Diploma in Professional Legal Practice (DPLP) Private Client: Wills, Trusts, Executries and Tax Syllabus

What is meant by 'ingathering' the estate in executry administration?

Ingathering is the executor's task of collecting in (realising/taking control of) the deceased's assets — encashing accounts, transferring shares, selling or transferring property — after Confirmation, so that debts can be paid and the estate distributed.

In what order must an executor pay claims against the estate before distributing legacies to beneficiaries?

Funeral and deathbed expenses, then administration/executry expenses, then the deceased's debts (secured and unsecured) and tax; only the remaining net estate is then available for legal rights and legacies.

Define a 'trust' in Scots law and name the three essential parties to a trust.

A trust is a legal relationship where a truster transfers property to trustees who hold and administer it (the trust estate) under a fiduciary duty for the benefit of beneficiaries (or a purpose). The three parties are the truster (settlor), the trustee(s), and the beneficiary/ies.

Distinguish an inter vivos (lifetime) trust from a mortis causa (testamentary) trust.

An inter vivos trust is created and takes effect during the truster's lifetime by a trust deed. A mortis causa trust is created by will and takes effect on the truster's death.

What is the essential difference between a 'liferent and fee' arrangement and a 'discretionary trust'?

In a liferent/fee, a liferenter has a right to income/use of property for life while the fiar owns the capital (taking it on the liferenter's death). In a discretionary trust, trustees have discretion to decide which beneficiaries (from a class) receive income or capital and how much, so no beneficiary has a fixed entitlement.

What is a 'bare trust' (or simple trust)?

A bare trust is one where the beneficiary has an absolute, immediate and unconditional right to the trust property; the trustee holds legal title as nominee only and must transfer the property to the beneficiary on demand (e.g. property held for an adult of full capacity).

How does a trust validly come into existence in Scots law (constitution)?

A trust is constituted by (1) a declaration of trust identifying truster, trustees, beneficiaries and purposes, AND (2) transfer (delivery/divestiture) of the trust property to the trustees — except where the truster declares themselves sole trustee, which requires intimation to a beneficiary.

Name four default general powers conferred on trustees by s.4 of the Trusts (Scotland) Act 1921, provided they are not at variance with the trust purposes.

Power to sell trust estate; to grant leases; to borrow on the security of trust estate; to acquire heritable property; to appoint factors and law agents; and to compromise/settle claims (any of these acceptable).

What are the core fiduciary duties of a trustee?

To act in the beneficiaries' interests; not to be 'auctor in rem suam' (no conflict of interest / no personal profit from the trust); to act gratuitously unless authorised; to take reasonable care; to act impartially between beneficiaries; to keep accounts; and to invest prudently.

What does the maxim 'auctor in rem suam' prohibit a trustee from doing?

It prohibits a trustee from placing themselves in a position where their personal interest conflicts with their duty to the trust — e.g. buying trust property, profiting personally from the trusteeship, or transacting with the trust — unless expressly authorised by the trust deed or beneficiaries.

What standard of care governs trustee investment decisions under the Charities and Trustee Investment (Scotland) Act 2005?

Trustees must have regard to the suitability of investments and the need for diversification appropriate to the trust, and must obtain and consider proper advice (unless reasonably concluded unnecessary), exercising the care of a prudent person managing another's affairs.

How may a trustee resign, and is a sole trustee able to resign?

Under the Trusts (Scotland) Act 1921 a trustee may resign by minute or deed of resignation. A sole trustee cannot resign until a new trustee (or judicial factor) has been assumed/appointed to take their place.

Under what circumstances can the court remove a trustee?

The court may remove a trustee who is insane, incapable of acting, has been absent continuously for a statutory period, or has disappeared; and under its nobile officium/common law where a trustee's conduct (e.g. misconduct, conflict, refusal to act) endangers the trust administration.

What is the rule in Miller's Trustees / the common law on variation of trust purposes by beneficiaries, and what statutory mechanism assists?

At common law, if ALL beneficiaries are of full age and capacity and together exhaust the beneficial interest (consensus omnium), they may agree to terminate or vary the trust. Where some beneficiaries cannot consent (minors, unborn, incapax), the court may approve a variation on their behalf under s.1 of the Trusts (Scotland) Act 1961.

