Challenging Estate Distribution

Lecture 4 – Outcome 95810886

By the end of this Lecture, students should understand when and how the distribution of an
estate can be challenged.

Basis of challenge
1) Will: Validity of will (eg: lack of capacity, intention, need of evidance)
2) Will or intestacy: Inheritance (Provision for Family & Dependents) Act 1975 – claim
that the will or intestacy does not make appropriate provision for the applicant

1975 Act – Potential Applicants

• Spouse/Civil partner
• Former spouse/civil partner who has not remarried
• Child of the deceased (of any age)
• Any person treated as a child of the deceased
• Any person who immediately before death of deceased was being maintained by the
deceased
• Any person who lived in the same household as the deceased as their husband, wife or
civil partner during two whole years ending immediately before the deceased’s death
(ie cohabitants)

1975 Act – Time limit

• Apply within six months from the date of the grant of representation – not after the
death (you have to act quickly)
• Time limit can be extended if good reason for delay

1975 Act – Ground for claim

• One ground only: “The disposition of the deceased’s estate….is not such as to make
reasonable financial provision for the applicant”
• Two standards for judging this:
 • Surviving spouse standard: “Such financial provision as is reasonable in all the
circumstances, whether or not that provision is required for maintenance.”
(Key question: What would spouse have received on divorce?) – more general
• Ordinary standard: “Such financial provision as it would be reasonable in all
the circumstances… for the applicant to receive for his maintenance.”

1975 Act – S3 Guidelines for Court

• Financial resources and needs of applicant
• Moral obligation of deceased to applicant
• Size and nature of estate
• Physical or mental disability of applicant
• Any other relevant matter, including the conduct of any person
• Also, for surviving spouse factors include:
• Their age and duration of marriage
• Their contribution to the welfare of the deceased’s family
• Also, for child, whether the deceased previously maintained the applicant

1975 Act – Possible Orders (outcomes)

• Lump sum payment
• Periodical payments
• Transfer of property
• Settlement of property on trust
Note: Order can relate not only to assets passing through the will/intestacy, but also jointly
owned property.

1975 Act – In the news

https://www.theguardian.com/law/2023/feb/15/widow-left-out-of-husbands-will-after-66-
year-marriage-wins-half-of-1m-estate
1975 Act: Case Study
Sukhi’s father died recently at the age of 65, leaving assets of £225,000.
His most recent will dated from 2015. After the death of Sukhi’s mother, her father had re-
married a year ago. His new wife, Sharan (aged 28), has two children from another
relationship. Sukhi and her father have not seen each other for a while, as Sukhi disapproved
of the marriage to Sharan.
Sukhi is 39 and is employed as a Finance Manager at an IT company.
Advise Sukhi on (1) her entitlement to her father’s assets and (2) whether she is likely to
be able to claim any share of these.
(1) IR: Situation 2: Surviving spouse/ CP AND issue:
Estate distributed between spouse/CP and issue as follows:
 To spouse (if survive 28 days):
o All “personal chattels” = tangible movable property
o Statutory
 To issue: one half to issue on the statutory trusts

MCQ
A woman died intestate six months ago. She owned a house as a joint tenant with her
husband, and also owned a car and household items in her sole name. She had not seen her
son, who runs his own business, for several years, but he now wants to make a claim against
her estate. No grant of representation has been obtained yet.
Which of the following best explains whether the son’s claim is likely to be successful?
• A The son will be unsuccessful because he is out of time.
• B The son will only be able to claim against the car and household items.
• C The son is likely to succeed as the woman should have made reasonable provision
for him on her death.
• D The son is likely to be unsuccessful unless he can satisfy the court of special
circumstances such as a moral obligation owed to him by the woman, or the fact that
he needs help with his basic living expenses.
• E The son is ineligible to claim because he no longer saw his mother.
 Inheritance Tax (IHT)

Lecture 5 – Outcomes
By the end of this Lecture, students should understand how IHT applies to a deceased’s:
1) Death estate
2) Lifetime gifts

IHT on Death Estate

• Step 1: Identify the transfer of value = deemed transfer of the deceased’s estate on
death
• Step 2: Find the value transferred (how much is worth)
• Step 3: Apply exemptions and reliefs
• Step 4: Calculate tax at the appropriate rate

Case Study: Estate of Nabila

 Nabila dies leaving the following assets
• £30,000 in bank accounts
• Interest in a house (full house value = £500,000) owned with her husband, Mo
(held on a joint tenancy)
• £500,000 of shares in various public companies such as BT plc and M&S plc
• £50,000 of shares in NB Retail Limited, the family wholesale business
• £10,000 of gold and jewellery
• £10,000 of personal belongings
 Her will includes the following gifts:
• £10,000 cash to charity
• All gold and jewellery to her daughter, Razia
• All shares to her son, Ismail
• All other assets to her husband, Munir
Step 2: Find the value transferred
• This is the value of the deceased’s estate
• “Estate” covers everything the deceased was beneficially entitled to on death:
• Everything passing through will/intestacy (common)
• Interest in joint property (rare – usually precluded in divorce)
• Certain trust interests (common)
• Property subject to a reservation (step children)
• Value assets at “open market” price
• Deduct debts and funeral expenses from estate to find the final value transferred

