WT Flashcards
1
Q
Under the common law, which of the following is not necessary for a testator to have capacity to execute a will?
* (A) An understanding of the
nature of their assets.
* (B) Gifts to the people who ought to receive gifts.
* (C) An understanding of the
extent of their assets.
* (D) An understanding of who the testator would ordinarily give gifts to.
A
B
2
Q
EXCEPTIONs TO PRESUMPTION OF
KNOWLEDGE AND APPROVAL
A
- Testator is blind or illiterate or will signed on their behalf
- Suspicious circumstances
3
Q
A person may challenge a will on the basis that the testator made the will as a result of:
* (A) Force, familial relationship,
fraud, or undue influence.
O (B) Force, fear, fraud, or undue
influence.
O (C) Fear, fraud, forgery, or undue
influence.
O (D) Fear, familial relationship, forgery, or undue influence.
A
(B) is correct. A person may challenge a will on the basis that the testator made the will as a result of force, fear, fraud, or undue influence.
4
Q
WILL FORMALITIES
A
WILL FORMALITIES
* In writing
* Signed by testator
Signed or acknowledged by testator in presence of two or more witnesses
Signed by witnesses in presence of testator
5
Q
What are 3 WILL FORMALITIES
A
To make a valid will, a testator must have (1) had capactiy at the time the will was made, (2) intended to make a will, and (3) executed the will in accordance with the statutory formalities.
6
Q
When is capacity measured in determining whether a will was validly executed?
A
Capacity is measured at the time the testator executes the will. This means the testator must have the necessary mental capacity to understand the nature of making a will, the extent of their assets, and the implications of their decisions regarding beneficiaries at the moment they sign the will for it to be considered validly executed.
7
Q
What are the two circumstances in which the presumption that the testor knew the contents of their will when they signed it does not apply?
A
The presumption that the testator knew the contents of their will when they signed it does not apply in two circumstances: first, if the testator was blind, illiterate, or otherwise incapable of reading the will themselves; and second, if there is evidence of fraud or undue influence that may have affected the testator’s understanding or approval of the will’s contents at the time of signing.
(1) If the testator was blind or illiterate when the will was signed, or (2) if the will was signed under suspicious circumstances, such as when the drafter of a will benefits under the will.
8
Q
What must be proved to show a will was procured through undue influence?
A
To show a will was procured through undue influence, it must be proven that the influencer exerted excessive pressure on the testator, which overpowered the testator’s free will and decision-making capacity, leading to a will that reflects the desires of the influencer rather than the true intentions of the testator. This requires demonstrating a relationship where the testator was susceptible to such influence and that the resultant will is a product of this undue pressure.
9
Q
VALID ALTERATIONS
A
Alteration made before will was executed or executed like a will
Will reads naturally after alteration
10
Q
What are the requirements for an alteration of a will to be valid?
(check all that apply)
(A) The alteration was made before the will was executed.
(B) That the alteration is initialled by the testator and witnesses.
* (C) The alteration fills in a blank.
* (D) The will must read naturally after the alteration.
A
(A) and (D) are correct. (B) is one way of proving that the alteration was made prior to execution of the will, but it is not required. For example, the witnesses may alternatively give testimony that the change was made prior to execution. Similarly, the fact that the alteration fills in a blank line on a will form could be proof that the alteration was made before the will was executed.
11
Q
UNATTESTED ALTERATIONSCODICIL
Document that adds to, amends, or partially revokes existing will
A
UNATTESTED ALTERATIONS
* Not signed or initialled
* Unattested alteration presumed to have been made after execution unless filling in blank space
12
Q
What is CODICIL?
A
CODICIL
Document that adds to, amends, or partially revokes existing will
13
Q
Let’s make sure we have these rules straight. Which of the following statements is true?
O (A) Divorce generally
revokes a will of one of the
parties that was in existence at the time of the divorce, but marriage generally does not.
O (B) Both marriage and
divorce generally revoke wills of the parties that were in existence at the time of the marriage or the divorce.
* (C) Marriage generally revokes a pre-existing will, and divorce generally revokes gifts to the former spouse in a will made before the divorce.
* (D) Neither marriage nor
divorce affects a will in
existence at the time the
testator marries or divorces
unless the testator so
declares.
A
(C) is correct. I did my best to confuse you with words, but hopefully I didn’t succeed. Remember our basic rule: marriage generally revokes an existing will of a party, but divorce revokes only gifts and appointments in favour of the former spouse.
14
Q
IMPORTANT
A
Later will revokes earlier will to extent that later will is inconsistent with earlier will
15
Q
- Match the result to the event by typing the letter of the consequence next to the corresponding conduct.
A - The will is revoked
B - The will is not revoked
C - The will is partly revoked
- The testator gets married three years after executing her will.
- The testator executes a will in 2017 and then executes a codicil in 2020.
- The testator, intending to revoke her will, throws it in a fire and burns it.
- The testator gets divorced five years after executing her will, which left most of her estate to her husband.
- The testator accidentally shreds her will while shredding other documents.
A
A
C
A
C
B
16
Q
- What is a codicil?
* (A) A statutory provision that sets out one of the
rules for execution of a will.
* (B) A document executed after a will is executed
that changes one or more provisions of the will.
* (C) The space in a will set aside for the witnesses
to sign and attest to due execution of the will.
A
B
(B) is roughly the definition. There is no special name for (A), and (C) roughly describes an attestation clause. Remember that codicils are not as common as they once were - now that we can print a new will with the click of a mouse - but they were very useful in the age when new wills had to be retyped (or, before then, rewritten by a scribe) from scratch. In any case, the fact that they are not commonly used doesn’t mean that you won’t see the term on your exam, so take heed.
