Legal Practice Course (LPC) Wills, Probate and Administration of Estates Flashcards

24 sample cards from the Wills, Probate and Administration of Estates deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is the 'quarter-up' rule for valuing quoted shares?

   Quoted shares are valued at the lower closing price plus one quarter of the difference between the lower and higher closing prices. If $L$ is the lower and $H$ the higher quoted price, the value is $L + \frac{1}{4}(H - L)$.

2. State the statutory order in which assets are applied to pay debts of a SOLVENT estate (s.34 / Sch.1 Pt II AEA 1925).

   Order: (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 for payment of debts; (5) property charged with debts; (6) the pecuniary legacy fund; (7) property specifically devised/bequeathed (rateably); (8) property over which the deceased had a general power of appointment.

3. How are debts paid in an INSOLVENT estate, and what is the order?

   In an insolvent estate the rules mirror bankruptcy. Order: (1) secured creditors (out of their security); (2) funeral, testamentary and administration expenses; (3) preferred debts; (4) ordinary unsecured debts; (5) interest on preferred and ordinary debts; (6) deferred debts. Creditors within a class rank equally and abate pro rata.

4. What is the difference between a secured and an unsecured debt in administration, and the default rule under s.35 AEA?

   A secured debt is charged on specific property (e.g. a mortgage); an unsecured debt is not. Under s.35 AEA 1925, a beneficiary taking a property subject to a charge takes it subject to that secured debt (the charge is primarily payable out of that property) unless the will shows a contrary intention.

5. What are 'estate accounts' and what do they typically comprise?

   The final accounts the PRs prepare showing the administration. They typically include: a capital account (assets and their realisation, less debts, expenses and legacies); an income account (income received during administration and how applied); and a distribution account showing the residue and how it is divided among residuary beneficiaries. Beneficiaries usually sign to approve them.

6. What protection does a s.27 Trustee Act 1925 notice give personal representatives?

   By advertising for claimants (in the London Gazette, a local newspaper, and as appropriate) and waiting the statutory minimum of two months, PRs are protected from personal liability to unknown creditors and beneficiaries who do not come forward. The claimant may still pursue the assets in the hands of beneficiaries.

7. What is a Benjamin order and when is it sought?

   A court order (from Re Benjamin) permitting PRs to distribute the estate on a stated assumption - typically that a missing beneficiary has predeceased - where their existence or whereabouts cannot be ascertained after full enquiries. It protects the PRs from personal liability if the assumption proves wrong; the true beneficiary may still trace the assets.

8. What alternatives to a Benjamin order may protect PRs against a missing or uncertain claimant?

   (1) Missing beneficiary indemnity insurance; (2) taking a personal indemnity from the beneficiaries; (3) setting aside a reserve fund; or (4) paying funds into court. These can be cheaper/quicker than a Benjamin order but each gives different levels of protection.

9. What is the current nil rate band (NRB) for inheritance tax and how is the death estate taxed above it?

   The NRB is £325,000. The chargeable death estate above the available NRB is taxed at 40% (or 36% where at least 10% of the net estate is left to charity). The NRB has been frozen and applies after deducting exemptions and reliefs.

10. Explain the transferable nil rate band between spouses/civil partners.

    On the death of the second spouse/civil partner, the unused proportion of the first deceased spouse's NRB may be transferred and added to the survivor's NRB. The transfer is by percentage of NRB unused, so the maximum combined NRB on the second death is up to $2 \times £325{,}000 = £650{,}000$. A claim must be made by the PRs.

11. Explain the residence nil rate band (RNRB), its amount and key conditions.

    The RNRB is currently £175,000 of additional NRB available where a 'qualifying residential interest' is 'closely inherited' by lineal descendants (children, grandchildren etc., including step/adopted/foster). Like the NRB it is transferable between spouses, giving a combined potential of up to £350,000 across a couple.

12. How does the RNRB taper for larger estates?

    The RNRB is reduced by £1 for every £2 by which the net estate exceeds the £2,000,000 taper threshold. So the taper reduction is $\frac{\text{net estate} - £2{,}000{,}000}{2}$, and the RNRB is fully withdrawn once the estate is large enough to extinguish it.

