Wills, trusts and probate frequently asked questions These frequently asked questions only relate to the law in England, Wales and Northern Ireland. 1. What is a Will? 2. What is a Trust? 3. What is a Grant of Representation or Probate? 4. What is a Personal Representative/Administrator/Executor? 5. What are my obligations as the Executor of a Will? 6. What assets of a deceased’s estate are chargeable to Inheritance Tax? 7. What is Inheritance Tax and when will this be charged? 8. What is an Oath? 9. How long will it take to administer a deceased’s estate? 10. Why do I need a Will? 11. What is an “excepted estate”? 12. Can I pay Inheritance Tax in instalments? 13. Is interest payable on Inheritance Tax if I delay payment? 14. Is there any way of avoiding an Inheritance Tax payment due in a deceased’s estate? 15. How can a Will be revoked? 1. What is a Will? A will is a declaration made by a person (known as the testator) which provides for the distribution and administration of the testator’s property following his or her death. Without a Will, people in the United Kingdom die “intestate”, which in such circumstances mean that all property held by the deceased devolves in a strict order of priority, first to children, then parents, then brothers and sisters and so on. 2. What is a Trust? A trust is a legal obligation binding a person (known as a trustee) to deal with assets (the trust property) over which he or she has control for the benefit of persons (beneficiaries), of whom he or she may be one, and any such beneficiary may enforce the obligation. A significant use of the trust today is to reduce an individual’s liabilities for tax. For example, if capital is transferred into a trust by a settler, such settler will:- i. Eliminate their own income tax liability on the income earned by the capital (since the settler no longer receives income); ii. Eliminate liability of capital gains tax if the capital value of the asset increases (again, since the settler no longer owns the asset); ii. Eliminate liability of inheritance tax on the asset in the event of the settler surviving seven years of the date of transfer of the asset into the trust, since thereafter the asset does not form up the taxable estate of the settler. 3. What is a Grant of Representation or Probate? This is the document obtained from the Probate Registry section of the High Court which entitles a person to administer the estate of the deceased. In other words, it is evidence that such person is authorised by the High Court to collect in all assets and sell off any property in order to release money to be distributed to the beneficiaries due under the terms of the deceased’s will, or if the deceased died without a will, under the intestacy rules. 4. What is a Personal Representative/Administrator/Executor? Very generally, all the above are different types of people who can administer the estate (i.e. the personal belongings) of a deceased following their death. In acting as such, they take on various duties to ensure the assets of the deceased are distributed to beneficiaries in accordance with the terms of the deceased’s will, or if there is no will, then in accordance with the terms of intestacy rules. 5. What are my obligations as the Executor of a Will? The duties of an executor are as follows:- ii. To bury the deceased; iii. To prove the will; iv. To collect in the Estate, and, as necessary, convert it into money; v. To pay the debts of the deceased; vi. To pay the legacies (i.e. financial gifts in the will), and to distribute the residue of all assets among the residuary beneficiaries. Acting as an executor, therefore, is not something to be taken lightly and an onerous obligation. 6. What assets of a deceased’s estate are chargeable to Inheritance Tax? Inheritance tax is payable to the Inland Revenue on the following assets:- i. If the death is after 6 April 2004 all property over and above £263,000 is charged at the rate of 40% ii. If the deceased made any transfers (i.e. gifts) within 7 years of the date of the death, and such gifts are also subject to inheritance tax at 40% if the value of the deceased estate is more than £263,000 (on the assumption they died after 6th April 2004). 7. What is Inheritance Tax? According to the Inland Revenue statistics, more than 96% of estates do not have to pay any inheritance tax because they are below the threshold, i.e currently below £263,000. If the value of your estate is above the threshold, then inheritance tax is payable to the Inland Revenue at the rate of 40% of all funds above the threshold of £263,000. There are, however, certain exemptions from inheritance tax. These include the following:- i. Anything you leave to your husband or wife; ii. Anything you leave to a UK registered charity, and; iii. Any bills outstanding at your death including funeral expenses. The executor or administrator (jointly known as the “personal representatives”) are liable to pay the inheritance tax due on an estate. If all inheritance tax is not paid six months after the end of the month in which the death occurred, interest begins to run on inheritance tax payable. It is also possible in some circumstances to pay inheritance tax on some types of assets in instalments. 8. What is an Oath? In probate law, the oath is the document prepared for an executor or administrator to swear to promise to administer the estate of a deceased in accordance with either the terms of the deceased’s will, or in accordance with the intestacy rules. The oath is prepared when the value of the entire estate of the deceased has been calculated and is submitted to the probate registry of the High Court to obtain the Grant of Representation. The Grant of Representation is the document which entitled the executor/ administrator to collect in all the assets due to the estate of the deceased and sell property. 