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A Modern Approach to Wills, Administration and (with Precedents)

Third Edition

Christopher Whitehouse and Professor Lesley King

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Published by Jordan Publishing Limited 21 St Thomas Street Bristol BS1 6JS Whilst the publishers and the author have taken every care in preparing the material included in this work, any statements made as to the legal or other implications of particular transactions are made in good faith purely for general guidance and cannot be regarded as a substitute for professional advice. Consequently, no liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in this work. © Jordan Publishing Limited 2015 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any way or by any means, including photocopying or recording, without the written permission of the copyright holder, application for which should be addressed to the publisher. Crown Copyright material is reproduced with kind permission of the Controller of Her Majesty’s Stationery Office. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN 978 1 78473 054 3

Typeset by Letterpart Limited, Caterham on the Hill, Surrey CR3 5XL Printed in Great Britain by CPI Group (UK) Ltd, Croydon, CR0 4YY

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CONTENTS

Preface v Table of Cases xxv Table of Statutes xxxix Table of Statutory Instruments xlvii Table of Abbreviations xlix

Section A The Background Law Chapter 1 The Essential Wills Law 3 1. What is a will? 3 How does a will differ from a living will or advance decision? 4 2. Validity of a will 6 Formal requirements of Wills Act 1837, s 9 6 Incorporation of unexecuted documents 9 Capacity to make a will 9 Age 9 Test of mental capacity 9 Impact of the Mental Capacity Act 2005 10 Uncertain 12 Criticism of the Golden Rule 14 Time at which capacity has to be proved 15 Knowledge and approval 15 and 16 Will must not have been revoked 17 Destruction 17 Subsequent will 17 Subsequent marriage or formation of subsequent civil partnership 18 Effect of divorce or dissolution of civil partnership 19 Alteration of wills 19 The interpretation and rectification of wills 19 3. Appointment of executors and 22 Partners in a firm of solicitors 25 Replacement trustees 26 Exemption clauses 26 4. Personal chattels 28

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5. Specific gifts 30 and sales under a lasting (or enduring) power of attorney 31 6. Absolute pecuniary legacies 32 Class gifts 32 ‘£1,000 to each of my grandchildren’ 33 ‘£10,000 to be divided amongst my grandchildren’ 33 Interest on absolute pecuniary legacies 33 Receipts for pecuniary legacies 33 7. Contingent pecuniary legacies 34 Class gifts 34 ‘£20,000 to be divided amongst such of my grandchildren as reach 25’ 34 An alternative 34 Interest on contingent pecuniary legacies 35 Tax position if gift does not carry intermediate income 35 Power to advance capital 36 What does the get when the contingency is fulfilled? 36 8. Nil rate band legacies 37 9. Residuary gifts 37 Direction to pay debts 38 Direction to pay inheritance tax 38 Grossing up 39 10. Miscellaneous matters 39 Perpetuities and accumulations 39 Administrative powers 39 Foreign property 40 Secret and Half Secret Trusts 40 The Lucien Freud case 41 The Succession Regulation (EU) 42

Chapter 2 The Essential Trusts Law 45 1. Perpetuities and accumulations 45 Perpetuities 45 The old rules 45 The new rules 46 Special powers of appointment 46 Accumulations of income 47 The old rules 47 The new rules 47 Meaning of ‘wills executed’ 48 Post-death variations 48 Trusts of death benefits (spousal by-pass trusts) 49 Using the Variation of Trusts Act 1958 to obtain a new perpetuity period 50 2. Dispositive and administrative powers 51 What is meant by a ‘dispositive power’? 51

