Legal terms could be sometimes daunting for the non legal professional.
At Aria Legal we always try to avoid the use of jargon and technical terms as much as possible as it could confuse our clients.
However, when legal documents like a Will or a Trust need to be arranged, certain legal terms must be used to ensure our clients' wishes will be respected.
To facilitate communication, we have put together a Glossary that will provide clarification on the most commonly used legal terms.
Financial Services term for a ‘Bare Trust’
The person appointed by the court to settle your estate if no Will is in place. English and Welsh law automatically appoints spouse or closest family member.
Anything you own of value including property, cash, investments and items such as paintings, cars and jewellery.
A tax term for a trust which acts absolutely. The trust is ‘looked through’ for tax purposes and the income and gains are taxed as if being owned directly by the beneficiaries.
The named beneficiary is ‘absolutely entitled’ to the trust’s assets and has an ‘absolute interest’. Adult beneficiaries can insist on the assets being vested in them absolutely at any time.
Usually therefore bare/ absolute trusts are only used for minors as their adult guardians ensure they use the gifts wisely.
Only beneficiaries can assign the trust interest elsewhere.
Someone due to benefit from a Will
Rules of beneficial entitlement under the rules of intestacy.
The right to share in assets subject of a trust or Will.
The statutory list of those due to benefit from your estate if you die without a Will as dictated by the Intestacy Rules.
Bereaved Minor’s Trust (BMT)
A statutory term for a trust arising on death by Will, Intestacy or Deed of Variation.
The Trust holds funds for child of the deceased.
Not subject to the Relevant Property Regime (RPR).
A descriptive term for a trust where benefits under the trust are routed in different directions (usually the settlor retains elements) whilst gifting the remainder away.
Discounted Gift Trusts and Split Trusts are examples of these trusts.
Chargeable Transfer (CT)
A transfer of value made as a gift to a discretionary trust during a client’s lifetime and therefore gives rise to inheritance tax.
A CT starts a 7 year clock from the time that the trust arises. A lifetime rate of IHT is 20% (on the value of the gifts after allowances and exemptions) on entry into the trust but if below the NRB is chargeable at 0%.
CTs in the previous 7 years are taken into account when calculating IHT.
Legal term for personal effects/belongings such as paintings, furniture, jewellery and cars.
A legal document used to make minor changes/amendments to your Will. It is normally recommended to have a new Will drafted.
Disabled Person’s Trust
A term used to describe a trust where a beneficiary qualifies as disabled with reference to Mental Health Act 1983 or qualifies for certain disability benefits.
Discounted Gift Trust
A financial services marketing name for a trust where client is retaining access to future payments from the portion which has not been gifted.
A tax term for a trust where trusts can exercise discretion on who can benefit from the income and capital that is subject of the trust.
This is also a relevant property trust for IHT purposes. The trustees control the property at their discretion.
The total value of any assets and chattels owned by the deceased including the share of any joint assets.
Those selected in a Will to administer the estate.
A financial services term for a trust which creates an interest in possession (IIP) followed by a discretionary trust hence its flexible nature.
Usually the settlor’s spouse has an IIP and children take afterwards at the discretion of the trustees.
Gift with Reservation of Benefit (GWROB)
Not a gift for IHT purposes.
AGWROB is not made for IHT related reasons.
GWROB transfers property from which the settlor, his spouse of his children who are minors receive a benefit.
Grant of Probate
The legal document given to executors by the Probate Registry to provide the authority to administer estate.
Without a Grant of Probate no assets can be collected in and distributed.
The person or persons specified in the Will charged with the responsibility of looking after minors.
The settlor must have parental responsibility to appoint a Guardian.
If separated, usually the mother has parental responsibility.
Immediate Post Death Interest (IPDI)
A statutory term coming from the Financial Act 2006 for a special type of Interest in Possession which only arises on death.
The capital is aggregated in the estate of the income beneficiary.
A 40% tax on all assets above the Nil Rate Band. Up to £325,000 of assets are charged at 0%.
Gifts to spouses are not subject to IHT. Some asset exemptions exist, for example for, agricultural land and if 10% or more is gifted to charity the rate on the rest of the estate is reduced by 10% from 40% to 36%.
Nb. Government has announced a further £175,000 to cover gifting of the primary residence will be phasing in from 2017.
Therefore a couple will be able to gift up to £1million by use of the TNRB and the additional £350,000 relief available between them.
Interest in Possession (IIP)
A tax term for a trust where at least one of the beneficiaries has an immediate right to the income of the trust.
In regards to property the income is considered a right to occupy the property on a rent-free basis.
The capital of the trust is aggregated against the estate of the income beneficiary for IHT purposes.
Inter Vivos Trust
Latin term for a lifetime trust
The laws governing who inherits from deceased person’s estate if they have died intestate (without a valid Will).
The rules enforce the division of an estate in a fixed order. The surviving married partner is entitled to the first £250,000 and then is fully entitled to half of the remainder. All the children are entitled to half of anything above £250,000.
Pecking order after surviving spouse:
1. Children or their issues
3. Brothers or Sisters and their issues
4. Half Siblings and their issues
6. Uncles/Aunts and their issues
7. Half Uncles/Aunts and their issues
8. Whole estate to the crown
When someone dies without a valid Will and estate is distributed according to the Intestacy Rules.
Legal term referring to a person’s children, grandchildren and remoter descendants. It does not include step-children.
