Glossary of Legal Terms
We demystify these terms and give you a plain English explanation.
arbiter
The person appointed to resolve a dispute.
asset
is something that has value, owned by an individual, making up part of an inheritance or legacy.
beneficiary
People who are named to benefit from a will or trust.
bequest
A legacy usually via a will.
Bloodline Trusts
This is the term for specifying that your assets can only be inherited in a trust by direct genetic descendants of yours. This stops predators and creditors going after your assets in the future.
The book cost
The value or cost of an asset when it was acquired
capacity
Having the mental capability to make decisions using a will, Lasting Power of Attorney (LPA) Trust or legally binding contract.
Meers Legal always sign a Banks vs Goodfellow statement confirming our belief that you have capacity.
Permanent or temporary incapacity , if we determine, means we cannot proceed. (Usually some form of dementia or related condition or illness).
capital gains tax
Inheritance Tax (IHT)
HM Revenue and Customs administer Inheritance Tax. Usually at 40% over the personal allowance or Nil Rate Band (NRB) of £325,000.
There is an additional claimable allowance for legacies direct to children called the Residence Nil Rate Band (RNRB)
INTEREST IN POSSESSION (IIP) or QUALIFYING INTEREST IN POSSESSION
There is no statutory definition, but it has been defined in common law as a ‘present right to present enjoyment’. A qualifying interest in possession is a trust that grants a beneficiary, an interest in possession and is taxed as though that beneficiary owned the trust assets (s49 Inheritance Tax Act 1984).
To be a qualifying IIP the trust must either be an immediate post-death interest IPDI or a disabled person’s interest. It was also possible to create a qualifying IIP in lifetime before 22 March 2006.
chattels
Personal possessions such as jewelry, furniture, pets, etc.
codicil
A separate document amendment to an existing will. We simply create a new Will to ensure there are no internal conflicts created by the change.
creditor
A person or company who is owed money. This includes Taxes.
debtor
Anyone who owes money .
discretionary trusts
Benefits are controlled by Trustees. At their discretion to specified beneficiaries. See FLIT.
Estate administrator
Appointed by the executor via the probate court. Distributing to the nominated beneficiaries on death.
estate
Literally everything a person owns upon death.
executor
Person or firm appointed to ‘execute’ the will. A will is invalid if there is no executor alive. That is why we always put aa professional body down as the reserve executor. If the executor dies before the Testator then we simply make a new will appointment.
fiduciary
A person or firm to take responsibility to act for another.
‘Golden Rule’
Where a we are unsure of capacity we always check with a medical practitioner to assessment capacity. We ask for written proof.
Gift of Reservation of Benefit (GROB)
This usually spells problems. Most typically when the gift has been given in the belief that it does not attract Inheritance Tax. Some people have transferred their home into their children’s names. If they continue to live in the property or keep the rent then the taxman still charges 40% tax upon death as it was not deemed to be a real gift but in reality it is a poor attempt to avoid IHT which fails. This causes the tax to be paid unexpectedly. The children ot beneficiaries miss out.
Income
Money received for goods or services.
income tax
The Tax due to HMRC on income.
indemnity insurance
Protection of the asset.
inheritance tax (IHT)
Inheritance tax is the tax due on the estate of the deceased person.
Intergenerational Inheritance Tax
If you do not protect the estate in a Trust , each time the estate passes down the generations, depending on the allowances applied, the whole value can be taxed to zero with three successive taxation at 40%. Trusts can usually last 125 years and protect successive beneficiaries or bloodline if you wish, from having to pay Inheritance Tax on your assets thus preserving them for future generations.
interest in possession trusts
Income or benefit given to the specific beneficiary by right.
Intestate or intestacy
When there is no valid will. The court decide everything and beneficiaries have no say.
Immediate Post Death Trusts (IPDI)
Trusts that attract no Inheritance Tax charge before death and only come into life upon immediate death. Also known as Will Trusts.
issue
Children, grandchildren, adopted children and stepchildren.
legacy
Gift given in a will.