17
Q
- True or False? If a testator was in posession of their will before they died, and the will cannot be found after the testator’s death, a rebuttable presumption will arise that the testator destroyed the will.
O True
O False
A
True
18
Q
What is Legacy and Devise?
A
LEGACY
Gifts of personal property
DEVISE
Gift of real property
19
Q
What types of legacies?
A
TYPES OF LEGACIES
* Specific: gift of particular asset identified in will
* General: gift that does not identify particular item
* Pecuniary: gift of cash
* Demonstrative: general legacy which identifies source of gift
* Residuary: gift of rest of deceased’s estate
20
Q
Match the gift with the corresponding type of legacy by typing the correct letter in each box.
A - Demonstrative legacy
B - General legacy
C - Pecuniary legacy
D - Residuary legacy
E - Specific legacy
- “I give the rest of my estate to Iris.”
- “I give a laptop to Fran.”
- “I give £1,000 to Neil.”
- “I give my emerald ring to Sally.”
- “I give £5,000 to Megan, to be paid from my savings account held at XYZ Bank.
A
D
B
C
E
A
21
Q
Just so you have this straight, if a gift is of “my car” or “my ring” when will the will be treated as speaking?
* (A) The date of the testator’s death.
O (B) The date of the will’s execution.
A
(B) is correct. Although the general rule is that gifts speak at the date of death, for gifts like these we presume that the testator had a contrary intention and wanted the beneficiary to receive the gift as it was on the day of the will’s execution.
22
Q
SPeCIFIC GIFT FAILS IF IT:
A
SPeCIFIC GIFT FAILS IF IT:
* Is no longer part of the estate
* Is subject to binding contract for sale
* No longer meets description in will
23
Q
A testator’s will leaves her estate to her son, her daughter, and her friend in equal shares. The son and the friend die before the testator, and they each leave one child. At the testator’s death, who inherits her estate?
* (A) The daughter only.
* (B) The son’s child only.
* (C) The daughter and the son’s child.
* (D) The daughter, the son’s child, and the friend’s
child.
A
(C) is correct. The daughter and the son’s child inherit the testator’s estate. If a gift is made to a testator’s child or other issue who dies before the testator and who leaves living issue, the living issue will receive the gift. Therefore, the son’s child receives the son’s gift. This rule does not save gifts to beneficiaries other than the testator’s issue, so the gift to the friend is not saved for the friend’s child.
24
Q
- What’s the difference between lapse and ademption?
A
Lapse occurs when a beneficiary named in a will predeceases the testator, leading to the gift “lapsing” or failing, unless the will provides for an alternate arrangement. Ademption, on the other hand, happens when a specific bequest in a will (like a particular item or property) is no longer part of the testator’s estate at the time of their death, causing the gift to be “adeemed” or voided, as the specific item can no longer be given.
25
Which of the following situations will not cause a specific gift to adeem?
* (A) The gift is subject to a binding contract for
sale.
* (B) The gift has changed in name or form.
* (C) The gift no longer meets the description in the
will.
* (D) The gift is no longer part of the testator's
estate.
(B) is correct. A specific gift will adeem if it is subject to a binding contract for sale, no longer meets the description in the will, or is no longer part of the testator's estate. A change in the name or form of the gift does not cause it to adeem.
26
Under intestate succession, what does a surviving spouse receive if there are also surviving issue?
(check all that apply)
* (A) Half of the residue of the
estate.
* (B) Personal chattels.
(C) Half of the interest in the matrimonial home.
* (D) The entire estate.
* (E) £270,000.
(A), (B), and (E) are correct. If there is a surviving spouse and issue, the spouse takes personal chattels, £270,000 and half of the residue of the estate.
27
ORDER OF ENTITLEMEnT
ORDER OF ENTITLEMEnT
* Issue
* Parents
* Brothers and sisters of whole blood
* Brothers and sisters of half blood
28
A man dies, survived by his mother and a sister. He was never married and had no children. Who inherits his estate?
* (A) The mother only.
* (B) The sister only.
O (C) The mother and sister in equal shares.
A. The mother inherits the man's estate. Parents come before siblings in the order of entitlement.
29
ORDER OF ENTITLEMEnT
ORDER OF ENTITLEMEnT
* Must be 18 to inherit by intestacy
* Adopted children treated as children of adoptive parents
* Rules apply regardless of child's parents' marital status
* Stepchildren not considered issue
30
JOINT TENANcY
JOINT TENANcY
* Right of survivorship
* Surviving joint tenant entitled to asset when other dies
31
List the order of entitlement for intestate succession when there is no surviving spouse.
The order of entitlement is issue > parents > siblings of the whole blood > siblings of the half blood.
31
An unmarried woman dies. She had no will. She had two children: a son and a daughter. The son died in a car accident two years before the woman's death. He had two children of his own. The woman's daughter is still living.
How should the woman's estate be divided?
* (A) The daughter receives all of the estate.
* (B) The daughter and the son's two children share the estate equally; one third each.
* (C) The daughter receives half of the estate,
and the son's children receive a quarter each.
(C) is correct. If a beneficiary dies before the intestate, the beneficiary's issue take the beneficiary's share. The son's two children therefore inherit the son's share
equally between them as his issue.
32
True or False?
The proceeds of a life assurance policy pass outside the deceased's will or rules of intestacy, but they form part of the deceased's taxable estate.
