particular provision is meaningless or ambiguous on the face of it/in light of the surrounding circumstances, court may allow extrinsic evidence to be used to interpret it

51
Q

What are the steps for an IHT calculation?

A
  1. Identify the transfer of value:
    a) Death
    b) PETs
    c) LCT
  2. Find value transferred
  3. Apply any exemptions and relief
  4. Calculate tax at appropriate rate
52
Q

What is the residence nil rate band and when does this apply?

A

£175,000

Applies on deaths occurring after April 2017 and when:

  1. Property is the deceased’s residence which forms part of their estate; and
  2. The property is closely inherited and passed to:
    a) Child, grandchild or step-children, foster children etc.
    b) Current spouse/civil partner of the deceased’s lineal descendants
    c) The widower/surviving civil partner of lineal descendant who predeceased the deceased
53
Q

What are PETs and LCTs?

A

PETs = lifetime gift from one individual to another
- No tax is payable at time of transfer, but if transferor dies within 7 years, it becomes chargeable
- 40%

LCTs = property is given on trust or to a company
- Tax is payable at time of transfer at half of full IHT death rates (20%)
- If transferor dies within 7 years, a further tax charge at full death rate is payable (40%) with the 20% already paid offset against this

54
Q

What happens to any unused nil-rate band or residence nil-rate band?

A

This can be passed on to the surviving spouse

EG: unused nil-rate band (£325,000) passes to spouse, meaning £650,000 is tax at 0%

55
Q

What assets attract the instalment and non-instalment option for IHT purposes?

A

Instalment = 10 equal yearly instalments:

  1. Land
  2. Business/interest in business
  3. Unquoted shares if:
    a) Holding at least 10% worth more than £20,000
    b) Tax cannot be paid without undue hardship
    c) IHT attributable to instalment option amounts to 20% of IHT payable on estate

Non-instalment = everything else
- eg: chattels, bank accounts, small holdings of shares in quoted companies etc.

56
Q

What is the effect of the forfeiture rule if the deceased is murdered by a beneficiary?

A

The beneficiary cannot benefit under the testator’s estate if they are responsible for their unlawful killing
- This is the case even if the beneficiary would ordinarily receive some of the testator’s property through survivorship

The court has no power to modify the effect of the forfeiture rule for a conviction of murder, but may be able to do so if convicted for eg: manslaughter

57
Q

Define the conditional revocation rule

A

Where the testator adds substitute wording, the court is likely to find that the revocation was conditional on the substitute wording taking effect

=> If the substitute wording has not been validly executed, then the original wording will stand

58
Q

When applying for a grant of letters of administration with will annexed, when will at least 2 administrators be required?

A
  1. Where there is a minor interest
  2. There is a life interest

Grant will not issue to more than 4 administrators, even if there are more than 4 people who are entitled to act as administrators

59
Q

In what circumstances can a beneficiary/PR appropriate assets in satisfaction of their entitlement?

A

Beneficiaries: as long as the assets fall into the residuary estate/do not form part of a specific legacy they can appropriate the asset
- As long as it does not prejudice another beneficiary

While PRs have a statutory power to appropriate assets, this would often lead to a conflict of interest, meaning they would be in breach of their fiduciary duties

60
Q

Estate accounts must be produced for residuary beneficiaries. What is their purpose and how do they affect PRs liability?

A

Purpose:

  1. Show all the assets of the estate
  2. Show the payment of debts, expenses and legacies
  3. Show the balance remaining for the residuary beneficiaries

If the residuary beneficiaries sign the accounts, this will release the PRs from further liability to account to the beneficiaries
- UNLESS there is (a) fraud; or (b) failure to disclose assets

61
Q

What is the calculation for what unsecured creditors will receive if there is money left over?

A

Total amount of money left over divided by the total amount that the unsecured creditors are owed

Times this figure by the individual amounts each unsecured creditor is owed

62
Q

In what circumstances can a gender recognition certificate take effect under a will?

A

If the will was made after 4th April 2005, the gender recognition certificate will stand/apply

eg: a will made in 2009 leaves everything to ‘my daughters’ and the son changed their gender to a woman in 2010, the son would receive their entitlement as a daughter

SQE 1 - FLK 2 (7 decks)

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