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Administration Of Estates Notes

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Administration of Estates - Pre-Grant Steps

1) Is it an excepted estate?

a) Is there inheritance tax due on the estate?

The estate will never be excepted à IHT 400 is required Yes

No

IHT 400 No

b) Has the person died on or after 6 April 2004 and there is no IHT to pay on the estate because either of the following apply:

1) The gross value of the estate is below the inheritance tax threshold; or
à A low value excepted estate

Transferable nil rate band à IHT threshold


You can transfer a dead spouse's nil rate band for the purposes of ascertaining if an estate is excepted; a) If the spouse did not use any of their NRB (i.e. the full
£325,000 is available); and b) Only using one spouse (i.e. one £325,000)


So when considering whether the estate is above the IHT threshold if the TNRB is used, the threshold will be £650,000

2) The gross value of the estate (the taxable estate) is;


£1,000,000 or less; and


There is no tax to pay because after deduction of spousal exemption and charity exception and the liabilities of the estate it does not exceed the IHT threshold
à An exempt excepted estate

Transferable nil rate band à IHT threshold


You can transfer a dead spouse's nil rate band for the purposes of ascertaining if an estate is excepted; a) If the spouse did not use any of their NRB (i.e. the full
£325,000 is available); and b) Only using one spouse (i.e. one £325,000)


So when considering whether the estate is above the IHT threshold if the TNRB is used, the threshold will be £650,000

Yes

IHT 400 Yes

c) Do any of the additional factor's apply?

No

1) The deceased made a gift with a reservation of benefit or benefited from an alternatively secured pension during their lifetime; or

2) The estate contains foreign property worth more than £100,000; or

3) The estate contains; or a) An interest in more than one trust; or b) An interest in a single trust worth more than £150,000

4) In the 7 years before death the deceased made non-exempt gifts valued in total more than £150,000; or

This is an excepted estate and the IHT205 is required

2) Payment of IHT

a) Who has the liability for IHT?

HMRC legislation sets out rules for who is 'accountable' or liable' for IHT. This is different from who actually bears the burden of IHT

b) Who bears the burden of IHT?

1) Personal representatives


The PRs have the burden of IHT which is attributable for property which vests in the PRs


It is a testamentary expense and payable out of residue - s.211 IHTA 1984


A testator can oust this rule under s.211 IHTA 1984 by stating a particular legacy is to bear its own tax

2) Joint tenants (apportionment applies)


The joint tenant that receives property / a share of the property under the rules of survivorship will bear the burden of IHT for that transfer

3) Trustees (apportionment applies) - s.204 IHTA


Where the deceased is a life tenant of a trust, and the capital of the trust is treated as part of the estate, the trust will bear the burden of the tax proportion of the IHT incurred on the estate as a result of the life interest

4) Donees of a gift with reservation of benefit (apportionment applies)


A gift with a reservation of benefit will fall into the estate of the testator for IHT purposes


However the donees will bear the IHT burden and therefore the IHT will be apportioned between them

c) How is the apportionment calculated?

Asset X Total Tax Bill
Total Chargeable Estate

a) Tax borne by the trust / joint tenants / donees

b) Remaining tax to be borne by the estate Total tax due £XXXX - £XXX tax borne by trust = £XXX tax estate Must pay

d) If IHT is paid as a lump sum, when is it due?

Lump sum is due 6 months after the end of the month of the deceased's death for non-instalment option property

e) If IHT is paid as instalments, when is the first one due and how many instalments will there be?

Instalments are due 6 months after the end of the month of the deceased's death. There will be 10 equal instalments

f) On what assets is the instalment option for paying IHT available? - s.227-228 IHTA 1984

1) Land and buildings

2) Shares or securities giving control immediately before transfer

3) Unquoted shares or securities of a company which did not give the transferor control provided that:


HMRC are satisfied the sum to be paid cannot be paid in one sum without undue hardship

4) Unquoted shares (but not securities) of a company which did not give the transferor control where the value of the shares exceeds
£20,000 and either:

a) The nominal value of the shares is not less than 10% of the nominal value of all of the shares of the company at the time of transfer; or

b) The shares are ordinary shares and the nominal value of the shares is not less than 10% of the nominal value of all of the ordinary shares of the company at the time of transfer; or

5) Where the transfer is on death, unquoted shares or securities of a company which did not give the transferor control where the tax on the holdings and on any other shares or securities qualifying for the instalment option comprises at least 20% of the tax payable by a particular person

6) A business or interest in a business

g) Will selling the property to which the instalment option applies affect the instalment option?

Yes à The instalment option ceases in relation to that property and the outstanding inheritance tax on that property is due immediately

a) The nominal value of the shares is not less than 10% of the nominal value of all of the shares of the company at the time of transfer; or

3) PRs and executors
- Choosing the appropriate grant of representation

a) Grant of probate

When is this the appropriate grant?


Even if the will did not dispose of all or any of the deceased's property

Where the deceased:


Left a valid will;


Which appointed executors; and


Those executors are alive, able and willing to act;

What are the capacity limitations on taking out a grant?

a) Must not be a minor (under 18)


If minor is named as one of the executors, adults listed as executors would take out the grant


Minor can have power reserved and apply for grant of 'double probate' at age 18


If minor is only executor, a grant of letters of administration with will attached is made normally to minor's parent or guardian


Upon reaching 18, that grant automatically terminates and a grant of probate can now be made to the former child b) Cannot be suffering from a mental disability and be unable to manage their own affairs

c) Maximum of four executors


If will has more than 4 executors appointed, they must decide who is to be the 4 executors and power can be reserved for the remaining executors if a vacancy later arises

d) Only has to be 1 executor even if administering life and / or minor interest

When will an executor's right to take out a grant cease?

a) The executor survives the testator but dies without having taken out the grant

b) The executor renounces probate


If renounce probate it needs to be cited in the oath and the renouncer needs to complete a form for the probate registry


Cannot renounce if have intermeddled with the estate e.g. paying debts, telling holders of assets deceased has died


Acts of common humanity (organising funeral) are not intermeddling

Options if an executor is unwilling or unable to take out a grant

1) The executor can renounce probate (above)

2) The executor can have power reserved to them


If power is reserved it needs to be cited in the oath and to whom it is being reserved


This is less final than renouncing probate


If the person later wants to be executor they can apply to the Probate Registry for a grant of double probate

3) The executor can appoint someone to act as their attorney in relation to their capacity as an executor


If power of attorney is granted, it needs to be cited in the oath and power of attorney would have to be submitted to the Probate Registry

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