False. The proceeds of a life assurance policy do not form part of the deceased's taxable estate.
33
Terminology can be important in wills questions, so let’s make sure you have this down: when is a PR an administrator?
If there is no will, or if there is a will, but no named executor is able or prepared to act, the PR is an administrator. If the PR is provided for in the will, the PR is an executor. Getting this terminology down now will help you later.
34
What do we mean when we say an executor renounces? And what do we mean when we say an executor asks for power to be reserved?
Renunciation means an executor indicates in writing that they do not wish to serve as executor. They can renounce only if they have not intermeddled - that is, only if they have not done something relevant to the estate. A reservation is when the named executor indicates that they do not want to be involved now, but if the substitute executor fails in their duties, the executor whose power is reserved is willing to step in and take over.
35
Match the type of grant of representation by typing its corresponding letter next to the situation for which it is used.
A - Grant of probate
B - Grant of letters of administration with will annexed
C - Grant of letters of administration
1. The deceased did not leave a will.
Grant of representation:
2. The deceased left a valid will.
Grant of representation
3. The deceased left a valid will, but there is no executor.
Grant of representation
1C
2A
3B
36
1. Fill in the blank using one of the below letter choices:
A - A grant de bonis non
B - A grant of probate
C - Letters of administration
D - Letters of administration with will annexed
A testator dies with a valid will, but the executor named in the will renounces probate. The testator's adult daughter wants to administer the testator's estate. She should apply for and clear off the executor and anyone having a better right to the grant.
D
The daughter should apply for letters of administration with will annexed. This grant is used when the deceased left a valid will but there is no executor.
37
2. True or False?
An executor loses their right to renounce by intermeddling in the estate.
O True
O False
True. An executor loses their right to renounce by intermeddling in the estate. This is not true for administrators
38
SUPPORT FOR GRANT
APPLICATION
SUPPORT FOR GRANT
APPLICATION
* Will plus two copies
Official copy of death certificate
* Further supporting documents
* Tax form
39
FURTHER EVIDENCE FOR GRAnT
FURTHER EVIDENCE FOR
GRAnT
Evidence of due execution
* Affidavit confirming deceased's full name
Affidavit of knowledge and approval
Affidavit confirming timing of alterations
* Documents referred to in will
Affidavit of plight and condition
40
Match the legal filing with its use, by typing the corresponding letter of the legal filing next to each use.
A - Caveat
B - Citation to accept or refuse a grant
C - Citation to take probate
1. Force an executor to accept probate.
Legal filing:
2. Clear off a person with a prior right to a grant.
Legal filing:
3. Prevent the issue of a grant.
Legal filing:
C
B
A
41
important but not necessary
Addendum
PRE-GRANT PROCEDURE, APPLYING TO THE COURT, & DEALING WITH HMRC
Since the lecture was recorded, the procedure for applying for the grant has changed.
If the estate is an ‘excepted estate’, no formal IHT account has to be filed unless HMRC request one. Please ignore references in the lecture to IHT Form 205.
Where the estate is not excepted, the PRs must send the IHT form and pay the IHT to HMRC before they apply for the grant. HMRC will then send a receipt to HMCTS Probate.
Where IHT is payable, the grant will not be issued until HMCTS Probate get the IHT receipt.
Please note that the PRs or their solicitor no longer send an IHT form direct to HMCTS Probate.
42
TRANSFERABLE NIL RATE
BAND
TRANSFERABLE NIL RATE
BAND
* Deceased spouse
* Spouse did not use all their nil rate band
* Unused nil rate band transferable to spouse
43
What are the two characteristics of an excepted estate?
An excepted estate is an estate that owes no inheritance tax and does not have to file a formal inheritance tax account.
An excepted estate has two main characteristics: it is not liable for inheritance tax due to its value being below the inheritance tax threshold, and it does not contain any complex elements that would require a full Inheritance Tax account to be delivered to HMRC. This simplifies the administration process for smaller or less complicated estates.
44
Ethan and Ruby were married. Ruby dies, leaving her entire estate worth £50,000 to Ethan. The nil rate band is £325,000.
A few years later, Ethan dies. The nil rate band is the same.
What nil rate band amount should be used for Ethan's estate?
* (A) £50,000
O (B) £325,000
O (C) £600,000
O (D) £650,000
D
Ruby's estate did not use any of its nil rate band because transfers to spouses are exempt from inheritance tax. The unused percentage of the predeceasing spouse’s nil rate band can be transferred to their spouse. Since Ruby didn’t use any of her NRB, the unused percentage is 100%. When we transfer NRB, we multiply the current NRB by the percentage transferable (£325,000 x 100% = £325,000). Thus, £325,000 is added to Ethan's £325,000 to make £650,000.
45
What is nil rate?
The "nil rate" often refers to the "nil rate band" in the context of UK inheritance tax. It is the threshold up to which no inheritance tax is charged on an estate when someone dies. If the total value of the deceased's estate is below this threshold, no inheritance tax is payable. For any portion of the estate above this threshold, inheritance tax is charged at a set rate, which has been 40% for several years. The nil rate band can vary over time due to changes in tax legislation. As of my last update in April 2023, the nil rate band was £325,000. It's important to note that there are certain allowances and reliefs that can affect how much inheritance tax is ultimately due, such as the transferable nil rate band between spouses and the residence nil rate band.
46
Question 1:
What information should a probate solicitor initially gather when dealing with a deceased's estate?