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The types of dispositive powers 51 The exercise of dispositive powers 52 Challenging the exercise of a dispositive power 52 Hastings-Bass and mistake 53 What was thought to be the ratio decidendi of Hastings-Bass 53 The correct ratio decidendi of Hastings-Bass 54 When can the exercise by trustees of a dispositive power be set aside? 55 What are the duties of a ? 56 Professional advice 56 Was relief available in the cases being appealed? 57 The equitable jurisdiction to set aside a voluntary transaction for mistake 57 The facts in Pitt v Holt 58 The correct test for mistake 60 What is a mistake? 60 Tax Consequences and Unconscionability 61 3. Powers of advancement and to pay or apply capital 62 The statutory power 62 Express powers 62 Inheritance and Trustees’ Powers Act 2014 63 Meaning of ‘advancement or benefit’ 63 Limitations on ‘benefit’ 65 Uses of the power to advance capital 66 Can the trusts created by a settled advance be discretionary? 67 4. Powers of appointment 68 Distinction between special and general powers 68 The use of special powers of appointment 69 5. Does the exercise of a power constitute a resettlement? 69 HMRC interpretation 71 Powers must not be used to benefit non-objects (fraud on the power) 72 6. Powers of appropriation 72 7. Maintenance: section 31 of the Trustee Act 1925 74 Inheritance and Trustees’ Powers Act 2014 75 Income tax implications of s 31 75 Inheritance tax implications 76

Chapter 3 The Essential Tax Law 77 1. Calculating IHT on death 77 Basic principles 77 The transfer of value 77 Estate 79 Non-deductible debts 80 Finance Act 2013 changes 80 Value 83 Related property rules 84

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Lifetime transfers 86 Exemptions and reliefs 87 Liability for inheritance tax 90 The burden of tax on transfers chargeable because of death 92 Residue shared by exempt and non-exempt beneficiaries 94 When is it necessary to gross up? 95 Examples of grossing up 96 Estate duty hangover 100 2. The IHT treatment of settlements 101 Settlements created before 22 March 2006 101 Settlements created on and after 22 March 2006 104 Practical results 105 The DOTAS regime 106 Drafting settlements today 107 Disabled trusts 108 Transitional serial interests (TSI) 108 3. The taxation of relevant property settlements 110 Creation 110 Anniversary charges 111 The treatment of income 112 Planning 115 Exit charges 116 Additions to a settlement 117 Proposed new rules for taxation of relevant property settlements 118 Same day addition (‘SDA’) 119 Proposed changes in the calculation of the 10-year charge 119 Features of SDA 119 Anti-forestalling (protected settlements) 121 Example 3.20 121 Protected settlements and additions by will 121 Conclusions 122 The scope of section 81 124 4. Basic principles of CGT 125 Rates of tax 126 Entrepreneurs’ relief 127 5. CGT exemptions and reliefs 127 Annual exemption 128 Chattels disposed of for £6,000 or less 128 Charities 128 Life policies 129 Private dwelling houses 129 Qualifying residence 129 Nomination of main residence 130 FA 2015 changes to the nomination 130 Trustees 131 Spouses and civil partners 132 Hold-over relief 132 Non-residents 133

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6. Death and CGT 133 7. Settlements and CGT 135 Creation of the settlement 136 Actual disposals by trustees 136 Deemed disposal when beneficiary becomes absolutely entitled 137 When does a person become absolutely entitled? 138 8. Income tax and personal representatives 139 Beneficiaries 141 Non-residuary 141 Residuary beneficiaries 142 Beneficiary with a limited interest 142 Beneficiary with an absolute interest 143 Beneficiary with a discretionary interest 144 Successive interests 144 9. Income tax and trustees 144 Calculating the taxable income 144 Rates of tax payable by trustees 144 The trust and dividend trust rates 145 Trustees’ liability under ITA 2007, s 496 146 Beneficiaries with a right to income 146 Beneficiaries of accumulation and discretionary trusts 147 Giving beneficiaries a revocable right to income 148

Section B Drafting the Will Chapter 4 Notes for the Will Draftsman 153 1. Use of precedents – structure of the will 153 2. Use of trusts 154 3. Choice of executors/trustees 155 4. Chattels and legacies 155 5. Nil rate band legacies 156 6. Gifts to charity 157 Gifts to unincorporated charities 157 Gifts to incorporated charities 158 The merger provisions and recent case law 158 Suggested clauses 160 The STEP Standard provisions 161 7. Gifts releasing a debt 162 8. Gifts in priority 163 9. Gifts of houses 163 Option to buy 163 Gifts of houses 165 10. Administrative and hybrid provisions 166 11. Specific IHT related provisions 169 Precedents 170 Precedent 4.1: Discretionary will 170 Precedent 4.2: Letter of wishes 180

