Assets Generally, everything that you own.
Beneficiary A person, or organisation, to whom you leave a gift in your will.
Tagged: estate
Inheritance Tax glossary
Common estate planning terms
Administration
Dealing with the affairs and estate of a person who has died including collecting their assets, paying their debts and paying the residue to the people who are to benefit.
Affidavit
A document giving evidence which is sworn in front of a solicitor or other person who can administer oaths.
Agricultural Property Relief (APR)
Relief from Inheritance Tax for the agricultural value of some farms and farmhouses (the value if the land and buildings could only be used for agricultural purposes and not the open market value). Various conditions apply including a minimum ownership period.
Beneficiary
A person or organisation who will receive assets from the estate of the deceased.
Bequests and Legacies
Bequests and legacies are names for gifts lefts in a will.
Business Property Relief
Relief from Inheritance Tax for businesses, a minimum ownership period applies and the business or interest in the business must fulfil the conditions.
Caveat
A notice entered at the Probate Registry, for example if you have entered a caveat you will be warned before any Grant of Representation is issued.
Chattels
Assets of a person other than land for example jewellery, ornaments, clothes, cars, animals, furniture and so on.
Charity
A charity is an organisation that has as its aim purposes are exclusively “charitable” (as recognised by law); for example the relief of poverty or promoting education. Charities can be structured in a variety of ways, for example as a company with a board of directors or as a trust fund with a board of trustees. Charities must be for the public benefit. Most charities must register with the Charities Commission. Charities are strictly regulated.
Codicil
An addition to a will which may change, modify, delete, extend or add to a will.
Deed of Variation
A document that can vary the division of a person’s estate after they have died either by changing their will retrospectively or altering the persons entitled on an intestacy (where there is no will or the beneficiaries no longer exist). This must be done within 2 years of the person’s death.
Discretionary Trusts
A trust where the trustees can choose which beneficiaries (if any) should receive income and or capital. They are a flexible way of setting property aside for the benefit of one or more persons.
Domicile
Your domicile will affect whether you pay Inheritance Tax or particular assets and can affect how much Inheritance Tax you pay. Domicile is not the same as residence.
Estate
All the property and assets of the person who has died.
Executor
This is the personal representative who has been appointed by the will or codicil.
Guardian
A guardian will have parental responsibility for any child (under 18) of whom they are named guardian. Parental responsibility means legal authority to act in relation to a child on such matters as medical care, where they are to live, their education, what surname they should be known by. Guardians may be appointed by a parent who has parental responsibility, an existing guardian or the Court. If you name a guardian in your will the appointment may not take effect if your child has a surviving parent with parental responsibility.
Inheritance Tax
A tax on the value of a person’s estate on their death and also on the value of certain gifts made by an individual during their lifetime. You may be subject to Inheritance Tax on all your assets everywhere in the world if you are domiciled in England & Wales. Inheritance Tax also applies to most types of trusts and may be charged when assets are added to or leave the trusts and on the 10 yearly anniversaries of the trust’s creation.
Intestate/Intestacy
The rules that govern where a person’s estate is to pass and who can deal with the estate in the absence of a will.
Joint Tenancy
A way of co-owning land and other property. On the death of one of the co-owners the other takes their share by survivorship. For example if you and your spouse own your home as joint tenants it will automatically pass to the surviving spouse when one of you dies. Your share of your house will not be part of your estate as it passes automatically.
Letters of Administration
A grant of representation on where there is no valid will, or there is a will but no executor appointed.
Life Tenant
This is a person who is entitled to benefit from a trust during their lifetime. They cannot have the capital in the trust fund; they are entitled only to the income or enjoyment of the property for example if the trust fund was a house the beneficiary would be entitled to live there.
Personal Representative
The person who is dealing with the administration of the estate of the person who has died.
Potentially Exempt Transfer (PET)
This is an outright gift lifetime by an individual to another individual or certain types of trusts. If the giver (donor) survives the gift by 7 years it will become completely exempt from Inheritance Tax, and will be outside the donor’s estate for the purposes of calculating Inheritance Tax.