Answer: A probate solicitor should initially gather full details of the deceased's family members, beneficiaries, assets, and liabilities. This includes registering the death with various institutions like banks, insurance companies, and HMRC, and potentially obtaining specialist valuations for certain assets like land or unquoted company shares.
Example: Upon the death of Mr. John Smith, a probate solicitor collects information about his surviving family members, including his spouse and two children. They also gather details on his assets, including a house valued at £300,000, a car worth £20,000, savings amounting to £50,000, and outstanding liabilities totaling £30,000.
47
Question 3:
What are the key steps in applying for a grant of representation?
Answer: The key steps include filling out the appropriate application form, attaching the will and two copies if applicable, an official copy of the death certificate, any required supporting documents such as affidavits for due execution, and the appropriate tax form indicating inheritance tax details. Probate fees must also be paid.
Example: To apply for a grant of probate for her late mother, Ms. Anne Taylor completes the application form, attaches her mother's will and death certificate, includes an affidavit confirming her mother signed the will as "Ann T.", and submits the inheritance tax form along with the probate fees to the court.
47
Question 2:
How can potential Personal Representatives (PRs) handle the payment of inheritance tax to obtain a grant of representation when they need to access
estate assets?
Answer: Potential PRs can handle the payment of inheritance tax by asking the deceased's bank to release funds directly to HMRC, seeking a loan from a bank or beneficiary with a repayment undertaking, requesting life assurance proceeds be paid directly to HMRC if applicable, or selling assets that can be liquidated without a grant.
Example: Mrs. Elizabeth Green, a potential PR for her late husband's estate, arranges with his bank to release £15,000 from his savings account directly to HMRC to cover the estimated inheritance tax due, enabling her to proceed with obtaining a grant of probate.
48
Question 4:
What additional evidence might the court require before issuing a grant of representation?
Answer: The court might require evidence of due execution of the will, confirmation of the deceased's full name, an affidavit confirming knowledge and approval of the will's contents in certain cases, and an affidavit of plight and condition if the will appears tampered with or documents referred to are altered or missing.
Example: The court requests an affidavit of due execution from the witnesses to Mr. Robert Dale's will, as the attestation clause was incomplete. Additionally, due to a visible staple mark, an affidavit of plight and condition is required to ensure no tampering occurred post-death.
49
Question 1:
What are the primary duties of a Personal Representative (PR) in estate administration?
Answer:
The primary duties of a PR are to collect the deceased's assets, pay debts and legacies, and distribute the remaining estate according to the will or intestacy rules.
Example:
If Mr. Smith passes away leaving a will that bequeaths his estate to his two children and several charities, the PRs must first gather all of Mr. Smith's assets, pay off any outstanding debts, fulfill any specific legacies mentioned in the will, and then distribute the remainder of the estate to the children and charities as specified.
50
Question 2:
How must PRs act in accordance with the Trustee Act of 2000?
Answer:
PRs must act with reasonable care and skill, taking into account any specialist knowledge or experience they have, and must always act in the best interest of the estate's beneficiaries.
Example:
If a PR is a professional accountant, they are expected to manage the estate's financial matters with the care and skill typical of their profession, ensuring accurate accounting and financial management throughout the estate administration process.
51
Question 3:
What steps can PRs take to protect themselves from liability?
Answer:
PRs can protect themselves by not being liable for another PR's breach of duty, seeking court relief for honest and reasonable actions, and including exoneration clauses in the will.
Example:
If one PR misappropriates estate funds without the knowledge of the other PRs, those other PRs can seek to protect themselves from liability by demonstrating their non-involvement and reasonable conduct in managing the estate.
52
Question 4:
What is the significance of Section 27 of the Trustee Act 1925 for PRs?
Answer:
Section 27 protects PRs from unknown claims by allowing them to place adverts in The London Gazette and local newspapers, calling for potential creditors or beneficiaries to come forward within a specified time frame.
Example:
After Mr. Johnson's death, the PR places adverts in The London Gazette and a local newspaper near Mr. Johnson's last residence, asking any unknown creditors or beneficiaries to present their claims within two months.
53
Question 5:
How can PRs handle assets intended for minor beneficiaries?
Answer:
PRs can appoint trustees for minor beneficiaries if they are absolutely entitled to the assets, or manage the assets themselves until the minor reaches adulthood if the interest is contingent.
Example:
If 10-year-old Lucy is left £5,000 in her uncle's will with no conditions attached, the PRs can appoint a trustee to manage this money on her behalf until she turns 18. If the will had specified that Lucy would receive the money upon graduating from university, the PRs would need to manage the funds until that condition is met.
54
Fill in the blank in the below sentence:
A court can relieve a PR from liability for breach of duty if it is satisfied that the PR acted____.
Honestly and reasonably and ought fairly to be excused for the breach.
55
True or False?
Both the power of maintenance and the power to advance capital can be used to benefit only minor beneficiaries.
O True
O False
False. The power of maintenance is used to support minors, but the power to advance capital can be used for beneficiaries of any age.
56
Let's make sure we have the time period down:
How long must a PR give creditors to respond to an advert seeking claims against a decedent's estate?
* (A) Two months from the date of the decedent's
death.
O (B) Two months from the date of the grant.
* (c) Two months from the date of the advert.
C
To be protected against claims from such persons, the PR must place an advert and give potential beneficiaries and creditors at least two months to respond to the advert. Nothing difficult here, but I see this as a very testable rule.
57
The power to maintain a minor allows trustees to apply income for which named purposes?
* (A) The healthcare, education, or benefit of the
minor.
* (B) The maintenance, education, or benefit of
the minor.