Case Study: Estate of Nabila

• Step 2: Find the value transferred
• Nabila dies leaving the following assets
• £30,000 in bank accounts
• Interest in a house (full house value = £500,000) owned with her husband, Mo
(held on a joint tenancy) = £250,000
• £500,000 of shares in public companies = £500,000
• £50,000 of shares in NB Retail Limited, the family business = £50,000
• £10,000 of gold and jewellery = £10,000
• £10,000 of personal belongings = £10,000
TOTAL ASSETS = £850,000
• Her debts and funeral expenses total £20,000 – LEAVES £830,000 VALUE
TRANSFERRED
• Her will includes the following gifts:
• £10,000 cash to charity
• All gold and jewellery to her daughter, Razia
• All shares to her son, Ismail
• All other assets to her husband, Munir
Step 3: Apply exemptions and reliefs
• Spouse or civil partner exemption
• Charity exemption
• Business Property Relief:
• 100% on an interest in an unincorporated business and unlisted company
shares
• 50% on listed company shares that give voting control of company
• 2-year ownership requirement
• Agricultural Property Relief (farms)

Case Study: Estate of Nabila

 Nabila dies leaving the following assets
• £30,000 in bank accounts
• Interest in a house (full house value = £500,000) owned with her husband, Mo
(held on a joint tenancy)
• £500,000 of shares in BT plc etc.
• £50,000 of shares in NB Retail Limited, the family wholesale business
• £10,000 of gold and jewellery
• £10,000 of personal belongings
 Her will includes the following gifts:
• £10,000 cash to charity - £10,000 Charity exemption
• All gold and jewellery to her daughter, Razia
• All shares to her son, Ismail - £50,000 Business Property Relief on NB
Retail Limited Shares
• All other assets to her husband, Munir = spouse exemption
Therefore, only £10,000 jewellery and £500,000 of BT shares are taxable = £510,000 taxable
estate.
Step 4: Calculate tax at the appropriate rate
• Nil rate band of £325,000 – 0% tax rate below this level
• Everything above this taxed at 40%
• Mitigations:
• Special 36% charitable rate (applies rarely – need to donate 10% of net estate
to charity)
• Transferable nil rate band for spouses/civil partners
• Residence nil rate band of £175,000 additionally available where property that
has been the deceased’s residence is “closely inherited”

Case Study: Estate of Nabila

Step 4: Calculate tax at the appropriate rate

• Nabila: £510,000 taxable estate

• £325,000 @ 0%
• Remaining £185,000 @ 40% = £74,000 total tax

IHT on Death Estate

• Step 1: Identify the transfer of value = deemed transfer of the deceased’s estate on
death
• Step 2: Find the value transferred
• Step 3: Apply exemptions and reliefs
• Step 4: Calculate tax at the appropriate rate
IHT on Lifetime Gifts – Summary
• IHT may also be payable on lifetime gifts made in the seven years preceding death
• These will use up the nil rate band available to the death estate
• Two types of lifetime gift are taxable:
1) Potentially Exempt Transfer (PETs)
2) Lifetime Chargeable Transfers (LCTs)
• We will focus on “simplified” scenarios (one lifetime gift only for overall tax
calculation)

1) Potentially Exempt Transfers (PETs)

• Example – outright gifts
• Small gifts of £250 or less are exempt.
• Exemptions also apply to expenditure out of income and certain wedding gifts
• Not taxed at the time the gift is made
• However, if donor dies within 7 years of making the gift it is subject to IHT
• On death of donor, taxed at 0% below NRB/40% above NRB
• The PET is taxed before the death estate, and so uses up the NRB available to this
• The usual exemptions and reliefs also apply to a PET
• In addition, a lifetime gift annual exemption of £3,000 can be applied to reduce the
taxable value of the PET (plus can carry forward one year’s unused annual exemption,
so a maximum exemption of £6,000 can be claimed)
• Any tax charge may then be reduced by tapering relief if the donor survived more
than 3 years after making the gift

