Solicitors Qualifying Examination (SQE) Wills, Trusts and Estate Administration (FLK2) Syllabus

What does it mean for issue to take 'on the statutory trusts' under intestacy?

Issue take in equal shares contingent on attaining 18 or marrying/forming a civil partnership earlier. If a child predeceased leaving issue, those grandchildren take their parent's share per stirpes (by substitution).

Which categories of person may apply for financial provision under the Inheritance (Provision for Family and Dependants) Act 1975?

Spouse/civil partner; former spouse/civil partner who has not remarried; a cohabitant of 2+ years; a child of the deceased; a person treated as a child of the family; and any person maintained wholly or partly by the deceased immediately before death.

What is the time limit for bringing a claim under the Inheritance (Provision for Family and Dependants) Act 1975?

Within six months from the date of the grant of representation, although the court has discretion to extend this period.

Distinguish the two standards of provision under the 1975 Act.

The surviving spouse/civil partner standard: such provision as is reasonable in all the circumstances, whether or not required for maintenance. The ordinary standard (all other applicants): such provision as is reasonable for the applicant's maintenance only.

Name several of the 'common guidelines' a court considers under section 3 of the 1975 Act.

The applicant's financial resources and needs; those of other applicants and beneficiaries; the deceased's obligations and responsibilities; the size and nature of the estate; any physical/mental disability; and any other relevant conduct or circumstances.

What is the difference between an executor and an administrator?

An executor is a personal representative appointed by the will and derives authority from the will (proved by grant of probate). An administrator is appointed where there is no valid executor and derives authority only from the grant (letters of administration).

From what moment does an executor's authority derive, compared with an administrator's?

An executor's authority derives from the will and runs from the date of death (the grant merely confirms it). An administrator has no authority until the grant of letters of administration is issued.

What is the chain of representation and to which PRs does it apply?

Under s7 Administration of Estates Act 1925, if a sole/last surviving executor dies having proved the will, their own executor automatically becomes executor of the original testator. It applies only to executors, not administrators, and the chain is broken by intestacy or failure to prove.

What is a grant 'de bonis non administratis'?

A grant issued to administer the estate left unadministered where the sole or last surviving PR has died without completing administration and there is no chain of representation (e.g. administrators, or executors who did not prove).

What are the three types of grant of representation?

(1) Grant of probate (valid will appointing willing executor); (2) letters of administration with will annexed (valid will but no willing/able executor); (3) (simple) letters of administration (no valid will - intestacy).

Who has the right to apply for letters of administration (with will annexed) and in what order, under NCPR rule 20?

Order: executor; trustee of the residuary estate; any residuary beneficiary or PR of one; then beneficiaries of residue on partial intestacy, and so on down to other legatees and creditors.

Who has priority to apply for simple letters of administration on intestacy under NCPR rule 22?

In order: surviving spouse/civil partner; children/issue; parents; brothers/sisters of whole blood (then half blood); grandparents; uncles/aunts; finally the Crown, then creditors. A person in a class takes priority over later classes.

What is the minimum and maximum number of administrators required where a beneficiary is a minor or holds a life interest?

Where there is a minority interest or a life interest, a minimum of two administrators (or a trust corporation) is required to give a valid receipt. The maximum number of PRs to whom a grant may issue is four.

What forms IHT400 and IHT421 are used for in obtaining a grant, and what is the £ position for excepted estates?

IHT400 is the full inheritance tax account; IHT421 is the probate summary sent to HMRC who return it to the Probate Registry. Excepted (low-value/exempt) estates need no IHT400 — relevant information is given directly in the probate application.

What is a PR's primary duty regarding collecting in the estate?

To collect and get in the real and personal estate of the deceased and administer it according to law (s25 AEA 1925) — gathering assets, paying debts, expenses and liabilities, then distributing to those entitled.

State the statutory order for payment of debts of a SOLVENT estate (Administration of Estates Act 1925, Sch 1 Pt II).