O (C) The maintenance, education, or legal fees
of the minor.
* (D) The healthcare, education, or legal fees of
the minor.
B
Under the power to maintain a minor, trustees can apply the income for the maintenance, education, or benefit of the minor.
58
PRs can protect themselves from liability to any unpaid beneficiaries or creditors by placing adverts in certain publications.
What are those publications?
PRs can protect themselves by placing adverts in The London Gazette and local newspapers in areas where the deceased owned land or buildings, and possibly trade publications if the deceased ran a business.
The London Gazette, a newspaper local to the area where the deceased owned land, and trade publications (if relevant).
59
Question: When an estate is solvent, what should PRs prioritize in terms of payments?
Answer: PRs should prioritize paying off any loans taken to cover the estate's IHT liability and consider the terms of the will, beneficiary wishes, and tax implications in deciding which assets to sell.
60
Example Scenario: John's will leaves his watch to his friend Peter, a painting to his sister Mary, and the rest of his estate to his son. If John's estate is solvent but needs to pay off some debts, which asset should be considered last for sale?
Answer: The painting left to Mary should not be considered for sale until all other assets have been sold, as it is a specific bequest.
60
Question: What is the statutory order for payment of unsecured debts in a solvent estate?
Answer: The order is: property not disposed of in the will, property forming part of the residue, property given for the payment of debts, property specifically charged with the payment of debts, any fund for pecuniary legacies, and finally, property subject to specific bequests or devises.
61
Question: What happens if an estate is insolvent, and there are insufficient funds to pay all expenses and liabilities?
Answer: In an insolvent estate, there's a specific order in which creditors are paid: funeral, testamentary, and administration expenses first, then preferred debts, followed by ordinary debts, and finally, deferred debts.
62
Example Scenario: Emily's estate is insolvent, with debts including funeral expenses, employee wages, bank loans, and a loan from her spouse. In what order should these debts be paid from the estate's assets?
Answer: First, the funeral expenses, then employee wages as preferred debts, followed by the bank loans as ordinary debts, and lastly, the loan from her spouse as a deferred debt.
63
Question: What are the options available to PRs if a beneficiary disclaims their inheritance?
Answer: If a beneficiary disclaims their inheritance, it falls into the residue. If the residue is being disclaimed, then there is a partial intestacy.
64
ORDER AssETS SHOUld Be Used tO PAY DeBTS
* Property not disposed of in will
* Property which forms part of residue
* Property given for payment of debts
* Property specifically charged with debt payment
* Fund for pecuniary legacies
* Property specifically bequeathed or devised
65
Example Scenario: If a beneficiary specifically wants an asset like a piece of jewellery from the estate, what should PRs consider?
Answer: PRs should consider the beneficiary's wishes, where possible, before deciding on selling assets to meet the estate's liabilities.
66
What is a solvent estate?
(A) An estate with
sufficient assets to pay
all inheritance tax.
* (B) An estate with sufficient assets to pay all expenses, debts, liabilities, and legacies in full.
(C) An estate with
sufficient assets to pay all expenses, debts, and other liabilities in full.
O (D) An estate with
sufficient assets to pay all expenses and secured debts in full.
`C
A solvent estate is an estate with sufficient assets to pay all expenses, debts, and other liabilities in full. Whether the legacies under the will can be satisfied is irrelevant.
67
Time for some reinforcement.
Rank the following debts in the correct order of priority by labelling them 1-4.
(A) Ordinary debts.
Rank:
(B) Funeral, testamentary, and administration expenses.
Rank:
(C) Loans from the deceased's spouse.
Rank:
(D) Preferred debts such as an employee's wages.
Rank:
b
d
a
c
68
True or False?
A beneficiary can disclaim a gift even if the beneficiary has accepted a benefit from it.
O True
O False
False. A beneficiary cannot disclaim a gift if the beneficiary has accepted a benefit from it. However, a variation can be made even if the beneficiary has accepted a benefit.
69
True or False?
If a beneficiary disclaims a gift, they have no control over who receives the gift.
* True
O False
True. If a beneficiary disclaims a gift, the gift falls into the residue or into partial intestacy. The beneficiary has no control over who receives the gift. A variation allows a beneficiary to change who receives the gift.
70
OPTIONS FOR GIFTS TO MINORS
OPTIONS FOR GIFTS TO MINORS
Hold property until minor reaches 18
Use power of appropriation
* Appoint trustees to hold property until child reaches 18
Pay legacy into court
71
A testator left £7,000 to her niece, £5,000 to her nephew, and £3,000 to her friend. However, the estate has only £9,000 to pay these legacies. How should the estate be distributed?
* (A) £7,000 to the niece, £2,000 to the nephew, and nothing to the friend.
O (B) £4,500 to the niece and $4,500 to the nephew.
* (C) £3,000 to the niece, £3,000 to the nephew, and £3,000 to the friend.
O (D) £4,200 to the niece, £3,000 to the nephew, and
£1,800 to the friend.
D
When there are insufficient assets to pay all the legacies in full, the legacies abate proportionally. Here, the estate has 60% of the money needed to pay the legacies. Accordingly, each beneficiary receives 60% of their legacy.
72
Question: What are estate accounts and what purpose do they serve in the administration of an estate?
Answer: Estate accounts are documents prepared by Personal Representatives (PRs) to show assets, liabilities, income, expenses, and distribution related to the deceased's estate. They demonstrate to residuary beneficiaries the estate's composition, financial activities during administration, and how assets are distributed.