13. Name the main IHT exemptions on death and lifetime transfers.

    (1) Spouse/civil partner exemption (unlimited, if recipient UK domiciled); (2) charity exemption; (3) gifts to qualifying political parties; (4) annual exemption (£3,000 per year, lifetime); (5) small gifts (£250 per person); (6) normal expenditure out of income; and (7) marriage/civil partnership gifts (£5,000 parent / £2,500 grandparent / £1,000 other).

14. Explain Business Property Relief (BPR) and the principal rates.

    BPR reduces the value of qualifying business property for IHT. 100% relief applies to a business or interest in a business and unquoted/unlisted company shares; 50% relief applies to quoted controlling shareholdings and certain assets used in the business. The property must generally have been owned for at least two years and not be an 'excepted' (mainly investment) business.

15. Explain Agricultural Property Relief (APR), its rates and ownership conditions.

    APR reduces the agricultural value of qualifying agricultural property. 100% relief applies where the transferor had vacant possession or the right to obtain it within 12 months (and for most let land); 50% applies to certain older lettings. Ownership conditions: occupied by the owner for 2 years, or owned for 7 years if occupied by another for agriculture.

16. What is a potentially exempt transfer (PET) and when does it become chargeable?

    A PET is a lifetime gift by an individual to another individual (or certain trusts) that is exempt when made but becomes chargeable if the transferor dies within 7 years. If the transferor survives 7 years it is wholly exempt. If they die within 7 years, it becomes a chargeable transfer assessed using the death rates.

17. What is a chargeable lifetime transfer (CLT) and how is it taxed at the time of the gift?

    A CLT is a lifetime transfer that is immediately chargeable, typically a gift into a relevant property trust. It is charged at the lifetime rate of 20% on value above the available NRB at the time (the 'lifetime' or half-death rate). Further tax at death rates may be due if the transferor dies within 7 years.

18. Explain the cumulation principle for lifetime transfers.

    To find the NRB available for any transfer, you cumulate the chargeable transfers made in the previous 7 years. Each new transfer uses up NRB after deducting earlier cumulative transfers. On death, all chargeable transfers in the 7 years before death are cumulated and reduce the NRB available against the death estate.

19. How does taper relief operate on a failed PET or CLT, and is it relief on tax or value?

    Taper relief reduces the IHT payable (not the value) on a chargeable lifetime transfer where the transferor dies between 3 and 7 years after the gift. Reductions: 3-4 yrs 20%, 4-5 yrs 40%, 5-6 yrs 60%, 6-7 yrs 80%. It only reduces tax actually due, and only where the transfer's value exceeds the NRB.

20. What is a post-death variation under s.142 IHTA 1984 and its key conditions?

    A beneficiary may redirect their inheritance to another person, and if the variation states it is to take effect for IHT (and CGT s.62 TCGA) purposes, it is 'read back' as if made by the deceased. Conditions: in writing, signed by the original beneficiary, made within 2 years of death, contain the relevant statements, and not be for consideration outside the estate.

21. What is the difference between a disclaimer and a variation?

    A disclaimer is a refusal to accept a gift - the beneficiary cannot choose where it goes; it passes as if the gift had failed (to residue or under intestacy). A variation lets the beneficiary actively redirect the property to a chosen person. A disclaimer cannot be made if the benefit has already been accepted.

22. Who may bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975?

    (1) The spouse/civil partner; (2) a former spouse/civil partner who has not remarried; (3) a person cohabiting as spouse for 2 years before death; (4) a child of the deceased; (5) a person treated as a child of the family; and (6) any person being maintained (wholly or partly) by the deceased immediately before death.

23. What are the two standards of 'reasonable financial provision' under the 1975 Act?

    (1) The surviving spouse/civil partner standard: such provision as is reasonable in all the circumstances, whether or not required for maintenance (the higher standard). (2) The ordinary standard (all other applicants): such provision as is reasonable for the applicant's maintenance only.

24. What is the time limit for bringing a claim under the 1975 Act and is it extendable?

    A claim must generally be brought within 6 months of the date of the grant of representation. The court has discretion to extend the time limit, but extension is not guaranteed and is exercised cautiously. This is why PRs are advised to wait beyond 6 months before distributing where a claim is possible.

What this deck covers

Wills, Probate and Administration of Estates flashcards FAQ