What must the court be satisfied of before approving a variation under s.1 of the Trusts (Scotland) Act 1961 on behalf of those who cannot consent?

That the proposed arrangement is NOT prejudicial to (i.e. is for the benefit of, or not to the detriment of) the persons on whose behalf the court's approval is sought — typically minor, unborn or incapable beneficiaries.

What is the standard nil-rate band (NRB) for Inheritance Tax and the standard rate of IHT on death?

The nil-rate band is £325,000 (frozen). IHT is charged at 40% on the value of the estate above available nil-rate bands (reduced to 36% where 10% or more of the net estate is left to charity).

What is the residence nil-rate band (RNRB) and its maximum value?

The RNRB is an additional IHT allowance (maximum £175,000) available where a residence is passed on death to direct descendants (children/grandchildren). It tapers away by £1 for every £2 by which the estate exceeds £2,000,000.

How does the transferable nil-rate band between spouses/civil partners work for IHT?

Transfers between UK-domiciled spouses/civil partners are exempt. On the second death, any percentage of the first deceased's NRB (and RNRB) unused can be transferred to the survivor's estate, so a couple can have up to £650,000 NRB plus up to £350,000 RNRB.

What is a 'potentially exempt transfer' (PET) and what is the '7-year rule'?

A PET is an outright lifetime gift to an individual that becomes wholly exempt from IHT if the donor survives 7 years. If the donor dies within 7 years, the gift becomes chargeable; tax is then assessed using the cumulation principle.

Explain 'taper relief' on lifetime gifts for IHT.

Where a donor dies between 3 and 7 years after a chargeable gift that exceeds the NRB, the IHT due on that gift is reduced on a sliding scale: 20% reduction (3–4 yrs), 40% (4–5), 60% (5–6), 80% (6–7). It reduces the tax, not the value, and only bites where the gift exceeds the NRB.

Name three key annual/exempt lifetime gift reliefs for IHT.

Annual exemption £3,000 per year (can carry forward one unused year); small gifts exemption £250 per recipient per year; normal expenditure out of income exemption; and wedding/civil partnership gifts (£5,000 parent, £2,500 grandparent, £1,000 others).

What is a 'gift with reservation of benefit' (GROB) and its IHT consequence?

A GROB is a gift where the donor continues to enjoy a benefit from the gifted asset (e.g. gifting a house but continuing to live in it rent-free). The asset remains within the donor's estate for IHT as if no gift had been made, defeating the intended saving.

How are most lifetime transfers into a discretionary trust treated for IHT (the 'relevant property' regime)?

A gift into a discretionary trust is a chargeable lifetime transfer (CLT): IHT at the lifetime rate of 20% applies on value above the NRB at the time. The trust is then subject to periodic (10-yearly) charges and exit charges at up to 6% under the relevant property regime.

What are Business Relief and Agricultural Relief for IHT, and at what rates?

Business Relief reduces the value of qualifying business assets (e.g. unquoted trading company shares) by 100% or 50%; Agricultural Relief reduces qualifying agricultural property value by 100% or 50%. Both can substantially reduce or eliminate IHT on those assets (subject to recent reforms capping 100% relief).

What is the Capital Gains Tax position on assets passing on death (the 'CGT uplift')?

There is no CGT charge on death; instead the deceased's assets are deemed to be acquired by the executors/beneficiaries at their market value at the date of death ('uplift' or rebasing), so accrued gains during the deceased's lifetime escape CGT.

How is Capital Gains Tax treated when assets are put INTO a trust and when they leave a trust?

A transfer into a trust is a disposal at market value, potentially triggering CGT (though hold-over relief may defer the gain). When assets leave the trust to a beneficiary it is also a deemed disposal at market value by the trustees, again potentially eligible for hold-over relief.

What CGT annual exempt amount and rate generally apply to trustees of a settlement?

Trustees generally have a CGT annual exempt amount equal to HALF the individual's allowance, and pay CGT at the higher trust rate (currently 20% on most assets, 24% on residential property).