Generally: (1) property undisposed of by will (subject to retaining a pecuniary legacy fund); (2) residue; (3) property set aside to meet pecuniary legacies; (4) property specifically given; with secured debts borne by the secured property under s35 unless a contrary intention.

How can PRs protect themselves against claims from unknown creditors and beneficiaries?

By advertising under section 27 Trustee Act 1925 in the London Gazette and a newspaper local to any land, waiting at least two months, then distributing free of liability to unknown claimants (the claimant may still pursue the assets in the beneficiaries' hands).

What protection does a Benjamin order or missing beneficiary indemnity insurance provide PRs?

A Benjamin order is a court order allowing PRs to distribute on the assumption that a missing beneficiary is dead/does not exist, protecting them from personal liability. Insurance is a cheaper alternative that indemnifies against a later claim.

What are the three certainties required to create a valid express private trust (Knight v Knight)?

Certainty of intention (to create a trust, not a mere wish), certainty of subject matter (the trust property and the beneficial interests), and certainty of objects (the beneficiaries must be identifiable).

Distinguish a fixed trust from a discretionary trust, including their respective certainty-of-objects tests.

A fixed trust gives beneficiaries defined shares and requires the 'complete list' test (all beneficiaries ascertainable). A discretionary trust gives trustees discretion over distribution and requires the 'is or is not' / given postulant test (McPhail v Doulton).

Distinguish a resulting trust from a constructive trust.

A resulting trust arises by presumed intention where beneficial interest returns to the settlor (e.g. failed trust or voluntary transfer/contribution to purchase price). A constructive trust is imposed by law irrespective of intention to prevent unconscionable conduct or unjust enrichment.

What is the beneficiary principle and what is the main exception?

A trust must generally have ascertainable human beneficiaries who can enforce it (Morice v Bishop of Durham). The main exception is the charitable purpose trust, enforced by the Attorney General/Charity Commission; a few anomalous non-charitable purpose trusts are tolerated.

What is the rule in Saunders v Vautier?

Beneficiaries who are all of full age, sui juris (sound mind), and together absolutely entitled to the trust property may, acting unanimously, direct the trustees to transfer the property to them and bring the trust to an end, regardless of the settlor's wishes.

What are the trustees' duties of investment under the Trustee Act 2000?

Trustees have a general power to make any investment they could make if absolutely entitled, but must apply standard investment criteria (suitability and diversification), obtain and consider proper advice, and review investments periodically. The statutory duty of care applies.

State the statutory duty of care under section 1 Trustee Act 2000.

A trustee must exercise such care and skill as is reasonable in the circumstances, having regard to any special knowledge or experience they have or hold themselves out as having, and (if acting in a professional capacity) to that expected of such a professional.

Summarise the trustees' statutory power of maintenance under section 31 Trustee Act 1925.

Trustees may apply income for the maintenance, education or benefit of a minor beneficiary with a vested or contingent interest. On reaching 18, the beneficiary becomes entitled to income; accumulated income is held for them. (Standard of 'as trustees think fit' since the 2014 amendment.)

Summarise the trustees' statutory power of advancement under section 32 Trustee Act 1925.

Trustees may pay or apply capital for the advancement or benefit of a beneficiary with an interest in capital. Since the Inheritance and Trustees' Powers Act 2014, up to the whole (100%) of the beneficiary's presumptive share may be advanced; any advance is brought into account.

What is the fiduciary 'no-conflict' and 'no-profit' rule, and the consequence of breach?

A trustee must not place themselves in a position where duty and interest conflict and must not profit from their position without authority (Keech v Sandford; Boardman v Phipps). Unauthorised profits are held on constructive trust for the beneficiaries irrespective of good faith.

What is the measure of a trustee's liability for breach of trust?

The trustee must restore the trust fund to the position it would have been in but for the breach (equitable compensation), or account for unauthorised gains. Liability is generally personal and joint and several between co-trustees; causation must be shown.

