LEVEL 6 - UNIT 21 PROBATE PRACTICE SUGGESTED ANSWERS - JUNE 2014

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1 Note to Candidates and Tutors: LEVEL 6 - UNIT 21 PROBATE PRACTICE SUGGESTED ANSWERS - JUNE 2014 The purpose of the suggested answers is to provide students and tutors with guidance as to the key points students should have included in their answers to the June 2014 examinations. The suggested answers set out a response that a good (merit/distinction) candidate would have provided. The suggested answers do not for all questions set out all the points which students may have included in their responses to the questions. Students will have received credit, where applicable, for other points not addressed by the suggested answers. Students and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners reports which provide feedback on student performance in the examination. Question 1(a) Amendments and Alterations to draft Will. 1. Consider the lack of a revocation clause. Revocation clauses expressly revoke any earlier Wills. A later Will impliedly revokes an earlier Will but only to the extent the later Will is inconsistent with the earlier Will. An express revocation clause means the earlier Will is entirely revoked and there is no risk of it only being partially revoked. 2. Clause 1 appointment of executors. It is unclear which of his brothers David wishes to appoint as executor. The clause must make it clear from the instructions whether it is to be William Maharaj, Philip Maharaj or Theo Maharaj. Philip died 3 years ago therefore either of the two surviving brothers could be appointed as executor. The clause should clearly identify which brother by reference to name, age and address to avoid failure of the appointment due to uncertainty. Both surviving brothers could be appointed if David wishes to do that as he can have more than one executor. The trainee has included Kempstons as executors although there were no instructions to do so. This should be clarified with the client. Discussion if Kempsons were appointed as to the inclusion of suitable clauses for example a charging clause, appointment of two partners, amalgamation of the practice. 3. Clause 2 -direction for disposal of body the executors are not bound to comply with the testator s wishes but may do so if this is feasible. David should provide specific guidance to the executors for example specify the hospital he would choose and the purpose of the medical research eg to help students studying cirrhosis of the liver. A donated body can be used for a number of purposes: Page 1 of 8

2 Under the Human Tissues Act 2004, written and witnessed consent for anatomical examination must be given prior to death; consent cannot be given by anyone else after death. A consent form can be obtained from the nearest medical school and a copy should be kept with the will. David should also inform his family, close friends and GP of his wish to donate his body in this way. It is important that clear instructions are taken from David Maharaj to cover all these issues. 4. Clause 3 - it needs to be clear whether David means to leave 4 Bird St or his flat at 27B Sea View Road Cardiff to his sister to avoid the gift failing for uncertainty. If the gift did fail for uncertainty it would fall into residue and pass to the residuary legatee(s). The executors could use extraneous evidence to ascertain which property the testator intended eg evidence of conversations and/or that his sister stayed in the flat in Cardiff on numerous occasions and not at his house in Stafford. However note that as 4 Bird St is a freehold property David clearly means the seaside flat at 27B Sea View Road. Take instructions as to whether this gift is to be free of all taxes/any mortgage. Consider whether a substitutional clause is appropriate. 5. Clause 4 - David can leave the van to his nephew on these terms but explain his nephew does not have to keep the gift. Refer to the make of van (Fiat) and registration number of the van. As David has several nephews he should identify the nephew he wishes to inherit the van by name and/or address. Take instructions as to whether this gift is to be free of all taxes. Not appropriate to discuss ademption or the substitution of another van as David intends this to be a gift of a very specific van only. 6. Clause 5 the instruction from the client are that the legacy is for 2,000 not 20,000 as stated in the will. Clarification needs to be obtained from the client. If the legacy is to be 20,000, this is a substantial sum and need to ensure the client received independent advice as the relationship between solicitor and client is that of a fiduciary nature. Legacy to my housekeeper needs to refer to the housekeeper by name to avoid uncertainty as to whether it is his housekeeper at date of Will or date of death. 7. Clause 6) Need to state the residue is on trust after payment of all funeral, testamentary and administration expenses. Clause 6a) one half of the residue is to Anthony Winter whereas it is Tony Winter who is appointed executor. Consistency of description needed to avoid submitting an affidavit to the Probate Registrar. If the civil partnership between David and Tony was dissolved (and Tony would not be able to inherit) this legacy would still pass to Rachel as the substitutional beneficiary under the terms of the clause. Clause 6b) - the substitutional gift over to Theo Maharaj has not been included and needs to be added. Also good drafting to include the beneficiaries address. 8. There is no attestation clause or space for the date to be included as required by s9 Wills Act. An attestation clause is not essential but is evidence the Will has been properly executed and should always be included in a professionally drawn Will. Page 2 of 8