Power of Attorney
This is a formal document giving legal authority from one person (the donor) to another (the attorney) so that the Attorney may act on behalf of their principal. Power of Attorney may be an ordinary General Power or it may be a Lasting Power of Attorney.
Lasting Power of Attorney
A Lasting Power of Attorney can relate to your property and affairs or your personal welfare i.e. decisions about your medical treatment. In order to make a Lasting Power of Attorney you must have mental capacity to do so which must be certified by a certificate provider. An ordinary General Power of Attorney will come to an end if you lose your mental capacity but a Lasting Power of Attorney will not.
Probate (Grant of)
The ‘Proving’ of a will by sending it to the Probate Registry.
Residue
The remainder of the estate of the person who has died after all their debts have been paid and any specific gifts they make under their will have also been paid.
Revocation (of will)
This is the process by which someone cancels or takes back a will (or codicil) made previously when they no longer intend that will to take effect. The Testator (person who made a will or codicil) must have mental capacity to revoke the will (or codicil). The effect of revocation is that any earlier will is resurrected and will take effect as if the later cancelled will does not exist. If there is no previous will then the person revoking their will becomes intestate. Most new wills contain an explicit clause stating that they revoke any previous wills. There are formal requirements for revocation of a will as there are for making a will.
Statutory Legacy
If a person dies intestate with a spouse or civil partner the statutory legacy is the amount of the deceased’s estate that their spouse or civil partner will receive, a common misconception is that the spouse or civil partner will automatically receive all of the estate of the person who has died intestate but this is not necessarily the case if there are surviving children and it is therefore desirable to make a will to ensure that your spouse or civil partner inherits all that you intend them to take.
Testator/Testatrix
The person making a will (male or female).
A Trust
One or more persons hold property for the benefit of others (the beneficiaries). A trustee is the person who is acting in the trust and holds the property for the benefit of someone else
A Will
The formal document known as a testamentary disposition by which somebody confirms their wishes as to the division of their estate on death.
Alternative Investment Market shares
Reducing an Inheritance Tax liability on an estate
Investing in Alternative Investment Market (AIM) shares is one way of reducing an Inheritance Tax liability on an estate. Qualifying AIM shares offer more Inheritance Tax relief than some other assets and qualify as ‘business property investments.’ If property is held as AIM shares in certain trading companies, for a period of at least 2 years, it becomes eligible for Inheritance Tax Business Property Relief at 100 per cent and will fall out of the estate for Inheritance Tax purposes. This relief is a relief by value, the shares are treated as having no value for Inheritance Tax purposes.
Not all AIM companies are eligible for Business Property Relief however. To qualify, a company must be a trading company carrying out the majority of its business in the UK. Businesses trading in land or securities, or receiving a substantial amount of income from letting property or land, are excluded. Also, it must not be listed on another recognised stock exchange. If a company qualified for Inheritance Tax relief when the shares were bought, but was subsequently disqualified under these criteria, investors must reinvest their holdings into new qualifying shares within 6 months to retain the Business Property Relief exemption.
Investing in the AIM will suit financially secure people with other liquid capital who can invest widely enough to bear the risks involved. AIM shares can be unpredictable and invest in smaller, less established companies with fewer investors than other stock markets, so share prices can be volatile, rising or falling rapidly. You should always receive professional advice before considering this option to mitigate a potential Inheritance Tax liability.
Financial reasons to make a will
Putting it off could mean that your spouse receives less
It’s easy to put off making a will. But if you die without one your assets may be distributed according to the law rather than your wishes. This could mean that your spouse receives less, or that the money goes to family members who may not need it.
There are lots of good financial reasons for making a will:
you can decide how your assets are shared out, if you don’t make a will, the law says who gets what
if you aren’t married or in a civil partnership (whether or not it’s a same sex relationship) your partner will not inherit automatically, so you can make sure your partner is provided for
if you’re divorced or if your civil partnership has been dissolved you can decide whether to leave anything to an ex-partner who’s living with someone else
you can make sure you don’t pay more Inheritance Tax than necessary
If you and your spouse or civil partner owns your home as ‘joint tenants’ then the surviving spouse or civil partner automatically inherits all of the property
If you are ‘tenants in common’ you each own a proportion (normally half) of the property and can pass that half on as you want
A solicitor will be able to help you should you want to change the way you own your property.