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Precedent 4.3: Standard attestation clauses 181 Form 1: standard clause 181 Form 2: clause where another signs for 181 Precedent 4.4: Clauses creating nil rate band and flexible IPDI trust of residue 182 Precedent 4.5: Appointment of executors/partners 189 Precedent 4.6: Specific gift of shares/house to avoid ademption 190 Precedent 4.7: Declaration that will is made in expectation of marriage/entering civil partnership 191 Precedent 4.8: Class gifts 192 Precedent 4.9: Nil rate band legacies 193 Form 1 – Short form 193 Form 2 – Expanded form 193 Form 3 – Form to include a transferred nil rate band and which requires it to be claimed by the personal representatives 193 Form 4 – Limited to single nil rate band 194 Precedent 4.10: Charitable legacies 195 Form 1 – Gift to named charity 195 Form2–Trustees given power to select charities with default provision 195 Precedent 4.11: Option to purchase land 196 Precedent 4.12: Clauses dealing with the residence 197 Form 1: Clause creating trust to hold a residence for a spouse 197 Form 2: Clause creating trust for spouse of the testator’s share as tenant in common of residence, with a full for the spouse and with provision for a substitute dwelling 197 Form 3: Clause leaving (leasehold) residence to trustees and allowing them to grant a licence to the surviving spouse 197 Form 4: Clause leaving residence to trustees with power to allow unmarried daughter to live there 197 Precedent 4.13: Power to transfer property to another settlement (drafting note) 199

Chapter 5 The Impact of the Transferable Nil Rate Band 201 1. Setting the scene 201 The frozen nil rate band 201 Future legislative changes 202 2. Using the nil rate band before 9 October 2007 202 Constituting the trust by a debt or charge 204 The Phizackerley case 205 Limited effect of the decision 206 3. The position from 9 October 2007 208 Position on the first death 209 When the first spouse died before 12 March 1975 210 Relief for deaths of members of the armed forces/emergency service personnel etc 210 The reliefs 211

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The death on active service exemption 211 Death of emergency service personnel 212 Constables and armed services personnel targeted because of their status 212 The exemption and transferable nil rate band 212 Position on the death of the survivor: making the claim 212 Using the transferred nil rate band 213 Lifetime gifts of the survivor 214 Will trusts of the survivor 215 The nil rate band maximum 216 Claiming the unused nil rate band: issues for personal representatives 216 4. Impact on the drafting of IHT efficient wills 218 When will it still be attractive to establish a nil rate band discretionary trust 218 The widow or widower who remarries 220 5. Position where a taxpayer has recently died and his will contains an IHT nil rate band discretionary trust with residue passing to the surviving spouse 221 6. Administering NRBDTs set up by a spouse who died more than 2 years ago 222 Precedents 224 Precedent 5.1: Clauses to be inserted into a will creating a nil rate band discretionary trust 224 Precedent 5.2: Implementing the NRBDT by a charge for the nil rate sum 229

Chapter 6 Using Immediate Post-Death Interests 231 1. IHT treatment of a qualifying interest in possession 231 2. The definition of an IPDI in section 49A 232 Condition 1 233 Condition 2 233 Condition 3 234 Condition 4 236 3. What is meant by an interest in possession? 236 The meaning of a ‘qualifying’ interest in possession 238 4. The drafting of IPDIs 238 5. Reservation of benefit and the termination of the interest during the lifetime of the beneficiary 240 The scope of FA 1986, s 102ZA 241 Implications of s 102ZA 242 Limited effect of s 102ZA 242 Tax planning avoiding s 102ZA 242 Reversionary leases 243 CGT issues 244 6. Typical uses of the IPDI 245 7. Circumventing the IPDI requirements: the use of general powers 246

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Precedents 248 Precedent 6.1: Flexible IPDI trust of residue for a surviving spouse or civil partner 248 Precedent 6.2: Deed of appointment terminating IPDI and providing for property to be held on discretionary trusts 251 Precedent 6.3: IPDI trust of residue for (minor) children of the testator with substitution in the case of a pre-deceasing child leaving issue 254 Precedent 6.4: Revocable appointment of IPDI out of a discretionary will trust 256 Precedent 6.5: Clause giving the IPDI beneficiary a general exercisable by will 259 Precedent 6.6: Appointment of nominees and grant of rent free lease by trustees to nominees 260