An arrangement where property is owned by two or more people. When one dies the ownership passes by survivorship to other owner(s).
A gift included in the Will that is either a specific item or a sum of money.
The beneficiary of a legacy is known as a Legatee.
Letters of Administration
The legal document given to administrators by the Probate Registry to provide authority to deal with the estate.
Life Interest Trust
A legal term for a trust where a beneficiary is entitled to the income and another is entitled to the capital.
It's a type of IIP.
A term for the beneficiary entitled to the income of a life interest trust.
A type of trust setup during the lifetime of the settlor. Usually used as bloodline planning tools.
A financial services marketing term used for a client who lends money to trustees to invest in assets owned for the purposes of a trust.
The Settlor can request the loan back at any stage and/or take regular repayments.
Any capital growth in the assets is outside settlor’s estate for IHT purposes and if income is not taken it is accumulated in the trust.
A descriptive term referring to a type of discretionary trust where part has been appointed as an IIP.
Results mean that the tax consequences will be different for different aspects of the trust.
Nil Rate Band (NRB)
The value of the estate subject to Inheritance Tax at 0%, currently £325,000.
Nb. Government has announced a further £175,000 to cover transfers of the primary residence. The increase will gradually to come into force April 2017 with the full amount in force by 2020.
Nil Rate Band Discretionary Trust
A descriptive term for a Will Trust set up to make use of NRB.
A term used to denote the anti-avoidance rules stopping parents setting up trusts for their children and benefiting from the children’s own personal income tax allowances.
If income arising on a trust is more than £100 then it is taxed back to the parents.
A term for Executors or Administrators appointed to administer your estate.
A marketing term used to describe a type of trust set-up with a nominal amount.
Other property can be transferred at a later date. Best used to receive death benefits but used in conjunction with many estate planning initiatives.
They can be all manner of trusts, use of discretionary trusts is much more limited since the Finance Act 2006 changed asset transfers to discretionary trusts from PETs to CTs.
Potentially Exempt Transfer (PET)
There is no upfront IHT with a PET (unlike a CT); there are no upper limits on the amount you can gift.
A PET must be an outright gift to individual(s) or a gift to trustees of a bare Trust but the gift can be cash or other property.
A PET starts a 7 year clock and IHT may be due on the gift if the donor dies within 7 years.
The amount chargeable to IHT is diminished by “taper relief”. A term policy can offset the effects of IHT on PETs for beneficiaries.
Generic term that describes the process of applying for the Grand of Probate (or Letter of Administration when there is no Will).
Once the so-called Grant of probate (document) has been obtained, then follows the administration of the estate in accordance with a valid Will, intestacy or partial intestacy.
Real Estate or Realty
Any land or buildings on it.
Relevant Property Trust (Relevant Property Regime - RPR)
A tax term for IHT treatment of a trust.
A gift to an RPR trust is a chargeable transfer (CT).
Gifts to this type of trust attract 20% IHT charge on anything over Nil Rate Band and are subject to 10 year charges and exit charges.
Legal term for the capital beneficiary who benefits completely once life tenant has died or renounced his IIP.
The residue of the estate after all payments of charges, debts, legacies and bequests.
A tax term describing the trust in full including successive interests.
A person who makes a settlement of property into a Trust.
A tax term for trusts where the settlor retains an interest in the assets (either by control or gifting to a spouse or minor child).
This usually creates tax effects that are counter-productive. The settlor is taxed on income as if he received it.
For CGT purposes, holdover relief is not available on gifts to settlor interested trusts.
Assets in these trusts remain as part of the settlor’s estate and are not effective gifts.
Note: if control is required then this trust only works with gifts below the NRB and for essentially non-tax reasons,
Note: they do not reduce the value of the estate and therefore are not effective to reduce costs of probate either. Administration of assets in trust may be speedier on death but not necessarily.
Spousal Bypass Trust
An financial services marketing term for a type of trust whereby pension benefits are routed away from the policy holder and therefore not aggregated against the estate of a widower.
Only for use with pension contract schemes and can route pension benefits away from a spouse direct to children and other beneficiaries.
It is a trust which enables a policyholder to place certain benefits, such as death benefits, in trust for chosen beneficiaries and retain some, such as Critical Illness Cover, for themselves.
See Carve-Out Trust.
A trust not arising through Will or Deed. Example is a Children’s bare trust arising through intestacy.
Tenants in Common
An alternative ownership to Joint Tenancy.
Tenants in Common own specific shares of the asset and their share is passed according to their Will or the Intestacy Rules rather than by survivorship to the other co-owner(s).
The person making the Will.
Transferable Nil Rate Band/ TNRB
The nil rate band that can be transferred to surviving spouse or civil partner.
Therefore the surviving spouse can benefit from having up to a maximum of two nil rate bands from previous marriages.
Transitional Serial Interest (TSI)
A statutory type of qualifying IIP which is not within the Relevant Property Regime.
Property is serially transferred to life tenants but after the Finance Act 2006, it became less common as the transfer is treated as a CT.
A legal arrangement (either explicit, statutory, implied, constructive or resulting) where assets are transferred to the legal ownership of trustees who MUST use the assets for the benefit of beneficiaries.
There must be two witnesses to the signature of the Will by the testator/testatrix.
They must be independent and not beneficiaries or potential beneficiaries under the Will.
Gifts to witnesses of Wills are invalid.
A statutory and tax term for a trust where the child can benefit from the income of the trust and where the capital is paid out at the child’s 25th birthday.
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