Estate law is not easy to navigate. There is a lot of jargon that novices find very difficult to understand. Whether you are inheriting an estate, transferring it or administering it, you will come under the purview of complex estate laws. Here are a few legal terms which you will encounter during the time.
Estate
The term “estate” isused to indicate the net worth of a person – the sum total of all assets, legal rights and entitlements, minus all liabilities. It is simply your total net worth at any particular point.
An estate entitles a person to own and enjoy the property for a particular length of time. If the estate is freehold, you may own the property indefinitely.
Equitable interest
If you have an interest in a property which is not your legal estate, it is called equitable interest. It may include the benefits you derive from a contract or a restrictive covenant, and that of a beneficiary under a trust.
Equitable interests cannot be registered under the Land Registration Act 2002; however, they can be protected by notice on the register.
Intestacy
If a person dies without leaving a will, it is said to be an intestate death. Intestacy can cause a lot of complications and delays in the disbursement of the dead person’s estate. The probate will be a complicated affair if the person died intestate.
Probate
After the death of a person, his estate is handled in accordance to the will. In the absence of a will, the disbursement of the estate is done as per prevailing laws. The process of handling a person’s estate after their death is called probate.
Probate involves interpretation of the will, valuation of the estate, repayment of the liabilities, distribution of assets amongst beneficiaries etc. If the beneficiaries contest or disagree about the will, probate can become a long drawn out affair.
Trust
When two or more persons own the property at the same time, it is said to be a trust. The legal estate is vested in the trustees, but the real owners are the beneficiaries. Trusteeship allows a party to manage property on behalf of or for the benefit of others. Trusts are often established to make sure that an individual’s assets are disbursed according to their deathbed wishes.
The party who establishes the trust is called a settlor. Assets are settled by transferring them into the trust. Beneficiaries are the parties on whose behalf a trust is managed by the trustees. Beneficiaries may or may not be named at the time of establishment of the trust.
Inheritance Tax
Inheritance Tax is a transfer tax which was introduced in 1986 to replace Capital Transfer Tax. If the estate is worth more than the nil-rate band, the individual who inherits the estate will have to pay an inheritance tax. Inheritance Tax is pretty steep at 40%, and the nil-rate band is set at £325,000, as on 5 April 2010.
The following are considered for calculating inheritance tax:
• All assets of the deceased person, including real estate and personal estate. Contents of the home and other similar small value items are also considered.
• Any gift made by the deceased person in the last seven years.
• Interest in possession (assets not owned by the individual, but which are affect by their death).
• Gifts whose legal ownership has passed to the recipient, but the donor continues to enjoy benefit of the asset. E.g. rent from property.
Capital Gains Tax
If the asset has increased in value since it was first acquired, you are required to pay CGT or Capital Gains Tax at the time of disposal of the asset. CGT is at 18% and 28% for basic rate and higher rate tax payers respectively.
To appropriately plan for smooth and successful disbursement of assets, it is important to acquire the services of a qualified conveyancer. Property conveyancers can help you mitigate the inheritance tax by planning the estate in a way that involves the least amount of cash outflow.
A conveyancing professional will help ensure that all your affairs are dealt with properly.
