Qualified Lawyers Transfer Scheme (QLTS) Property and Probate Practice Flashcards

24 sample cards from the Property and Probate Practice deck

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

1. What two elements of capacity/intention must a testator have for a valid will, and what is the test for mental capacity?

   The testator must have testamentary capacity and knowledge and approval of the will's contents (and act free from undue influence). The common law test for capacity (Banks v Goodfellow) requires the testator to understand the nature/effect of making a will, the extent of their property, and the moral claims they ought to consider, with no disorder of mind perverting their decision.

2. What is the effect of a beneficiary (or their spouse/civil partner) acting as a witness to a will?

   Under s.15 Wills Act 1837 the gift to that witness (or to the witness's spouse/civil partner) is void, although the will itself remains valid and the witness's attestation is still effective. The beneficiary simply loses their gift.

3. State the intestacy entitlement where the deceased leaves a surviving spouse/civil partner AND issue (children).

   The spouse/civil partner takes: all personal chattels; a statutory legacy (a fixed sum, currently £322,000) plus interest; and one-half of the residue absolutely. The other half of the residue passes to the issue on the statutory trusts. (The spouse must survive the deceased by 28 days.)

4. State the intestacy entitlement where the deceased leaves a surviving spouse/civil partner but NO issue.

   The surviving spouse/civil partner (provided they survive by 28 days) takes the entire estate absolutely — personal chattels and the whole residue. Parents and siblings of the deceased take nothing.

5. List, in order, the statutory order of entitlement on intestacy where there is NO surviving spouse or civil partner.

   (1) Issue on statutory trusts; then if none: (2) parents; (3) brothers and sisters of the whole blood (on statutory trusts); (4) brothers and sisters of the half blood; (5) grandparents; (6) uncles and aunts of the whole blood; (7) uncles and aunts of the half blood; finally (8) the Crown (bona vacantia).

6. What is the difference between a grant of probate and a grant of letters of administration?

   A grant of probate is issued to executors named in a valid will, confirming their authority to administer the estate. Letters of administration (with will annexed) are granted where there is a will but no able/willing executor; a (simple) grant of letters of administration is granted where the deceased died intestate, to administrators chosen under the priority rules (NCPR 22).

7. What is the order of priority to apply for a grant of letters of administration where there is a total intestacy (NCPR 22)?

   (1) Surviving spouse/civil partner; (2) children/issue; (3) parents; (4) brothers and sisters of the whole blood; (5) brothers and sisters of the half blood; (6) grandparents; (7) uncles and aunts of the whole blood; (8) uncles and aunts of the half blood; then the Crown, and finally creditors. A person with a beneficial interest takes priority.

8. What is the legal effect of a grant of representation, and is it always required to deal with assets?

   A grant is the official document confirming the personal representatives' authority to collect in and administer the deceased's assets and confirming the will's validity. It is not always required for small estates or assets passing outside the estate (e.g. jointly owned property passing by survivorship, small bank balances under bank thresholds, or nominated assets).

9. What are the main duties of personal representatives in administering an estate?

   To collect in and get in the deceased's real and personal estate; to administer it according to law; to pay the deceased's debts, funeral and testamentary/administration expenses, and any IHT; and to distribute the residue to the beneficiaries (or those entitled on intestacy). They must keep accounts and provide an inventory if required (s.25 Administration of Estates Act 1925).

10. In what statutory order are an insolvent estate's debts paid, and what protects PRs who advertise for creditors?

    For an insolvent estate: secured creditors, then in order — reasonable funeral/testamentary/administration expenses, preferred debts, ordinary debts, interest, then deferred debts. PRs can protect themselves against unknown creditors/beneficiaries by advertising under s.27 Trustee Act 1925 (giving at least 2 months' notice), after which they are not personally liable to claimants of whom they had no notice.

11. What is the basic rate of inheritance tax (IHT) and how does the nil rate band operate?

    IHT is charged at 40% on the value of the death estate above the nil rate band (NRB). The NRB is currently £325,000; the first £325,000 of the cumulative chargeable estate is taxed at 0%, and the excess at 40% (or 36% if the reduced charity rate applies).

12. Give the formula for the IHT payable on a death estate, taking account of the nil rate band.

    $$\text{IHT} = \max(0,\ E - \text{NRB}) \times 0.40$$ where $E$ is the chargeable death estate (after exemptions and reliefs) and NRB is the available nil rate band ($£325{,}000$) reduced by chargeable transfers in the 7 years before death.