Example: An estate account might begin with details of the deceased, like their name and date of death, followed by a listing of assets and liabilities, including bank accounts, properties, debts, and funeral expenses. It could show income received from dividends or rent and payments made for taxes or legal fees, culminating in the distribution to beneficiaries.
73
Question: What is an assent in the context of estate administration?
Answer: An assent is an acknowledgment by PRs that an asset is no longer required for estate administration purposes and can be transferred to a beneficiary. It vests the legal estate in the beneficiary, relating back to the date of death, thereby entitling the beneficiary to any income from that date.
Example: If a deceased person left a property to their nephew in their will, the PRs would issue an assent to transfer the legal title of the property to the nephew. The assent document would state that the property is being transferred and, if the property is registered land, would be used to register the nephew as the new owner with the Land Registry.
74
Question: How can beneficiaries protect their rights if they are unhappy with the estate administration?
Answer: Beneficiaries can apply to court to ensure proper administration of the estate, take personal action against PRs for losses from breaches of duty, or if applicable, make a claim under the Inheritance (Provision for Family and Dependents) Act 1975 for reasonable financial provision.
Example: If a beneficiary believes that a PR is mismanaging the estate, resulting in financial loss, they could take legal action against the PR for breach of duty. Alternatively, if a child of the deceased feels inadequately provided for under the will or intestacy rules, they could apply for an order under the 1975 Act for reasonable financial provision.
75
Match the individuals with the standard for reasonable financial provision that applies to them, by typing the corresponding letter into the box.
A - Such financial provision as would be reasonable in all the circumstances, whether or not required for maintenance.
B - Such financial provision required for maintenance such that they can live decently and comfortably according to their situation.
1. Child of the deceased.
2. Person who was being maintained by the deceased.
3. Spouse of the deceased.
4. Person who cohabited with the deceased during the two years before the deceased's death.
B
B
A
B
75
Loss TO DONOR
Loss TO DONOR
* The size of a gift is measured by how much it reduces the donor's estate
76
What triggers Inheritance Tax (IHT) on lifetime gifts?
IHT can apply to certain lifetime gifts to prevent avoidance of inheritance tax, particularly if someone transfers significant assets close to their death.
76
What is the nil rate band for IHT?
The nil rate band for IHT is currently £325,000, meaning estates valued below this are not subject to IHT.
77
What is the loss to donor rule in IHT?
This rule determines if a transfer of property is subject to IHT by assessing if the donor’s estate has diminished in value due to the transfer.
77
How is IHT charged for UK domiciled vs non-UK domiciled individuals?
UK domiciled individuals are subject to IHT on their global assets, while non-UK domiciled individuals are only taxed on their UK assets.
78
How is a Potentially Exempt Transfer (PET) treated for IHT?
A PET becomes fully exempt from IHT if the donor survives for seven years after making the gift. If the donor dies within seven years, the PET becomes chargeable, and the recipient may owe IHT.
78
What types of lifetime transfers are exempt from IHT?
Exempt transfers include those to a spouse, to charities, small gifts (up to £250 per person), gifts on marriage, and normal expenditure out of income.
79
What are Chargeable Lifetime Transfers (CLTs) and how are they taxed?
CLTs are typically gifts to trusts that are immediately chargeable to IHT if they exceed the nil rate band and any available annual exemption. The tax rate is 20% if paid by the trust and 25% if paid by the donor.
80
How does the related property rule affect IHT valuation?
If a spouse owns property related to the donor’s property, its value is considered in valuing the donor’s property for IHT purposes, potentially increasing the taxable value.
81
How does the annual exemption for IHT work?
Individuals have a £3,000 annual exemption for IHT, which can be carried forward for one year. This exemption is applied to the first non-exempt gift made in a tax year.
82
What implications does making a gift within seven years of death have on IHT?
If a donor makes a gift within seven years of their death and it's not covered by any exemption, the gift may become chargeable to IHT, with the recipient responsible for the tax.
83
EXEMPTION FOR NORMAL EXPENDITURE OUT OF INCOME
EXEMPTION FOR NORMAL EXPENDITURE OUT OF INCOME
* Gifts that are regular or habitual in nature
* Out of surplus income; and That do not affect the standard of living of the person making them
84
Let's assume I have not made a gift during the 2 previous tax years. This year, I made a £10,000 gift. How much of my £10,000 gift will be exempt?
O A) £6,000
O B) £9.000
A
I can carry forward an unused exclusion only from the previous year. I have lost my exclusion from 2 years ago.
85
Let's be sure you have this down. Let's assume I made no gifts last tax year, and this year I made a £10,000 gift. How much of my £10,000 gift will be exempt?
O (A) €1.000
O (B) £3,000
* (C) £6,000
O (D) £10,000
C
Since I did not make a gift last year, my £3,000 annual exemption was unused and I can carry that forward into this year. I also can take my £3,000 exemption for this year, for a total exemption of £6,000.
86
In January 2022, do we care about a chargeable lifetime gift that was made in March 2017? If so, why? If not, why not?
Yes, we do care about a chargeable lifetime gift made in March 2017 when considering another gift made in January 2022. The reason is that inheritance tax on chargeable lifetime transfers (CLTs) is cumulative over a seven-year period. When assessing the tax implications of the 2022 gift, any previous CLTs made within the seven years preceding the 2022 gift need to be taken into account to determine if the total gifts exceed the nil rate band, potentially leading to inheritance tax liability on the excess amount.