Chapter 7 Provision for Children 265 1. The family will 265 2. Trusts for children of the testator 266 Trusts for adult children/grandchildren 267 3. Bereaved minor trusts (BMTs) 267 4. Section 71D trusts 270 Calculating the tax charge on s 71D trusts 271 Calculating the tax charge on s 71D trusts: proposed changes 273 5. Drafting BMT and s 71D trusts 273 Limited flexibility for BMT and s 71D trusts 273 Drafting 273 An interest in possession trust for the testator’s child 275 Relationship between BMT, IPDIs and s 71D trusts 276 Relationship between sections 71D and 144 276 6. Bare trusts for minors 277 Tax treatment 278 Can the beneficiary’s absolute entitlement to capital be deferred? 279 Income and CGT consequences 280 When to use a bare trust 280 7. Disabled children 281 Definition of a ‘disabled person’ 281 The IHT treatment of a disabled trust 282 Income and capital gains tax reliefs 283 Precedents 284 Precedent 7.1: Bare trust 284 Precedent 7.2: Bereaved minor trust 286 Precedent 7.3: s 71D trusts 287 Precedent 7.4: Clause establishing a disabled person’s trust 289 Appendix 290 HMRC Guidance on ss 71A, 71D and accumulation and maintenance trusts (20 June 2007) 290 1. The meaning of ‘B’ or ‘bereaved minor’ in the legislation 290

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2. The class closing rules 292 3. The scope of settled powers of advancement 293

Chapter 8 Pilot Trusts 295 1. Definition 295 2. Points of detail in establishing the trust 296 Related settlements 297 The effect of GAAR 298 Joint settlors 298 3. Adding property to the pilot trust 298 Checking the settlor’s clock 299 Additions by will 299 The s 81 trap 300 4. The IHT treatment of pilot trusts 301 IHT consequences of the addition of property to a pilot trust 304 The proposed changes 305 Merging the pilot trusts 306 5. When are pilot trusts used? 307 First case: using up two IHT nil rate bands on death 308 Second case: the substantial relevant property settlement 308 Third case: using 100 business or agricultural property relief 309 Fourth case: taking advantage of the normal expenditure out of income exemption 310 Fifth case: providing for cohabitees and children 311 Option 1 312 Option 2 312 Option 3 312 Option 4 312 Sixth case: using a pilot trust to receive a death in service benefit (spousal by-pass trust) 313 6. Practical issues 314 Unscrambling an unwanted pilot trust 314 The s 80 trap 315 The limits of deeds of variation 316 7. Will there still be scope for using multiple trusts if the proposed changes go ahead? 317 First case: create a settlement every 7 years 317 Second case: the same day addition and related settlement rules do not result in settlements being taxed as one 317 Third case: exploiting the limitations of s 67 317 Precedents 319 Precedent 8.1: Pilot discretionary trust 319 Precedent 8.2: Clauses to use the double nil rate band by settling property in two (or four) pilot trusts set up during the lifetime of the testator before his will was made 324

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Chapter 9 Reduced Rate of Inheritance Tax when 10 per cent of the Net Estate Left to Charity 325 1. Tax relief to encourage charitable giving 325 2. The composition of an inheritance tax estate 325 Allocating the nil rate band 326 3. The statutory components 326 4. How the inheritance tax relief operates 328 5. When the inheritance tax relief is available 328 6. Electing to merge components 330 7. Electing to opt out of lower inheritance tax rate 332 8. Miscellaneous technical provisions 332 9. Practical implications 334 10. Drafting wills to take advantage of the reduced inheritance tax rate when charitable gifts are to be made 336 Drafting basics 336 The basic formula gift 336 Merging components? 337 The election to merge components 337 Specifying a maximum and/or a minimum 337 Other clauses 338 Conclusion 338 Precedents 339 Precedent 9.1: Formula gift (general component only) 339 Precedent 9.2: Formula gift (merging components) 340 Precedent 9.3: Gift of specific sum or other property to charity 341

Chapter 10 Agricultural and Business Property 343 1. Succession planning 343 2. APR and BPR general aspects 344 3. Agricultural property relief 346 Relief is given on the ‘agricultural value’ 347 The ‘character appropriate’ test 348 The nexus required 350 The Hanson case 350 What is a farmhouse? 352 When is agricultural property ‘occupied for the purpose of agriculture’? 355 Getting 100 relief on let property 357 4. Business property relief 357 The ‘wholly or mainly’ test 358 The factors 358 The Brander case 359 Implications 361 The Conacre case 362 What must be transferred? 364 Property development companies 365