9. How long will it take to administer a deceased’s estate? Traditionally, an executor is not duty bound to distribute assets to beneficiaries until one year has expired from the date of death. It can, however, take very different amounts of time in order to administer an estate depending on how complicated assets held by the deceased are and how long it takes for property to be sold and distributed to beneficiaries. If any beneficiaries under the terms of a will are under 18 at the date of death, then it is also usual that the executor (other nominated trustee) holds such property on trust for the benefit of such beneficiary until they have reached the age of majority. It can, therefore, take many years in some circumstances to administer an estate. 10. Why do I need a Will? If an individual dies without leaving a valid will they have died “intestate”. Approximately two out of three people die intestate each year. The way in which assets of an intestate are disposed of are determined by the intestacy rules. These rules set out a strict order of an entitlement, beginning with children of the deceased, then parents, then brothers members. The list continues until all family members (related by blood) are covered. It does not include any same sex partner and there are also rules about how much can be transferred to a spouse and children. To avoid such strict rules applying following your death and also to ensure goes to who you want it to go to we strongly advise you to have a will prepared. 11. What is an “excepted estate”? In some circumstances, the Inland Revenue require a form to be submitted to them when applying to the Probate Registry for the Grant of Representation. This form asks for a lot of information about assets held by the deceased and is very complicated to complete. In some certain non-tax paying estates, however, such an account does not have to be delivered. If an estate fulfils the criteria in the Inland Revenue regulations, it is known as an “accepted estate”. The regulations include the following:- i. Value of the estate ­ the gross value of the whole estate must not exceed the limit for deaths after 5th April 2000 the limit is £210,000. To test whether the limit is exceeded, you must add the value of “specific transfers” to the gross value of the estate. Specific transfers are chargeable transfers of cash, floated shares or securities made in the seven years before the death. ii. An estate is not accepted if the deceased died outside the United Kingdom. iii. An estate is not accepted if the deceased had an interest in settled property. iv. An estate is not accepted if more than £50,000 of the gross value of the estate consist of properties situated outside the United Kingdom. v. An estate is not accepted if the deceased made chargeable or potentially exempt transfers within seven years before the death, unless the death was after 5th April 1996 and before 6th April 1998 and the transfers were “specified transfers” which total not more than £50,000; and the death was not on or after 6th April 1998 and the transfers were “specified transfers” which total not more than £75,000. vi. An estate is not accepted if the deceased made a gift with reservation of benefit which continued until death (if a reservation ceased within 7 years before the death there is a chargeable transfer). Even if an estate is accepted the Inland Revenue can still insist upon delivery of Inland Revenue account, however, they must give notice within writing within 35 days of the issue of the Grant of Representation. Such notice is given to the solicitors acting on behalf of the executor/administrator. 12. Can I pay Inheritance Tax in instalments? In some circumstances, the Inland Revenue will authorise payment of Inheritance Tax in instalments. Whether or not such tax can be payable in instalments will depend upon whether the property subject to Inheritance Tax is defined by the Inland Revenue as “instalment”, or, “non-instalment” option property. As referred to above, all Inheritance Tax not paid within 6 months from the end of the month of date of death is subject to interest. Paying by instalments, therefore, usually attracts the additional interest payable to the Inland Revenue. It can, however, enable all tax to be settled from an alternative source other than having to sell, for example, a house, in order to pay the Inheritance Tax that is due. 13. Is interest payable on Inheritance Tax if I delay payment? As referred to above, interest is payable to the Inland Revenue calculated on the balance of all Inheritance Tax outstanding following six months after the end of the month of the date of death. 14. Is there any way of avoiding an Inheritance Tax payment due in a deceased’s estate? There are different ways of avoiding Inheritance Tax liabilities following the death of an individual whose estate would otherwise be chargeable to such Inheritance Tax. This can include preparing a Deed of Variation to vary the terms of the deceased’s Will to provide that immediately before death the deceased made various transfers, for example to his or her spouse. Such transfers are exempt from Inheritance Tax. Other ways of reducing/avoiding Inheritance Tax liabilities are to complex to explain here are possible, however, please contact us for further guidance. 15. How can a Will be revoked A will can be revoked by:- i. the Testator executing a further later will; ii. by destruction, burning or tearing by the person who made the will, or by some person in his presence and done by his direction with the intention of revoking it (Section 20 of the Wills Act 1837). iii. a will can also be revoked by marriage, but a will made after 1925 and expressed to be made in contemplation of marriage is not revoked (Section 177 of the Law of Property Act 1925). If you would like further information or advice please contact Chris Phillips on 020 7841 0123.