87
During her lifetime (after applying relevant annual exemptions), Brenda made the following gifts into a discretionary trust:
* £150,000 on 10 August 2011
* £230,000 on 13 June 2014
* £295,000 on 22 November 2020
The above amounts are chargeable amounts after exemptions. The trustees agreed to pay the tax in all cases, except for the gift on 22 November 2020.
The nil rate bands were as follows:
* 2011/12: £300,000
* 2014/15: £325,000
* 2020/21: £325,000
Calculate the lifetime inheritance tax payable as a result of the gift on 22 November 2020.
O ALSO
O (B) £73,750
O (C) £50.000
O (D) £59.000
© (1 £40.000
c
(C) is correct. To calculate the lifetime inheritance tax, we look to see if there were any chargeable lifetime transfers (CLTs) in the 7 years before the most recent CLT. There was: the 2014 gift. The 2011 gift is too old, and we ignore it. The 2014 gift would use up the first £230,000 of the 2020/21 nil rate band (NRB), leaving £95,000 NRB remaining. As the 2014 gift is fully within the NRB, the trustees would not owe any tax on it. We then subtract the remaining £95,000 of NRB from the £295,000 2020 gift, leaving a chargeable gift of £200,000. As Brenda (the donor) has agreed to pay the tax on the 2020 gift, the tax rate would be 25%. 25% of £200,000 is £50,000.
88
DEATH TAX On PETS
DEATH TAX On PETS
* Nil rate band at date of death
Inheritance tax rates at date of death
Value of PET when made
89
What is a potentially exempt transfer (PET), and what happens if the donor does not survive seven years after making the PET?
Answer: A potentially exempt transfer (PET) is a gift made by one individual to another that is not immediately chargeable to inheritance tax at the time of the transfer. If the donor dies within seven years of making the PET, the gift becomes chargeable to inheritance tax, and the tax is based on the value of the PET at the time it was made, using the nil rate band and tax rates in force at the date of the donor's death.
89
How is a chargeable lifetime transfer (CLT) treated differently from a PET?
Answer: A CLT is a gift, typically to a trust, that is immediately chargeable to inheritance tax at the time of the transfer if it exceeds the available nil rate band and any applicable exemptions. In contrast, a PET is not immediately chargeable to tax but may become chargeable if the donor dies within seven years of making the gift. The tax rates for CLTs are 20% if paid by the trustees and 25% if paid by the donor.
89
What reliefs are available for business and agricultural property, and how do they apply to lifetime transfers and transfers on death?
Answer: Business relief (or business property relief) and agricultural property relief reduce the value of qualifying business or agricultural property given as a lifetime gift or transferred on death by either 100% or 50%. These reliefs are applied before any annual exemptions and can significantly reduce or eliminate the inheritance tax payable on such transfers.
90
How is the inheritance tax calculated on a deceased's estate, and what exemptions apply?
Answer: The inheritance tax on a deceased's estate is calculated by taking the net value of all the deceased's assets at the date of death, subtracting any debts or liabilities, and then applying the nil rate band. Any amounts exceeding the nil rate band are taxed at 40%. Exemptions include transfers to a surviving spouse or to charities, which are exempt from inheritance tax.
90
In January 2020, Vernon gave £216,000 to his son.
How would you classify this gift?
This gift of £216,000 made by Vernon to his son in January 2020 would be classified as a Potentially Exempt Transfer (PET).
91
How do the related property rule and valuation rules affect the value of assets for inheritance tax purposes?
Answer: The related property rule can increase the value of an asset for inheritance tax purposes if a spouse owns related property, by valuing the assets together rather than individually. For co-owned property, especially if not owned with a spouse, the value may be discounted to reflect the reduced marketability of a partial interest. However, if co-owners are spouses, each owner's share is valued as the appropriate percentage of the total property value without a discount.
92
Did Vernon owe any tax on the £216,000 gift when he gave it to his son?
No, Vernon did not owe any tax on the £216,000 gift when he gave it to his son because it was a Potentially Exempt Transfer (PET), and there is no immediate tax liability on PETs at the time they are made.
93
Did Vernon owe any tax on the £216,000 gift when he gave it to his son?
No, Vernon did not owe any tax on the £216,000 gift when he gave it to his son because it was classified as a Potentially Exempt Transfer (PET), which does not incur immediate tax liability at the time of the gift.
94
Is the son entitled to taper relief with regard to the £14,800 tax he owes on the PET his father made to him 2 years before he died?
O A) Yes
O (B) No
No
95
REQUIREMEnTs FOR AGRICULTURAL RELIEF
REQUIREMEnTs FOR AGRICULTURAL RELIEF
* Property must be in UK, Crown Dependencies, or
European Economic Area State
* Applies only to property's agricultural value
* If owner-occupied, transferor must own property for 2 years
* If not owner-occupied, transferor must own property for 7 years
96
CALCULATINg DEATH TAX
CALCULATINg DEATH TAX
* Deemed to make chargeable transfer of net value of assets at date of death
Net value = Assets - Debts
and Liabilities
* No annual exemption is given
97
Gabriella died on 15 January 2021. Her net estate at the date of death was valued at £500,000. Her entire estate was inherited by her nephew, Theo. Gabriella did not make any significant gifts during her lifetime.
How much tax is payable on Gabriella's estate?
The tax payable on Gabriella's estate is £70,000.
98
Richard gave his daughter a wedding gift of £55,000 on her wedding date, 9 June 2020. Richard had not made any previous lifetime gifts.
What is the gross chargeable amount of the PET?