Planning to give your home away to your children while you’re still alive
You also need to bear in mind if you are planning to give your home away to your children while you’re still alive that:
gifts to your children unlike gifts to your spouse or civil partner aren’t exempt from Inheritance Tax unless you live for 7 years after making them
if you keep living there without paying a full market rent (which your children pay tax on) it’s not an ‘outright gift’ but a ‘gift with reservation’ so it’s still treated as part of your estate, and so liable for Inheritance Tax
from 6 April 2005 onwards you may be liable to pay an Income Tax charge on the ‘benefit’ you get from having free or low cost use of property you formerly owned (or provided the funds to purchase)
once you have given your home away your children own it, it becomes part of their assets; so if they are bankrupted or divorced, your home may have to be sold to pay creditors or to fund part of a divorce settlement
if your children sell your home, and it is not their main home, they will have to pay Capital Gains Tax on any increase in its value
If you don’t have a will there are rules for deciding who inherits your assets, depending on your personal circumstances. The following rules are for deaths on or after 1 July 2009 in England and Wales, the law differs if you die intestate (without a will) in Scotland or Northern Ireland. The rates that applied before that date are shown in brackets.
If you’re married or in a civil partnership and there are no children
The husband, wife or civil partner won’t automatically get everything although they will receive:
personal items, such as household articles and cars, but nothing used for business purposes
£400,000 (£200,000) free of tax or the whole estate if it was less than £400,000 (£200,000)
half of the rest of the estate
The other half of the rest of the estate will be shared by the following:
surviving parents
if there are no surviving parents, any brothers and sisters (who shared the same two parents as the deceased) will get a share (or their children if they died while the deceased was still alive)
if the deceased has none of the above, the husband, wife or registered civil partner will get everything
If you’re married or in a civil partnership and there were children
Your husband, wife or civil partner won’t automatically get everything, although they will receive:
personal items, such as household articles and cars, but nothing used for business purposes
£250,000 (£125,000) free of tax, or the whole of the estate if it was less than £250,000 (£125,000)
a life interest in half of the rest of the estate (on his or her death this will pass to the children)
The rest of the estate will be shared by the children.
If you are partners but aren’t married or in a civil partnership
If you aren’t married or registered civil partners, you will not automatically get a share of your partner’s estate if they die without making a will.
If they haven’t provided for you in some other way, your only option is to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.
If there is no surviving spouse/civil partner
The estate is distributed as follows:
to surviving children in equal shares (or to their children if they died while the deceased was still alive)
if there are no children, to parents (equally, if both alive)
if there are no surviving parents, to brothers and sisters (who shared the same two parents as the deceased), or to their children if they died while the deceased was still alive
if there are no brothers or sisters then to half brothers or sisters (or to their children if they died while the deceased was still alive)
if none of the above then to grandparents (equally if more than one)
if there are no grandparents to aunts and uncles (or their children if they died while the deceased was still alive)
if none of the above, then to half uncles or aunts (or their children if they died while the deceased was still alive)
to the Crown if there are none of the above
It’ll take longer to sort out your affairs if you don’t have a will. This could mean extra distress for your relatives and dependants until they can draw money from your estate.
If you feel that you have not received reasonable financial provision from the estate, you may be able to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975, applicable in England and Wales. To make a claim you must have a particular type of relationship with the deceased, such as child, spouse, civil partner, dependant or cohabitee.
Bear in mind that if you were living with the deceased as a partner but weren’t married or in a civil partnership, you’ll need to show that you’ve been ‘maintained either wholly or partly by the deceased,’ this can be difficult to prove if you’ve both contributed to your life together. You need to make a claim within 6 months of the date of the Grant of Letters of Administration.