3 Question 1(b) Effect of potential dissolution of civil partnership. The dissolution of your civil partnership with Tony Winter would mean that although your Will would remain valid the effect of the Wills Act 1837 s18a is that Tony would be treated as if he had died on the date of the dissolution. The effect of this is that he could no longer act as your executor or trustee nor could he inherit anything you had bequeathed to him in your Will. The only executor of your Will would therefore be your brother you would of course have specifically identified which of your two surviving brothers was to be executor or that both would be executors. The share of the residuary estate you had given to Anthony would also fail and this share would therefore pass to your sister Rachel in accordance with your instructions. Good practice to mention that if David should enter into a future civil partnership the existing will would be revoked. He should therefore consider making another will at that point. Question 2(a) Effect of the lifetime gifts on Jeremy s nil rate band You need to consider the effect of Jeremy s lifetime gifts on his nil rate band (NRB) of 325,000. The gift of 60,000 to his sister Edwina was made over 7 years ago and therefore has no effect on his NRB. The gift of the violin to Miranda is a Gift with a Reservation of Benefit (GROB) as it remained in his house and is caught by the retention of use and enjoyment provisions of the Finance Act The current market value of the violin of 15,000 will be added to the value of estate not the value at the date of the gift as this is a GROB. This gift does not use up any of Jeremy s NRB as it is not a PET. The gift of 60,000 to Simon has the benefit of 2 annual exemptions of 3,000 each year (one for 2009 and one for the year 2008) and will therefore use up 54,000 of the available NRB. The GROB made the year before does not use up the exemption for that year therefore is still available for the 2009 gift. This gift uses up 54,000 of the NRB. The gift of 80,000 to his wife Annabel is spouse exempt and has no effect on the NRB. The gift of 13,000 to his nephew Charles (less 2 annual exemptions one for 2012 and one for 2011) and will use up 7,000 of the NRB. In August 2013 the gift of 7,000 to NSPCC is charity exempt and has no effect on the NRB. The amount of the NRB used up by Jeremy s lifetime gifts is 61,000 ( 54,000 to Simon plus 7,000 to Charles). Therefore there is 325,000-61,000 = 264,000 NRB remaining. Page 3 of 8

4 Question 2(b) Amount of IHT that would be payable should Jeremy die in the near future Business Property Relief (BPR) at 100% applies to the value of Perfect Pasta Ltd as Jeremy has a holding of unquoted shares. 100% BPR is available on the share value of 2,800,000 and this can be deducted from the gross value of the estate. His shareholding in the business is relevant business property. The value of Jeremy s estate is 5,188,000 plus the GROB of 15,000 = 5,203,000 less the value of Perfect Pasta of 2,800,000(BPR) = 2,403,000 subject to IHT. Jeremy s estate has the benefit of the balance of his late wife s NRB. She used 30,000 ( 36,000 gift less 2 x 3,000 annual exemptions) meaning that 295,000 can be added to Jeremy s NRB which gives a total NRB available of 620,000. Jeremy has made chargeable PETS of 61,000. Deduct these lifetime gifts from the total NRB available meaning that 599,000 is available to set against his chargeable estate of 2,403, to 0% 2,403, ,000 = 1,844,000 x 40% = 737,600 IHT payable. Question 2(c) Advice re Moonscape Life Assurance policy. It would be advisable for IHT purposes to write the existing Moonscape Life Assurance policy in trust, probably in favour of his children. The proceeds would be available to pay any IHT due and the proceeds would not form part of his estate for IHT purposes. The premiums could count as normal expenditure out of income for IHT purposes. Remember that writing the policy in trust, as it was not originally set up that way, will be a PET of the surrender value for IHT purposes and IHT would be due if Jeremy died within the next 7 years. Consider taking out insurance against any IHT liability. Question 3(a) Destruction of Victoria s Will. A valid Will can be effectively revoked by destruction in accordance with the Wills Act 1837 s20 which states that a Will can be revoked by burning, tearing or otherwise destroying the same by the testator or by some other person in his presence and by his direction with the intention of revoking the same. Victoria clearly had the intention to revoke her Will, as evidenced by her words to her husband and revoked by both the physical acts of burning and tearing the Will herself. There is no evidence that she was not of sound mind and did not have the necessary intention to revoke. Here there is clear physical destruction and the necessary intention. The effective revocation of her Will means that Victoria s estate will be distributed under the intestacy rules. Page 4 of 8