* (A) £39,000
* (B) £40,000
O (C) £42,500
* (D) £44,000
* (E) £48,550
The transfer of value (£55,000) minus the marriage exemption (£5,000) minus annual exemptions for 2020/21 (£3,000) and 2019/20 (£3,000) equals a gross chargeable amount of £44,000.
99
What can be deducted from the gross value of an estate when calculating inheritance tax?
Q: What types of liabilities are deductible from an estate's gross value for inheritance tax purposes?
A: Allowable liabilities such as mortgages, credit card debts, taxes owed by the deceased, and reasonable funeral expenses can be deducted. UK probate costs are not deductible.
100
How can a lower rate of inheritance tax be applied to a deceased's estate?Q: What can reduce the inheritance tax rate on a deceased's estate from 40% to 36%?
A: Giving 10% or more of the deceased's baseline amount to charity can reduce the inheritance tax rate to 36%. The baseline amount is calculated after deducting reliefs, exemptions, and the available nil rate band, excluding the charitable legacy itself.
101
What is the Transferable Nil Rate Band and how does it work?Q: How can a surviving spouse benefit from their deceased spouse's unused nil rate band?
A: The surviving spouse can claim the unused percentage of the nil rate band from their deceased spouse, increasing their own nil rate band for inheritance tax calculations upon their death.
102
What conditions must be met for the Residence Nil Rate Band (RNRB) to apply?Q: Under what conditions is the Residence Nil Rate Band applicable to an estate?
A: The estate must include a home used as the deceased's residence, and the home or its proceeds must be left to lineal descendants or their spouses. The RNRB does not apply if the deceased had no children.
103
What are the anti-avoidance provisions related to gifts with reservation of benefit?
Q: How do anti-avoidance provisions affect gifts where the donor retains a benefit?
A: If a donor continues to benefit from a gifted asset, it's considered a gift with reservation of benefit and is treated as part of the donor's estate at death, potentially at a higher value.
What are the responsibilities of Personal
103
How are postmortem reliefs applied in the context of estate administration?
Q: What happens if assets from an estate are sold for less than their probate value?
A: Personal representatives can claim postmortem relief, allowing them to substitute the lower sale value for the probate value, thereby reducing the inheritance tax payable. This relief is mainly applicable to quoted shares and land and buildings.
104
Representatives (PRs) regarding taxes in estate administration?
Q: What tax responsibilities do Personal Representatives have during estate administration?
A: PRs must complete the deceased's tax return up to the date of death, file it, pay any due taxes, and handle income and capital gains tax on estate assets during administration. They may also opt for informal payments covering the entire administration period.
105
How is Capital Gains Tax handled in estate administration?
Q: What happens if personal representatives sell an estate asset for a gain?
A: They must pay Capital Gains Tax on gains exceeding the annual exemption, at rates of 20% or 28% for residential property. The beneficiary is deemed to acquire distributed assets at probate value, not triggering Capital Gains Tax for the PRs.
106
What is Quick Succession Relief and when does it apply?
Q: What is Quick Succession Relief and in what circumstances does it apply to an estate?
A: Quick Succession Relief applies when an asset is taxed twice to inheritance tax within a five-year period, reducing the tax payable on the second occurrence based on the time elapsed between the two deaths.
107
RESIDEnCE NIL RATE
BAND COnDITIOnS
RESIDEnCE NIL RATE
BAND COnDITIOnS
* A home which has at some point been used as the deceased's private residence;
and
* The home or the proceeds of the home were left to lineal descendants
Applies to death estate only
Amount limited to lesser of value of home or the statutory
RNRB amount (£175,000)
108
Let's make sure you've got the figures in your head:
1. At what amount does the residence nil rate band begin to taper?
* (A) £325,000
* (B) 2 million
O (C) $2.35 million
B
109
For each £1 over the applicable taper threshold, how much will the RNRB taper?
O (A) SI
O (8) 50p
O (C) 52
B
The RNRB tapers at a rate of 1:2.
110
QUICK SUCCESSION RELIEF
QUICK SUCCESSION RELIEF
* Applies when someone dies within 5 years of paying IHT on some inheritance
Decreases by 20% for each year between donor and recipient's deaths
Property need not be in decedent's estate
111
POST-MORTEM RELIEF
APPLICATION
* Quoted shares
* Land/buildings
112
important
WHEN IS TAX DUE?
CLTs - Later of 6 months from the end of the month in which the CLT is made and 30 April following the end of the tax year of the gift. If donor dies within 7 years, additional tax is due 6 months after the end of the month of death.
PETs - Any death tax is due 6 months from the end of the month in which the donor dies.
Death Estate - Any death tax is due 6 months from the end of the month in which the donor dies.
WHO PAYS?
CLTs - Donor or trustees out of trust funds. If donor dies within 7 years, additional tax is paid by trustees
PETs - Recipient of the gift
Death Estate - It depends - see study guide
113
Howard died on 20 December 2019, and left an estate worth £2,152,000 to his daughter.
Howard's main residence is valued at £600,000
and was included in the total value of the estate.
Howard did not make any lifetime gifts.
The residence nil rate band (RNRB) for 2019/20 is
£150,000.
How much inheritance tax is payable on
Howard's death estate?
* (A) £620,800
O (B) £731,600
* (C) £730,800
O () £701,200
* (E) £670,800
D
We take the death estate (£2,152,000) minus the RNRB at death of £74,000 (tapered £1 for every £2 over £2 million), minus the NRB at death (£325,000) to reach a taxable amount of £1,753,000. Inheritance tax at a rate of 40% on £1,753,000 equals £701,200.
