Attendance Allowance – Address Lottery
We hear a great deal these days about health care and education being ‘postcode lotteries’, but we have recently come across an instance of ‘address lottery’ when a disabled 84-year-old man’s family attempted to renew his claim for Attendance Allowance.
Attendance Allowance is a tax-free benefit payable to people aged over 65 years who need help with personal care because they are physically or mentally disabled. It is not means-tested and applies when a person’s disability is such that they require:
· help with activities such as washing (and getting in or out of the bath or shower), dressing, eating, getting to and using the toilet, or help in communicating their needs;
· supervision to avoid putting themselves or others in substantial danger – for example, needing someone to monitor their medical condition or diet; or
· someone to be present when they are receiving dialysis.
It is payable at two rates, depending on whether help is needed during the day only or day and night.
Claiming the allowance in the first instance involves the completion of a ‘claim pack’. This is a task that is not likely to be possible without help for many claimants. Periodically, a 17-page renewal form may be issued for completion. This regrettably does not offer the option of ticking a ‘no change in circumstances’ box and proceeding directly to the end – it requires the production of a fresh statement of evidence of the disability and its effects.
Once the form is completed, it is processed by the Disability and Carers Service (DCS) section of the Department for Work and Pensions (DWP). It is then passed to the Pension Service, which makes the payment. A notice is issued saying whether or not the claim has been accepted…and that should be that.
In a recent instance, however, it was not. Despite the fact that there had been no change for the better in the man’s circumstances and the completed form had been submitted well in advance of the renewal date, a notice of termination of Attendance Allowance was issued. On investigation, the DCS helpline confirmed that the claim had been accepted and a recommendation made that the allowance be granted for life. However, on checking with the Pension Service, the reason for the termination of the payment was gleaned – the claimant lives in his own home but the house name includes the word ‘lodge’. An employee in the payments section thought the man’s address ‘sounded like a care home’ and stopped the benefit because it was thought that there had been a change in the man’s circumstances.
When completing a claim for Attendance Allowance, our advice is:
· keep a copy. It will be of great assistance if the claim has to be renewed;
· if there is any possibility that your house name could be confused with that of a care home, make sure the form is prominently marked to the effect that the applicant occupies a private home, not a residential or care home;
· if there is an error – act promptly; and
· retain notes of conversations you have with those responsible for processing the claim, including the name of the person you spoke with and the promised action and timescale.
Avoiding Inheritance Tax Using the Alternative Investment Market
In recent years, Inheritance Tax (IHT) has affected more and more families, largely due to rising house prices. IHT is payable at 40 per cent on the net assets of an estate where these exceed £300,000 – the current nil-rate band. Investing in Alternative Investment Market (AIM) shares is one way of reducing the IHT liability on an estate.
The AIM was launched in 1995 as a flotation market for small companies. Over 1,300 companies are currently listed – generally smaller, youthful enterprises with potential for rapid growth. Putting money into these companies is generally regarded as a somewhat riskier undertaking than investing in more established companies.
Qualifying AIM shares offer much more generous IHT relief than some other assets as they are considered to be business property. If property is held as AIM shares in certain trading companies, for a period of at least two years, it becomes eligible for IHT ‘Business Property Relief’ (BPR) at 100 per cent and will fall out of the estate for IHT purposes. This relief is a relief by value – in other words, the shares are treated as having no value for IHT purposes. In addition, there are also Capital Gains Tax advantages to holding AIM-listed shares.
Some stockbrokers and asset managers now offer their clients investment portfolios based on AIM shares. These invest in a wide range of shares (typically around 60), which offers the investor the possibility of having an IHT-efficient portfolio and a spread of risk.
Not all AIM companies are eligible for BPR 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 IHT relief when the shares were bought, but was subsequently disqualified under these criteria, investors must reinvest their holdings into new qualifying shares within six months to retain the BPR exemption.
AIM shares can be unpredictable. AIM companies are smaller, less established companies and the AIM has fewer investors than other stock markets so share prices can be volatile, rising or falling rapidly. Shares can sometimes lose more than 40 per cent of their value, thereby nullifying any IHT saving.