13. What is the residence nil rate band (RNRB) and when is it available?

    An additional nil rate band (currently up to £175,000) available on death where a qualifying residential interest (the deceased's home) is 'closely inherited' by direct descendants (children, grandchildren, etc.). It is tapered away by £1 for every £2 by which the net estate exceeds £2 million.

14. What is the 'death estate' for IHT purposes — what is included and excluded?

    On death a person is treated as making a transfer of value equal to their entire estate. The estate includes all property to which the deceased was beneficially entitled immediately before death (including the deceased's share of jointly owned property and certain trust interests/GROBs), but excludes excluded property (e.g. certain foreign property of a non-domiciled person) and assets passing outside the estate by nomination.

15. Name the principal IHT exemptions available on death and on lifetime transfers.

    Spouse/civil partner exemption (unlimited, if recipient is UK-domiciled); charity exemption; gifts to political parties; the annual exemption (£3,000 per year, lifetime only); small gifts (£250 per donee); normal expenditure out of income; and exemptions for gifts in consideration of marriage/civil partnership (£5,000/£2,500/£1,000 depending on relationship).

16. Explain business property relief (BPR) and the two main rates of relief.

    BPR reduces the value transferred of 'relevant business property' for IHT. 100% relief applies to a business or interest in a business and unquoted shares; 50% relief applies to quoted shares giving control, and to land/buildings/machinery used in the business but owned personally. The property must generally have been owned for at least 2 years and not consist mainly of investment/dealing activities.

17. Explain agricultural property relief (APR) and the rates available.

    APR reduces the agricultural value of qualifying agricultural property (farmland, farmhouses, woodland). 100% relief applies where the transferor had vacant possession or the right to obtain it within 12 months (or land let on/after 1 Sept 1995); 50% relief applies otherwise. The property must have been owned and occupied for agriculture for 2 years (owner-occupied) or owned for 7 years (let).

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

    A PET is a lifetime gift by an individual to another individual (or to certain trusts) that is potentially exempt from IHT. It becomes wholly exempt if the donor survives 7 years from the date of the gift. If the donor dies within 7 years, the PET becomes a chargeable transfer assessed against the NRB available at death.

19. Explain taper relief on a failed PET and the percentage reductions.

    Taper relief reduces the IHT payable (not the value) on a failed PET/lifetime transfer where the donor survives more than 3 years. Reductions in tax: 3–4 years 20%; 4–5 years 40%; 5–6 years 60%; 6–7 years 80%. It only applies where the transfer exceeds the NRB so that tax is actually payable.

20. What is a chargeable lifetime transfer (CLT) and how is it taxed during life and on death within 7 years?

    A CLT is a lifetime transfer into most trusts (e.g. a discretionary trust). It is immediately chargeable at the lifetime rate of 20% on the value above the available NRB (25% if the donor pays the tax). If the donor dies within 7 years, it is recalculated at the death rate (40%), with credit for tax already paid and taper relief where applicable.

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

    A GROB is a lifetime gift where the donor continues to benefit from the asset (e.g. gifting a house but continuing to live in it rent-free). The asset remains treated as part of the donor's estate for IHT on death (or the reservation ceasing is treated as a PET), so the intended IHT saving fails.

22. What is the order in which IHT-exempt/non-exempt assets and the cumulation principle apply when valuing lifetime transfers against the nil rate band?

    Lifetime chargeable transfers are cumulated chronologically: each transfer uses up the NRB in date order, so earlier gifts absorb the NRB first. On death, only chargeable transfers (CLTs and failed PETs) in the 7 years before death are added back to reduce the NRB available against the death estate (a 7-year cumulation period).

23. What are personal representatives' potential personal liabilities, and how can they protect themselves?

    PRs may be personally liable for: a 'devastavit' (wasting the estate through breach of duty, e.g. paying the wrong beneficiaries or distributing before debts/IHT are paid); unpaid IHT; and claims by unknown creditors or beneficiaries. They protect themselves by advertising under s.27 Trustee Act 1925, conducting bankruptcy/land charges searches, obtaining IHT clearance, and where appropriate seeking a Benjamin order or insurance/indemnities before distributing.

24. How can PRs protect themselves against a possible claim under the Inheritance (Provision for Family and Dependants) Act 1975 when distributing the estate?

    Claims under the 1975 Act must generally be brought within 6 months of the grant of representation. PRs can protect themselves from personal liability by waiting until that 6-month period has expired before distributing the estate; if they distribute earlier they risk personal liability should a successful claim be made.

What this deck covers

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