Hempsons: Legact Administration
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Hempsons: Legact Administration

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An introduction to legacy administration by charities

An introduction to legacy administration by charities

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  • 1. LEGACY ADMINISTRATION – MAXIMISING THE BENEFIT
  • 2. LEGACY INCOME
    • Vital Funding Source
    • £1-9 billion raised in 2008
    • Can represent 80% of voluntary income
    • Economic downturn poses threat
  • 3. CHARITABLE GIVING
    • 2/3 regularly give to charity in lifetime
    • 1/3 make a Will
    • 15.7% of wills in 2008 charitable
  • 4. MAXIMISING LEGACIES
    • Check all legacy receipts carefully
    • Monitor progress
    • Look to the future
  • 5. TOPICS FOR TODAY
    • The Will – what to look for
    • Probate procedure and timescales
    • Basic tax – IHT and CGT
    • Accounts
    • Income tax and tax deduction certificates
    • What can go wrong – looking out for fraud
    • Assessing fees
    • Making the most out of legacies
    • Questions
  • 6. THE WILL
    • No set form
    • Must be in writing
    • No need to be dated
    • No need to be on paper
    • Can dispose of almost anything
    • Complete testamentary freedom
  • 7. VALIDITY REQUIREMENTS
    • S9 Wills Act 1837 as amended:-
    • “ No Will shall be valid unless:-
    • (a) It is in writing, and signed by the testator, or by
    • some other person in his presence and by his
    • direction; and
    • It appears that the testator intended by his signature to give effect to the Will; and
  • 8. VALIDITY REQUIREMENTS Cont’d
    • the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and
    • each witness either:-
    • ( i) attests and signs the Will; or
    • (ii) acknowledges his signature
    • in the presence of the testator (but not necessarily
    • in the presence of any other witness),
    • but no form of attestation shall be necessary”
  • 9. WHO MAY MAKE A WILL?
    • Anyone over 18 (unless privileged)
    • Intention to make a Will
    • Mental capacity
    • Free from undue influence
  • 10. WHAT MAY BE DISPOSED OF BY WILL?
    • Any assets owned by testator except:-
    • - some jointly owned assets
    • - some pension funds
    • - property held in trust
    • - donatio mortis causa
    • - some foreign assets
  • 11. COMMON PROBLEMS
    • Will invalidly executed
    • Will is lost/unattested alterations
    • Contains mistake
    • Ademption
    • Mis-description
    • Legal challenge
  • 12. EXECUTORS’ POWERS
    • “ Collect and get in” the estate
    • Power to sell
    • Power to appropriate
    • Power to insure
    • Power to invest
    • Power to appoint nominees
    • Power to delegate
    • Power to charge
  • 13. EXECUTORS’ DUTIES
    • Trustee Act 2000
    • Duty of care
    • Duty to account
  • 14. BENEFICIARIES’ RIGHTS
    • Right to due administration
    • Right to information
    • Right to remove/place PRs
  • 15. WHAT TO LOOK OUT FOR
    • Always read entire Will – does it make sense?
    • Compare with schedule of assets/liabilities
    • Check signature/Death Certificate
    • Executors – professional or lay?
    • Who are beneficiaries – family/charity?
    • Are there foreign assets?
  • 16. PROBATE PROCEDURE
    • Some starting points:-
      • Time of bereavement
      • Who contacts you?
      • Family?
      • Professional?
      • The beneficiaries – who are they?
      • Communication is key
  • 17. THE WILL
    • Where is it?
    • Funeral wishes
    • Who can see it?
    • Home-made/professionally drawn?
    • Executors –professional/lay? None?
    • Problem assets
    • Construction issues
    • Possible legal claim?
  • 18. THE ASSETS
    • Sole or joint?
    • Valuations
      • Shares
      • Property
    • Protection of assets
    • Tax/variation issues
  • 19. GRANT OF PROBATE
    • Is it necessary?
    • Inland Revenue account
    • Oath
    • IHT loans
    • Timescales
  • 20. ONCE THE GRANT IS OBTAINED
    • Trustee Act Notices
    • Pay debts
    • Pay legacies
    • Realise assets
    • Claims
    • Consider Deed of Variation
  • 21. TAX
    • IHT/CGT – who to sell?
    • – exemptions
    • Appropriation
    • Deduction of costs
    • – IRC -v- Richards’ Executors
    • Reliefs – shares – 1 year
    • property – 4 years
    • Penalties
  • 22. TAX RETURNS/ACCOUNTS
    • Tax to date of death
    • Estate administration return
    • Estate accounts
    • Corrective Accounts
    • Tax Clearance
  • 23. WINDING UP
    • Approval of Estate Accounts
      • Receipts and indemnities
    • Distribution
    • Tax Deduction Certificates
      • - R185E (Estate Income)
  • 24. BASIC TAX
    • Inheritance Tax – IHT
    • Capital Gains Tax – CGT
  • 25. INHERITANCE TAX
    • A direct tax on transfers of value
    • Lifetime transfers
      • “ PETs”
      • Chargeable transfers
    • Transfer on death
  • 26. WHAT IS TAXABLE?
    • Share of joint property
    • Interest in trust
    • Life policies
    • Gifts with reservation
  • 27. EXCLUSIONS:-
    • Property outside UK (if non-UK domiciled)
    • Reversionary interests
    • Certain life/pension policies in trust
  • 28. EXEMPTIONS AND RELIEFS
    • Gifts between spouses
    • Gifts to charity