Letter of wishes
An informal document drawn stored with a will.
liability
A duty to deliver the assets or monies.
lifetime chargeable transfer
Is a transfer of assets into a lifetime trust (other than a trust for the benefit of a disabled person). A ‘lifetime chargeable transfer’ automatically triggers an immediate charge to Inheritance Tax (IHT) if it, together with any other chargeable transfers made by the same person within the previous seven years, and minus any reliefs available, exceeds the current Nil Rate Band. This is £325,000. The rate of tax on lifetime chargeable transfers is 20% (half the rate which applies to chargeable transfers on death). If the person fails to survive seven years then further IHT may also be due.
market value
The value gained by a sale. Or expected sale price.
minor
A person under the age of 18 years old.
mirror wills
Similar wills, by a husband and wife or life partners. Often include Trusts.
nil-rate band
No inheritance due on the value of the estate if the value of the estate is below £325,000.
Lasting power of attorney
We apply for these as the ‘certificate provider’ for you, to the ‘Office of the Public Guardian’ Part of the ‘Royal Court of Justice’.
There are two for each person above the age of eighteen. Property and Financial Affairs’. Health and Welfare
A registered legal document that allowing an Attorney to make decisions on your behalf, especially if you lose the mental capacity to make these yourself.
Potentially Exempt Transfer (PET)
This is a gift of an asset, usually a property, which as long as the owner survives seven years, is free of Inheritance Tax. (As long as the owner does not continue to benefit from the asset). If the owner still benefits, it is disqualified as a ‘Gift with Reservation of Benefit (see GROB). It no longer qualifies as exempt. If the owner of the gift dies within the seven year period the Tax is due at a decreasing rate.
Probate leads to the grant of probate
The court process by which a will is granted legal effect. It is invalid unless signed and witnessed properly. It must be the original and in pristine condition. That is why we always insist we store it for you for life. We also register the will with the National Will Registry and use the Kings Court Trust.
Reverse taper relief
If a gift is transferred to the beneficiaries and the owner dies within seven years there is a table of reducing tax due. The taxation rate decreases slowly to zero.
Residue
Those receiving the remains of your estate after all legacies, costs and taxes
settlor
The person who establishes a trust administered by a trustee for the benefit of others.
STEP
The Society of Trust and Estate Practitioners. It is the recognised professional body.
Testator (male) or testatrix (female0)
The person making wills.
testamentary capacity
The legal mental ability to make or alter a will
trust
A trust is the formal transfer of assets (it might be property, shares or just cash) to a small group of people (usually two or three) or to a trust company with instructions that they hold the assets for the benefit of others. If the trust is to be made in your lifetime, to take immediate effect, then it is usually evidenced by a trust deed.
trustee
They administer the Trust for you. You must have at least two trustees.
will
A legal document which lays out your wishes and trusts showing how your beneficiaries inherit your estate. If written properly then the probate can be simpler than a complex ambiguous will which can take much longer to execute.
will trust
An IPDI trust comes into being upon death.
Will witnesses
Independent adults must be present, together to date and sign the will. They cannot be related or beneficiaries.
Lifetime Chargeable Transfer
Is a transfer of assets into a lifetime trust (other than a trust for the benefit of a disabled person). A ‘lifetime chargeable transfer’ automatically triggers an immediate charge to Inheritance Tax (IHT) if it, together with any other chargeable transfers made by the same person within the previous seven years, and minus any reliefs available, exceeds the current Nil Rate Band. This is £325,000. The rate of tax on lifetime chargeable transfers is 20% (half the rate which applies to chargeable transfers on death). If the person fails to survive seven years then further IHT may also be due.
Interest in Possession (IIP) or Qualifying Interest in Possession
There is no statutory definition, but it has been defined in common law as a ‘present right to present enjoyment’. A qualifying interest in possession is a trust that grants a beneficiary, an interest in possession and is taxed as though that beneficiary owned the trust assets (s49 Inheritance Tax Act 1984). To be a qualifying IIP the trust must either be an immediate post-death interest IPDI or a disabled person’s interest. It was also possible to create a qualifying IIP in lifetime before 22 March 2006.
Meers Legal are full members of the Society of Will Writers.
Last year the body only received 18 complaints out of the 250,000 successfully written wills.
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