Case Study: Estate of Nabila

 Nabila dies leaving the following assets
• £30,000 in bank accounts
• Interest in a house (full house value = £500,000) owned with her husband, Mo
(held on a joint tenancy)
• £500,000 of shares in various public companies such as BT plc and M&S plc
• £50,000 of shares in NB Retail Limited, the family wholesale business
• £10,000 of gold and jewellery
 • £10,000 of personal belongings
 Her will includes the following gifts:
• £10,000 cash to charity
• All gold and jewellery to her daughter, Razia
• All shares to her son, Ismail
• All other assets to her husband, Munir
Nabila made a gift of £50,000 cash to Ismail 2 years before her death
• This is a PET
• It was not taxed at the time of the gift
• But it is taxed now, as Nabila died within 7 years of making the gift
• The taxable value of the gift can be reduced by annual exemptions – up to £6,000
• Therefore, the gift uses up £44,000 of the NRB, but all taxed at 0%
• So, more of her death estate is taxed at 40%
• Tapering relief not available here

2) Lifetime Chargeable Transfer (LCTs)

• Examples – certain transfers of assets into trusts or to companies
• Taxed at the time the transfer is made at “lifetime” rates – 0% below NRB/20%
above NRB
• If donor dies within 7 years of the transfer, it is subject to IHT again – on death, taxed
at 0% below NRB/40% above NRB
• The LCT is taxed before the death estate, and so uses up the NRB available to this
• The usual exemptions and reliefs also apply to a LCT
• In addition, a lifetime gift annual exemption of £3,000 can be applied to reduce the
taxable value of the LCT (plus can carry forward one year’s unused annual
exemption, so a maximum exemption of £6,000 can be claimed)
• Any tax charge may then be reduced by tapering relief if the donor survived more
than 3 years after making the LCT

Case Study: Estate of Nabila

 Nabila dies leaving the following assets
 • £30,000 in bank accounts
• Interest in a house (full house value = £500,000) owned with her husband, Mo
(held on a joint tenancy)
• £500,000 of shares in various public companies such as BT plc and M&S plc
• £50,000 of shares in NB Retail Limited, the family wholesale business
• £10,000 of gold and jewellery
• £10,000 of personal belongings
 Her will includes the following gifts:
• £10,000 cash to charity
• All gold and jewellery to her daughter, Razia
• All shares to her son, Ismail
• All other assets to her husband, Munir
Nabila transferred £500,000 cash into a discretionary trust 2 years before her death (Note:
assume this is the only lifetime gift)
• This is a LCT (value = £494,000 after deduction of annual exemptions)
• It is taxable at the time of the transfer:
• £325,000 x 0% = 0
• £169,000 x 20% = £33,800 tax on transfer to trust
• It is now taxed again, as Nabila died within 7 years of making the transfer:
• £325,000 x 0% = 0
• £169,000 x 40% = £67,600 tax on transfer to trust (but credit given for
£33,800 already paid)
• Tapering relief not available here
• The LCT uses up the NRB for the death estate, so this is all taxed at 40%

Payment of IHT
• PRs are liable for IHT on the death estate (including joint property)
• IHT is due for payment six months after the end of the month of death, after which
interest becomes payable
• Funding the IHT may be problematic – see Lecture 6
• Some assets qualify for payment of IHT in annual instalments
MCQ 1 - hm
A man, who was unmarried, died leaving the following assets to a friend: House (£500,000),
cash in bank accounts (£90,000), household items (£70,000). The man had debts and funeral
expenses of £10,000. He gave £15,000 to his cousin one year before his death.
House – 500,000
Cash in bank – 90,000
Items – 70,000
Total – 660,000 – 10,000 = 650,000
PET used up 9,000 of NRB (note use of 2 annual exemptions)
Therefore, 316,000 x 0%, 334,000 x 40% = 133,600
What is the amount of IHT payable on the man’s estate?
• A - £129,600
• B - £132,400
• C - £133,600
• D - £136,000
• E - £130,000

MCQ 2
A woman has made various lifetime gifts in the last three years. She gives all of her five
grandchildren £100 on each of their birthdays every year. She also gave £20,000 to her son in
June 2021. Additionally, she set up a discretionary trust for her grandchildren, paying
£100,000 into the trust in August 2021.
Which of the following best describes the IHT position in relation to the transfers she
made in this tax year?
• A - She has made potentially exempt transfers of £20,500
• B – She had made potentially exempt transfers of £20,000
• C – She has made lifetime chargeable transfers of £120,500
• D - She has made potentially exempt transfers of £14,000
• E – She has made lifetime chargeable transfers of £100,500
 Estate Administration

Lecture 6 – Outcomes (91138922)

By the end of this Lecture, students should understand:
1) Who will administer the deceased’s estate
2) The steps they will take to administer the estate
3) Steps needed to protect the PRs from liability

1) Who will administer the estate?