5 Question 3(b) Distribution of Victoria s estate. Victoria estate will be distributed under the intestacy rules as she effectively revoked her Will and died without making another Will. The intestacy rules are governed by s46 Administration of Estates Act 1925 (AEA) which determines who will be entitled to her estate. The rules only apply to property which is free estate eg not property held as joint tenants/nominated property etc. Victoria s free estate amounts to 1,854,000 ie her gross estate valued at 2,664,000-10,000 liabilities = 2,654, ,000 (Dale House held as joint tenants with Rufus and passes to him by survivorship) = 1,854,000 available for distribution on intestacy. The personal chattels will include the horses as these fall within the provisions of s46 AEA. Rufus will receive the personal chattels of 30,000 plus the statutory legacy of 250,000 and a life interest in half the remainder of 787,000. Rufus could capitalise his life interest. The remainder is calculated as follows: 1,854, ,000 ( 250,000 plus 30,000 as above to David) = 1,574,000 2 = 787,000. The other half of the remainder will pass to Victoria s children on the statutory trusts (1/3 rd = 262, each). John and Nena will receive 262, each. Gemma has predeceased her mother so her share of the remainder is held for her children Olivia and Pippa equally on trust. As Nena, Olivia and Pippa are minors they have a contingent interest subject to them reaching 18 or marrying/civil partnership before then. The interest in remainder in the trust created for David will pass to John and Nena with Olivia and Pippa receiving their mother Gemma s share on Rufus s death. Hugo does not inherit anything on intestacy. Question 4(a) Completed draft Administrators Oath with will annexed See completed oath form attached Document A. Anita Godwin would apply to be the personal representative as she is the residuary beneficiary. It is necessary to clear off any with higher priority under NCPR s20 as the two executors named in the Will, Benjamin Carr and Martin Grey died before the testatrix, Phillipa Carr. There are no life or minority interests created under the Will and this is stated in the oath. As Philippa held shares in the name of Pippa Carr it is necessary to include a statement to this effect in order that the PR can deal with the shareholdings. Page 5 of 8

6 Question 4(b) Documents to be sent to the Bedford District Probate Registry You will need to send the following papers to the Bedford District Probate Registry: The completed Oath for Administrators with the Will Annexed. This will have to be sworn by Anita Godwin before an independent solicitor. You will also need to send a cheque made payable to HM Paymaster General in payment of the probate fees and in addition, decide how many office copies of the grant are needed, including payment for each copy. The registrar will require the Will itself plus two photocopies. This is an excepted estate for which IHT form 205 needs to be submitted. Question 4(c) Advise to client re purchase of shares. There are two strands to this situation do you have the necessary skills and knowledge to advise the client and are you permitted to give this advice under the financial services regulations? Advising the client about investments is subject to regulation under the Financial Services and Markets Act 2000 (FSMA 2000) and to be able to give advice requires authority from the FSA as a regulated activity. Discussion of relevant CGT advice is good professionally. To give investment advice without authority could be a criminal offence as shares are a specified investment. Generic advice is acceptable if you have the requisite knowledge, for example telling the client that shares are one investment option. If you do not have sufficient skill and knowledge the client should be referred to an authorised stockbroker who can advise the client under FSMA Page 6 of 8

7 DOCUMENT A (completed draft Administrators Oath with will annexed) Page 7 of 8

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