AIM investment is particularly attractive for older people since AIM assets are exempt from IHT after two years, compared with the seven years required before gifts that are ‘Potentially Exempt Transfers’ cease to carry an IHT liability. Investing in the AIM will suit financially secure people with other liquid capital who can invest widely enough to bear the risks involved. However, any investment decision should always be made with the benefit of professional advice.
Equity Release – Lifetime Mortgages
Managing an active retirement can present significant problems for the many people who are blessed with good health but cursed by the effects of the poor performance of pension funds and low annuity rates over the last two decades. This combination of factors has acted to create a situation in which many people of pension age find themselves ‘asset-rich but cash-poor’.
Nowadays, there are several financial products aimed at helping people release equity from their assets in order to boost their spending power. One of these is the lifetime mortgage.
Under a lifetime mortgage arrangement, a homeowner takes a mortgage on their house, ‘rolling up’ the interest until the loan ends. There is therefore no monthly interest payable on the loan. The loan itself can be taken either as a lump sum or by way of monthly instalments, or a combination of both. Some plans offer an additional ‘drawdown’ facility by which further sums can be taken if required.
One of the main advantages of such schemes is that ownership of the property does not pass to the lender, which means you still retain the option to move. In addition, the ability to repay is not in point. The mortgage will also operate to reduce the Inheritance Tax (IHT) on your estate if IHT is payable.
There are disadvantages with lifetime mortgages however. One of the main potential pitfalls is that the cash released from the mortgage could affect eligibility for means-tested state benefits should your circumstances change. Also, the income generated by a lump sum when invested could affect eligibility for Age Allowance and interest earned on it might create or increase liability to Income Tax.
Another disadvantage is that repayment charges are often made if the lifetime mortgage is repaid prior to death – for example if you do decide to move house.
The sum available will depend on the age of the borrower. For a couple seeking a lifetime mortgage, the age of the younger spouse or civil partner will determine the size of the available loan. Normally, for a couple where the younger spouse is 65 years old, just under one third of the value of the property can be borrowed. For a single borrower over the age of 90 years, normally an amount in excess of half of the property value can be released.
Guarantees can be made available that no matter what happens to house prices, the total value of the loan plus accumulated interest will not exceed the value of the house.
To achieve success, financial planning will take account of all the relevant factors and it should only be undertaken with the benefit of appropriate professional advice. For more information on financial planning and IHT, contact <<CONTACT DETAILS>>.
Family Split Determines Outcome
When families break up it is not uncommon for the children to ‘take sides’, although this is not normally as extreme in its effect as in a recent case.
The case involved a couple named Garland who had two daughters, Beverley and Yvette. After the couple split up, Yvette became estranged from her father. He eventually remarried and from that time on she never spoke with him again.
Yvette inherited the whole of her mother’s estate. When Mr Garland died, he left his entire estate to Beverley, with whom he had maintained good relations. Two and a half years after the usual limitation period for such a claim had expired, Yvette (who lived in much reduced circumstances compared with Beverley) made a claim for financial provision, from the estate, under the Inheritance (Provision for Family and Dependants) Act 1975. Such claims can be made in appropriate circumstances by family members and other dependants if a will fails to make reasonable financial provision for them.
The judge rejected her claim. Yvette had not maintained any links with her father, whereas Beverley had been close to him throughout his lifetime. Furthermore, Yvette had inherited the whole of her mother’s estate, financing the purchase of a house. She could not reasonably be expected to be provided for out of her father’s estate.
“Claims for financial support from an estate must normally be brought within six months of probate being granted,” says <<CONTACT DETAILS>>, “and will be met when the court considers them fair. One implication of this is that the threat to cut someone out of a will may not always be sustainable. To ensure your will is drafted to fulfil your precise wishes, contact us.”
Garland v Morris  EWHC 2, 11 January 2007.
Mental Capacity – What it is and What it Means
Mental capacity has always been something of a problem area of the law. The aim of the Mental Capacity Act 2005, due to become fully operational in October 2007, is to put the administration of the various areas of law in which mental capacity is in point on a sounder legal footing.
The Act is based on the concepts of ‘best interests’ and ‘capacity’. Under the Act, capacity is stated to be absent when the person is unable ‘at the material time…to make a decision for himself in relation to the matter because of an impairment of, or disturbance in the functioning of, the mind or brain’. Interestingly, the lack of capacity need not be absolute or permanent – it can be limited in both time and to the matter which is under consideration. A person may lack capacity at one time and not another and may lack capacity with regard to some sorts of decisions and not others.