    • Gifts for National Purposes/National Heritage
    • Small lifetime gifts
    • Relief for business/agricultural property
    • Quick Succession Relief
  • 29. POTENTIALLY EXEMPT TRANSFERS (“PETs”)
    • Taper relief
    • Reduces tax payable not value of the gift
  • 30. HOW TO CALCULATE IT?
    • Current threshold - £325,000
    • 0 - £325,000 – NIL
    • Over £325,000 – 40%
  • 31. S41 INHERITANCE TAX ACT 1984
    • “ Notwithstanding the terms of any disposition:-
    • None of the tax on the value transferred shall
    • fall on any specific gift if or to the extent that the
    • transfer is exempt with respect to the gift,
    • AND
    • (b) None of the tax attributable to the value of the property comprised in residue shall fall on any gift of a share of residue if or to the extent that the transfer is exempt with respect to the gift”
  • 32. EFFECT OF S41:-
    • Gross up legacies exceeding tax band
    • If residue is split charitable/non-charitable:-
    • - charitable share will pay tax on legacies
    • - charitable share won’t pay tax on share of
    • residue
  • 33. BENHAM:-
    • “ as to the residue …… to pay the same to those beneficiaries as are living at my death and who are listed in List A and List B hereunder written in such proportions as will bring about the result that the aforesaid beneficiaries named in List A shall receive 3.2 times as much as the aforesaid beneficiaries named in List B …..”
  • 34. WHEN IS IT PAYABLE?
    • 6 months after end of month of death
    • Instalment option may apply
    • clearance certificates
  • 35. CAPITAL GAINS TAX
    • A capital tax on the disposal of capital assets producing a gain
    • Not payable on death transfers to legatees/trustees
  • 36. SALES BY EXECUTORS
    • Annual exemption of deceased available for tax year of death and the next 2 tax years
    • 18% rate
    • Base cost is value at death
  • 37. EXEMPTIONS
    • Disposal of Government Stock
    • Transfers between spouses
    • Disposal by charities
    • Main residue exemption ceases on death
  • 38. CALCULATING THE TAX
    • Sale value
    • Less - base cost
    • - allowable expenditure
    • - costs deduction
    • - annual exemption
    • Multiplied by rate of tax (18%)
    • Appropriation
  • 39. VARYING A WILL
    • Deed of Variation
    • Disclaimer
  • 40. WHY VARY?
    • Make use of nil-rate band
    • Compromise a claim
    • Make Will more tax effective
  • 41. WHO CAN VARY?
    • Beneficiaries giving up entitlement
    • Executors
    • Minors/mentally incapable excluded
  • 42. THE TAX EFFECTS
    • S142 IHTA 1984
    • S62 TCGA 1992
    • Income tax – not retrospective
  • 43. TIME LIMITS
    • Within 2 years of death
    • Election for tax within 6 months of Deed
  • 44. ESTATE ACCOUNTS
    • S25 AEA 1925 as amended
    • “ When required to do so by the Court, exhibit on Oath in the Court a full inventory of the estate and when so required render an account of the administration of the estate to the Court”.
  • 45. WHEN SHOULD THEY BE PREPARED?
    • Before major distributions
    • Each tax year
    • At end of administration
  • 46. WHO IS ENTITLED TO SEE THEM?
    • Executors
    • Residuary beneficiaries
    • Legatees?
  • 47. WHO SHOULD APPROVE THEM?
    • Executors
    • Beneficiaries
    • Indemnities
  • 48. FORMAT
    • Narrative
    • Balance sheet
    • Estate Account
    • Administration Account
    • Income Account
    • Distribution Account
    • Schedules/Notes
  • 49. CHECKLIST
    • Check assets and liabilities
    • Check administration expenses
    • Check legal fees
    • Check Inheritance Tax
    • Check Income Account/R185
  • 50. INCOME TAX
    • Pre-death
    • Post-death
  • 51. INCOME AFTER DEATH
    • Interest on savings accounts
    • Dividends
    • Rental income
    • Interest on client account
  • 52. WHAT IS NOT INCOME?
    • Refunds
    • Premium bond prizes
    • Encashment of assets
  • 53. WHAT SHOULD THE EXECUTORS DO?
    • R40
    • Complete Trust and Estate Tax Return
    • No personal allowance
  • 54. TAX DEDUCTION CERTIFICATES R185
    • Each year in which a distribution is made
    • Final year of the administration
    • Distribution includes appropriation
  • 55. STEPS TO TAKE
    • Calculate net residuary income
    • Divide income between beneficiaries
    • Compare net income with amount actually received
  • 56. WHAT HAS THE BENEFICIARY RECEIVED?
    • Nothing – carry forward income
    • More than his share – include all income on certificate
    • Less than his share – include income equal to distribution and carry forward balance
  • 57. WHAT TO CHECK?
    • Do the figures add up?
    • Is the certificate in your name?
    • Have you received one for each tax year you received a distribution?
    • Has it been signed?
  • 58. WHAT CAN GO WRONG?
    • Construction problems
    • Delay
    • Negligence/rectification
    • Fraud
    • High fees
  • 59. WHO IS AT FAULT?
    • Executors
    • Beneficiaries
    • Solicitors
    • Other third parties
  • 60. FEES
    • Solicitors
    • Banks
    • Will-writing companies
    • Lay Executors
  • 61. MAKING THE MOST OUT OF LEGACIES
    • Set procedures
    • Communication
    • Tackling problems early
    • Pooling resources
    • Seeking professional advice where appropriate
    • Follow-up
    • “ New for old”