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Furnished holiday lettings 366 Old HMRC view 366 Subsequent view of HMRC 366 The Pawson case 367 After Pawson: the Zetland case 369 After Pawson: the Best case 371 The future 374 Excepted assets 375 The Barclays Bank case 375 5. Issues for the will draftsman 377 The need for a specific gift of qualifying property 377 Property attracting relief not specifically bequeathed 377 Problems with ‘nil rate band’ legacies 378 Solution? 379 Difficulty in assessing the extent to which relief will be available on death 380 Obtaining a ruling from HMRC on the availability of relief 381 Maximising the relief in the case of married couples 382 The first death: the discretionary trust 382 Precedents 384 Precedent 10.1: Gift of shares 384 Precedent 10.2: Gift of a small business 385 Precedent 10.3: Gift to trustees of a business to carry on the business for a limited period 386 Precedent 10.4: Trusts of net profits of business until sale and of net proceeds of sale 387 Precedent 10.5: Provision for child of testator to take on business on payment to trustees 388 Precedent 10.6: Trustees’ powers 389 Precedent 10.7: Clauses for NRB legacy including business property 390

Section C Administering the Estate (Including Establishing and Running Will Trusts) Chapter 11 Obtaining the Grant 395 1. The steps to be taken 395 2. First steps 395 Elected domicile for spouses and civil partners 396 Making the election 397 Two types of election 398 Time limits 398 When the election ceases to have effect 399 Problems for personal representatives 400 3. Is the estate excepted? 400 4. Completing the IHT205 409 5. The reduced IHT400 410

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6. Completing the IHT400 412 The IHT Toolkit 413 HMRC Guidance 414 (a) Instalment and non-instalment option property 414 (b) Transfer of unused nil rate band 414 (c) Joint property 414 (d) Household and personal goods 415 (e) Pensions 415 (f) Stocks and shares 416 (g) Assets mentioned in the will and not included in the estate 416 7. Considerations relevant to completing the IHT400 417 The instalment option 417 Exercising the instalment option: cashflow benefit 418 Once the personal representatives have paid all the outstanding inheritance tax they are entitled to a certificate of discharge 419 The extent of the deceased’s interest in assets 419 The extent of a co-owner’s interest in land 419 Ownership of joint bank accounts 423 Tax treatment of joint accounts 424 Proprietary estoppel claims 425 Proprietary estoppel and IHT 425 8. Valuations 426 Estimates 426 Basis of valuation 427 Personal chattels 427 Land 428 Valuation of an interest in co-owned land 429 Shares and securities 429 Related property 430 Property subject to restrictions on transfer 431 Lotting and IRC v Gray 431 Property subject to an option etc 432 Liabilities 432 9. Lifetime transfers made within 7 years of death 433 Calculating tax on chargeable lifetime transfers 434 Taper relief 435 Fall in value of gifted property 436 PETs made within 7 years of death 437 Combination of PETs and chargeable transfers made within 7 years of death 438 10. Penalties 439 Cases 442 Robertson v IRC 442 Cairns v RCC 443 Hutchings v RCC 444 Avoiding a penalty 447 What to do if facing a penalty 448 What if the PR is a professional? 448

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Chapter 12 Instruments of Variation and Disclaimer 451 1. ‘Reading-back’ generally 451 2. Tax treatment of variations and disclaimers 452 Different treatment for IHT and CGT 454 Income tax consequences 454 Pecuniary legacies 455 Specific legacies 455 Residuary beneficiaries 455 Settlor-interested trusts and income tax 455 3. Distinction between a variation and a disclaimer 456 To avoid the income tax settlor-interested trust provisions 456 To disclaim a life interest after the life tenant has died 457 4. Pitfalls and problems 457 Time-limit 458 Parties 458 Charities 458 Writing 458 Statement that disposition is to be treated as deceased’s 459 Need to send variation to HMRC 459 Multiple variations of same property not possible 459 Not possible for parents or guardians to give up property on behalf of a minor 460 Not possible to vary a discretionary trust unless all beneficiaries join in 460 No consideration 461 ‘Buy-in’ from the surviving spouse 462 The dangers of IHTA 1984, s 142(4) 462 The ‘double dip’ 463 Share and Land Aid 465 No redirection of reservation of benefit or settled property 465 General powers 466 Interest on gifts made by deed of variation 467 5. Uses of section 142 468 Variation in favour of a person already dead 468 Variation on behalf of person already dead 468 Variation to remove survivorship clause 469 Severing a beneficial joint tenancy to redirect property passing by survivorship 470 Severance of beneficial joint tenancy to obtain benefit of co-ownership discount 470 Passing the benefit of assets which have been sold 471 Avoiding the rules on reservation of benefit and pre-owned assets 471 ‘Freezer legacies’ 472 Appointments/advancements followed by a variation 472 6. When is it preferable not to have a disposition read-back? 472 For IHT purposes 473 For CGT purposes 473