Distinguish the legal effect of an ordinary Power of Attorney from a continuing/welfare power under the Adults with Incapacity (Scotland) Act 2000.

An ordinary (common law) power of attorney falls when the granter loses capacity. A continuing power of attorney (financial/property) and a welfare power of attorney, granted under the 2000 Act and registered with the Office of the Public Guardian, continue or take effect after the granter loses capacity.

What formalities must a continuing or welfare power of attorney meet to be valid under the Adults with Incapacity (Scotland) Act 2000?

It must be in writing, expressly state the granter's intention that it continue/take effect on incapacity, be subscribed by the granter, include a certificate by a solicitor or doctor confirming the granter understood its nature and was not acting under undue influence, and be registered with the Office of the Public Guardian.

State the five statutory general principles that must be followed under s.1 of the Adults with Incapacity (Scotland) Act 2000 when intervening in an adult's affairs.

(1) Benefit — the intervention must benefit the adult; (2) Minimum necessary intervention; (3) take account of the adult's present and past wishes/feelings; (4) consult relevant others (nearest relative, carers, etc.); and (5) encourage the adult to exercise/develop any residual skills.

What is a 'guardianship order' under the Adults with Incapacity (Scotland) Act 2000 and how does it differ from an intervention order?

A guardianship order is a Sheriff Court appointment of a guardian to make ongoing financial, property and/or welfare decisions for an adult lacking capacity (longer-term). An intervention order authorises a one-off or specific decision/action, rather than continuing authority.

How does the Adults with Incapacity (Scotland) Act 2000 define when an adult is 'incapable'?

An adult is 'incapable' (s.1(6)) if, because of mental disorder or inability to communicate due to physical disability, they are unable to act, make decisions, communicate decisions, understand decisions, or retain the memory of decisions — in relation to the matter in question. Capacity is decision-specific and time-specific.

When taking instructions for a will, what professional steps should a solicitor take to assess and evidence the client's testamentary capacity?

Apply the 'golden rule': where capacity is in any doubt (especially elderly or ill clients), arrange for the will to be assessed and witnessed/approved by a medical practitioner, record the assessment, take instructions from the client alone, and keep detailed attendance notes evidencing understanding and absence of undue influence.

What is 'undue influence' / 'facility and circumstances' as a ground for challenging a will in Scots law?

'Facility and circumstances' allows reduction of a will where the testator was in a weakened (facile) state and another person, taking advantage of that, exerted influence (circumvention) resulting in the testator's prejudice (lesion). It is distinct from but related to undue influence arising from a relationship of trust.

What conflict-of-interest duty arises where a solicitor is asked to prepare a will that leaves a significant gift to the solicitor or their family?

The solicitor faces a clear conflict; professional rules require they decline to act and advise the client to obtain independent legal advice before making such a gift, otherwise the gift is vulnerable to challenge and the solicitor risks a finding of professional misconduct.

What is a 'codicil' and how does it relate to the original will?

A codicil is a separate testamentary writing that adds to, amends, or partially revokes an existing will without replacing it wholly. It must meet the same formal validity requirements (writing and subscription) and is read together with the original will, which otherwise remains in force.

Distinguish a 'specific legacy', a 'general legacy' and the 'residue' in will drafting.

A specific legacy is a gift of a particular identified asset (e.g. 'my diamond ring'). A general legacy is a gift not of a specific item, payable out of the general estate (e.g. 'a sum of £5,000'). The residue is everything remaining after debts, expenses, legal rights and prior legacies are satisfied, passing to the residuary beneficiary.

What is 'ademption' of a legacy?

Ademption occurs where a specific legacy fails because the specific subject of the gift no longer forms part of the testator's estate at death (e.g. it was sold or destroyed). The legatee receives nothing in its place unless the will provides otherwise.

What is the effect of a 'survivorship destination' in the title to heritable property on death?

A special destination (e.g. title to A and B 'and the survivor of them') means that on the death of one co-owner their share passes automatically to the survivor by operation of the destination, outside the will and generally not defeated by a contrary testamentary provision unless the destination is evacuated where competent.