What is the difference between a tracing claim at common law and in equity following a breach of trust?

Common law tracing follows clean (unmixed) assets and is defeated by mixing. Equitable tracing (requiring a fiduciary relationship) allows tracing into mixed funds and substitute assets, enabling a proprietary claim against the property or those who received it.

What statutory relief may a trustee obtain for an honest breach, and what is the limitation period?

Under s61 Trustee Act 1925 the court may wholly or partly relieve a trustee who acted honestly and reasonably and ought fairly to be excused. The general limitation period for breach of trust is six years, but there is no limit for fraudulent breach or recovering trust property still in the trustee's hands (s21 Limitation Act 1980).

What is the basic rate, nil rate band and main threshold structure of inheritance tax?

IHT is charged at $40\%$ on the value of the estate above the nil rate band (NRB) of £325{,}000. The rate falls to $36\%$ where at least 10% of the net estate is left to charity. A reduced lifetime rate of $20\%$ applies to immediately chargeable lifetime transfers.

Explain the residence nil rate band (RNRB) and its tapering.

The RNRB (currently £175{,}000) provides an additional band where a residence is left to direct descendants. It is tapered away by £1 for every £2 by which the estate exceeds £2{,}000{,}000. Any unused NRB and RNRB can be transferred to a surviving spouse/civil partner.

Distinguish a potentially exempt transfer (PET) from a lifetime chargeable transfer (LCT).

A PET is a lifetime gift to an individual (or certain trusts) — exempt if the transferor survives 7 years, otherwise chargeable on death. An LCT is a lifetime transfer into most trusts — immediately chargeable at $20\%$ above the NRB, with a further charge if death occurs within 7 years.

How does taper relief operate on death within seven years of a gift?

Taper relief reduces the IHT (not the value transferred) on a failed PET or LCT where death occurs more than 3 years after the gift: $20\%$ reduction at 3-4 years, $40\%$ at 4-5 years, $60\%$ at 5-6 years, and $80\%$ at 6-7 years.

State the main inheritance tax exemptions (spouse, charity, annual and small gifts).

Transfers between UK-domiciled spouses/civil partners are wholly exempt; gifts to charities and qualifying political parties are exempt; the annual exemption is £3{,}000 (one year's unused amount can be carried forward); small gifts up to £250 per recipient per year; and normal expenditure out of income is exempt.

Explain business property relief (BPR) rates and the relevant ownership period.

BPR reduces the value transferred of relevant business property: $100\%$ for an unincorporated business, an interest in a partnership, or unquoted company shares; $50\%$ for quoted controlling holdings and certain assets used by the business. The property must generally have been owned for at least 2 years.

Explain agricultural property relief (APR) rates and qualifying period.

APR gives $100\%$ relief on the agricultural value of qualifying agricultural property where the transferor occupied it for the agricultural purpose for 2 years, or owned it for 7 years (let). $50\%$ applies to certain older tenancies. It relieves only agricultural, not development, value.

How is IHT on the death estate calculated, taking account of lifetime transfers in the 7 years before death?

Cumulate chargeable transfers in the 7 years before death first; these use up the NRB. The death estate is then taxed at $40\%$ on the amount exceeding any remaining NRB. Earlier failed PETs/LCTs are taxed before the death estate, reducing the NRB available.

Who is primarily liable to pay IHT and what is the due date for the death estate?

The PRs are liable for IHT on the death estate (donees are liable on failed lifetime gifts). IHT on the death estate is due 6 months after the end of the month of death; interest runs thereafter. PRs often must pay IHT on non-instalment property before the grant issues.

Which assets qualify for payment of IHT by instalments, and over what period?

IHT on certain assets — land and buildings, a business or interest in a business, and controlling/qualifying unquoted shares — may be paid in 10 equal annual instalments. Interest may be charged; the option is lost if the asset is sold.