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7. When it all goes wrong: curing defective variations 474 Summers v Kitson 475 Wills v Gibbs 476 Ashcroft v Barnsdale 476 Giles v RNIB and Others 477 8. Precatory trusts 477 Precedents 478 General drafting hints 478 Precedent 12.1: Variation whereby father varies legacy in favour of daughter 479 Precedent 12.2: Variation creating terminable/short-lived IPDI for the surviving spouse/civil partner 480 Precedent 12.3: Variation of the proceeds of sale of property which has been sold 483 Precedent 12.4: Variation by personal representatives of deceased life tenant of the benefit of his life interest in certain shares 484 Precedent 12.5: Disclaimer of life interest when the life tenant has died 486 Precedent 12.6: Variation providing for (a) severance of beneficial joint tenancy (b) settlement of severed half share in land (c) gift of severed half share in building plot (d) reading-back for CGT only 487 Precedent 12.7: Clauses providing for (a) personal representatives to consent to a variation on behalf of minors (b) a partial disclaimer 490 Precedent 12.8: Variation in favour of charity (with notification ) 491

Chapter 13 Constituting and Administering Will Trusts 493 1. Transition from administration to trust 493 2. Constituting the trust 495 The assets settled 495 Using a debt or charge to satisfy a legacy 496 Interest on the sum owed 496 Indexation of the sum owed 496 Inadequate paperwork 497 3. Reading-back and IHTA 1984, s 144 497 Timing issues and the Frankland trap 500 Unscrambling unwanted nil rate band discretionary trusts 501 Appointment before assets vested in trustees 501 Form of appointment 501 Who makes the appointment? 502 Trustees and personal representatives may be different 502 Appointment of ‘partners in firm’ 502 Can the trustees act? 503 CGT considerations 504 The scope of s 144 504

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Precedents 506 Precedent 13.1: A deed of appointment made within 2 years of death and vesting the trust property in the surviving spouse absolutely: variants depending the assets in the trust 506 Precedent 13.2: Declaration of 100–year perpetuity period 508 Precedent 13.3: Settled advance not creating a new settlement 509 Precedent 13.4: Exercise of a power of appointment to convert a discretionary trust into an interest in possession 512 Precedent 13.5: Exercise of a power of revocation and new appointment to change the interest in possession beneficiary 514 Precedent 13.6: Resolution to transfer assets to a beneficiary pursuant to an express power in the trust deed 516 Precedent 13.7: Memorandum of Appropriation 517 Precedent 13.8: Definition of Trustees 517

Chapter 14 Tax Efficient Administration 519 1. Appropriations 519 Appropriation at the value at the date of appropriation 520 Directions in the will as to date of valuation 521 Implications of differential CGT rates 521 Appropriations where there are outstanding liabilities 522 More than one beneficiary entitled 522 Charities as residuary beneficiaries 522 Appropriations and self-dealing 523 Retaining a power to re-appropriate 524 2. Problems arising from low interest rates and low inflation 524 Power to apply capital for impoverished life tenant 524 Is it permissible to invest for income at the expense of capital? 525 Trustees and modern portfolio theory 526 Reviewing debt/providing fresh security 528 Delay in selling an investment 528 3. Loss on sale relief 530 Sale must be by the ‘appropriate person’ 531 Restrictions on relief 532 Beneficiaries want to retain assets and benefit from relief 533 Qualifying investments – how does the relief work? 533 Value reduced for CGT 534 Unsaleable investments 534 Land or interests in land – how does the relief work? 535 Claims in relation to land may be disadvantageous 535 De minimis losses 535 Artificial sales 535 Co-ownership discount 536 Changes to the interest in or to the underlying land 537 The relief on land and CGT 538 4. Trust capital or income? 538 The rule in Bouch v Sproule 538

