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

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