Personal Representatives:
1) Executors – appointed by will
2) Administrators:
• On intestacy or if named executor(s) die or renounce (Renunciation
must be in writing, signed, and contain a statement that there has been
no intermeddling)
• Minimum number = Need at least 2 administrators if a minor
beneficiary or a life interest (mostly there is one administrator)
• Maximum number = 4

Entitlement to administer estate – Intestacy

Order of entitlement – Rule 22 of NCPR:
• Surviving spouse or civil partner
• Children of the deceased
• Deceased’s parents
• Deceased’s brothers and sisters of the whole blood
• Deceased’s brothers and sisters of the half blood
• Grandparents
• Uncles and aunts
• The Crown
• A creditor of the deceased
 2) Key initial steps by PRs
• Register death
• Notify banks, insurers, HMRC, creditors
• Safeguard and value assets
• Liaise with beneficiaries
• Pay IHT (required before can obtain grant) – Form IHT 400 or IHT 205 (excepted
estates)
 Direct Payment Scheme
 Loan from beneficiary
 Loan from bank
 Funds from other sources (e.g., sale of assets or proceeds of life assurance)
• Apply for Grant of Representation using Form PA1 along with supporting documents

Grants of Representation
• Definition = court document evidencing authority of PRs to administer estate
• Different types of Grants of Representation:
• Executors = Grant of Probate
• Administrators in intestacy = Grant of Letters of Administration
• Administrators where valid will = Grant of Letters of Administration with
Will Annexed
• Caveat – can be lodged to prevent issue of Grant
• Citation – can be lodged to force progress

Application for Grant of Representation

• Apply to Family Division of High Court
• Form PA1 (PA1P – will/PA1A – no will)
• IHT documentation (if applicable)
• Any Will and codicils with two copies
• Probate fee
 3) Duties of PRs
• Primary duty: Section 25 Administration of Estates Act 1925:
1. Duty to collect the deceased’s assets
2. Duty to administer the estate – pay debts and distribute assets
• Prepare Estate Accounts
• Subject to Trustee Act 2000 powers and duties
• PRs are personally liable for losses resulting from breach of duty

Protection of PRs
Inheritance (Provision for Family & Dependents) Act 1975
• Wait six months from date of issue of Grant
Claims from unknown beneficiaries or creditors
• Section 27 Trustee Act 1925 - Advertise in London Gazette, local paper and any other
appropriate newspaper, and also make land searches
• Wait a minimum of two months before distributing estate and PRs are then protected
(sums can still be claimed from beneficiaries)
Claims from “missing” known beneficiaries or creditors
• Keep back sum
• Distribute whole estate and seek indemnity from beneficiaries
• Purchase insurance
• Seek a Benjamin Order from court

MCQ 1
A man died last month and left his entire estate (worth £700,000) to his civil partner. His will
appointed his civil partner as his executor. The law firm assisting the civil partner on the
administration of the estate send the following documents to the Probate Registry to obtain
the Grant of Representation:
• Form PA1P
• Form IHT 400
• The man’s will
• Probate fees
Which one of these statements most accurately explains whether these are the correct
documents to send?
• A – No, because Form PA1A should be used.
• B – No, because Form IHT 205 should be used to record the IHT payable.
• C – Yes, because there is no tax to pay, and the civil partner uses Form PA1P to apply
for a Grant of Letters of Administration.
• D – No, because Form IHT 205 and two copies of the will should be sent.
• E – Yes, because these documents are all required for the issue of a Grant of Probate
in these circumstances.

MCQ 2
A man died in November 2021, leaving a legacy of £5,000 to a friend in his will. His PRs
have not been able to trace this friend but have advertised for missing beneficiaries in the
London Gazette and a local newspaper in December 2021. Having received no response to
these adverts, the PRs distributed the £5,000 and all other assets to the residuary beneficiaries
under the will in March 2022. Both the friend and a creditor of the man, claiming to be owed
£20,000, have now come forward
Which of the following best describes the PRs position following this?
• A – The PRs are not protected against a claim by either the friend or the creditor.
• B – The PRs are protected against a claim by the creditor but not the friend.
• C - The PRs are protected against all possible claims.
• D – The PRs are protected against a claim by the friend but not the creditor.
• E - The PRs are protected against claims under the Inheritance (Provision for Family
& Dependants) Act 1975 only

Wills - Next Steps

• Consolidate your understanding of Wills, making use of module learning resources
• Attend Seminar 3
• Formative MCT: Available for 24 hours from 9am (UK time) on Tuesday, 14 March
• Summative MCT: Available for 24 hours from 9am (UK time) on Tuesday, 25 April
• Any further questions can be posted on Discussion Board. Please note:
• Questions should be posted as soon as possible and not at the last minute
• For the Formative MCT, please raise questions before midday on Friday, 10
March for these to be answered before the Formative MCT commences.
 • Discussion Board will not be monitored during the Easter holiday
• Questions must be posted on Discussion Board before midday on Friday, 21
April in order to receive a response before the Summative MCT commences
• Please ensure you work individually on the MCT – any collaboration would be
academic misconduct