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Distributions treated as capital 543 Judicial discretion to apportion 543 Demergers 543 Direct demergers 544 Indirect demergers 544 Scrip dividends 546 The Trusts (Capital and Income) Act 2013 547 Time apportionments 548 5. Precautions before distribution 549 Dealing with houses: the limits of CGT main residence relief 549 Advertising for claimants 550 Claims under Inheritance (Provision for Family and Dependants) Act 1975 550 6. Inheriting ISAs: the 2015 changes 551 Conditions applying to cash and non-cash ISAs 552 Cash ISAs held by the deceased 552 Non-cash ISAs held by the deceased 552 Precedents 554 Precedent 14.1: Memorandum of appropriation reserving a power to re-appropriate 554

Section D Miscellaneous Chapter 15 The Rules 557 Contents 557 1. Undisposed of property is held on a statutory trust 557 The statutory trust 557 Order of entitlement under s 46 558 2. Entitlement of spouses and civil partners 559 Who is a spouse? 559 Survivorship requirement 560 Entitlement varies 560 Spouse or civil partner alone surviving 560 Spouse or civil partner and issue surviving 560 Spouse or civil partner and parent or brother and sister (or their issue) surviving 562 Two special rules applying to spouses and civil partners 563 Right to redeem the life interest 563 Right to acquire the matrimonial home 564 3. The rights of issue 565 The statutory trusts 565 Estates of Deceased Persons (Forfeiture Rule and Law of Succession) Act 2011 568 4. Adopted children 569 5. Legitimated children 569 Children whose parents were not married at the time of their birth 569 6. Human Fertilisation and Embryology Act 2008 570

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7. The rights of others 571 8. Bona Vacantia 571

Chapter 16 Donatio Mortis Causa 573 1. A gift conditional on death 573 2. Contemplation of death 574 3. How impending must death be? 574 4. Delivery of subject matter or sufficient indicia of title 575 5. Inheritance tax treatment of a DMC 577

Chapter 17 The Inheritance (Provision for Family and Dependants) Act 1975 579 Introduction 579 1. What the Applicant Must Establish 579 2. Preliminary Requirements 580 Domicile 580 Time limit 580 Practical considerations 582 3. The Categories of Applicant 583 The spouse or civil partner of the deceased 583 A former spouse or civil partner 583 A person who has lived with the deceased in the same household as husband or wife for 2 years 584 A person who has lived with the deceased in the same household as civil partner for 2 years 585 A child of the deceased 585 A person (not being a child of the deceased) who is treated by the deceased as a child of the family 586 Any person (not being a person included in the above paragraphs) who immediately before the death of the deceased was being maintained wholly or partly by the deceased 586 A ‘substantial contribution’ 587 The meaning of ‘immediately before the death’ 587 4. Reasonable Provision 588 Two standards 588 The standard for surviving spouses and civil partners 588 The ordinary standard 588 An objective standard 589 5. Matters the Court must consider (s 3) 589 6. Matters common to all categories 589 7. Matters for particular categories 591 A surviving spouse or civil partner 591 A former spouse or civil partner 594 A person who has cohabited with the deceased for 2 years under either s 1(1A) or (1B) 594 A child of the deceased 594 A person treated by the deceased as a child of the family 595

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xxiv A Modern Approach to Wills, Administration and Estate Planning

A person maintained by the deceased 595 8. The Orders that may be made 595 The types 595 The burden of an order 597 Inheritance tax 597 Interim payments 597 9. Property Available for Financial Provision 598 The net estate 598 Joint property 598 10. Anti-avoidance provisions 599 Introduction 599 Lifetime Gifts 600 600 The intention of defeating an application 600 Illustration of the use of the power 601 Alternative claim under the Insolvency Act 601 11. Tax efficient orders 602

Appendices Appendix I Interest Rates Payable on Funds in Court 607

Appendix II Nil Rate Band Tables 609

Index 611

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