Capacity is considered to be lacking in a person if he or she:
cannot understand the information relevant to the decision, including the consequences which flow from making or failing to make it;
cannot retain the information long enough to make the decision;
cannot use the information as part of their decision-making process; or
cannot communicate their decision by any means.
Once it is decided that a person lacks the mental capacity to make a decision, those responsible for making decisions on their behalf are required to do so in whatever way is in that person’s best interests.
A person is assumed to have capacity unless it can be established that he or she does not. Before that is decided to be the case, all practical steps must have been attempted without success to facilitate their making a decision.
The fact that a person lacks capacity does not mean that their wishes should be ignored. An attorney appointed to make decisions on their behalf should consider their current and past wishes, the views of relevant others (such as family members) and any beliefs or values that the person who lacks capacity might hold which would affect a decision.
The Act provides for the creation of Lasting Powers of Attorney (LPAs), which may allow the appointed attorney to make decisions relating to the person’s property and financial affairs, personal welfare, healthcare and medical treatment. LPAs will not be able to be used, however, unless they are registered with the Public Guardianship Office.
It is normally straightforward to make arrangements for your affairs to be managed by a trusted person in the event that you can no longer do so yourself. The execution of a power of attorney ‘just in case’ can give you and your family the assurance that your affairs will be managed smoothly in the event of a loss of mental capacity. Contact <<CONTACT DETAILS>> for further information.
See article in PS, February 2007 PP 8-9.
Personal Injury Trusts
Successful personal injury claims often result in the receipt of a lump sum or of a series of payments made over time (a ‘structured settlement’).
One of the issues that can arise in such cases is that of the impact the settlement can have on eligibility for means-tested benefits. Benefits such as income support, housing benefit, disability living allowance, working family tax credit and long-term care support are all means-tested in some way or another.
Normally, compensation received as a result of a personal injury claim will not be taken into account for 52 weeks after payment is received. However, after that period it will be included and may reduce or eliminate the benefit receivable.
If you are facing this type of problem, one possible solution is to put the compensation payment into a Personal Injury Trust (PIT), whereby the sum is paid to trustees who manage the funds on your behalf. By using a PIT, the funds in the trust are not aggregated with your assets for the purposes of means-testing, which allows any existing means-tested benefits to be received in full. Such an arrangement could also be useful when it might otherwise be difficult to resist requests for financial support from friends or family members.
PITs are most likely to be worth considering when the financial settlement is large and where professional management of the fund is worthwhile. PITs are not without drawbacks – there may be tax issues to take into account and there will be costs associated with professional trustees and fund managers –so the decision on whether or not to set up a PIT will depend on consideration of all the relevant circumstances.
For more information on the use of PITs or on financial matters generally, please contact <<CONTACT DETAILS>>.
Powers of Attorney – New and Old
As the Government has decided to delay the introduction of the new Lasting Power of Attorney (LPA) until October 2007 (the original ‘change-over date’ was set for April 2007), now seems an appropriate time to outline the main differences in practical terms between these and the existing Enduring Power of Attorney (EPA) which the LPA will replace.
Under an EPA, you appoint either single or joint attorneys who can make certain decisions on your behalf. Normally, this is to apply if you become physically or mentally unable to do things yourself but, should you wish it, an EPA can be used at any time after it is executed. An EPA only has to be registered with the Public Guardianship Office (PGO) if you no longer have the mental capacity to make decisions on your own behalf, whereas none of the attorney’s powers under a LPA will be operative until this has been registered with the PGO. There is a fee for doing this.
The main practical difference is that the attorney under an EPA cannot make decisions concerning your welfare, although they can make other sorts of decisions, for example regarding your finances. If you wish, a LPA can be set up to allow the attorney(s) to make decisions regarding your welfare as well as decisions regarding property and financial matters. This could, for example, allow an attorney the power to refuse medical treatment on your behalf in certain circumstances. However, this power will only come into force should you lose the capacity to make such a decision for yourself.
There are also different procedures for revoking and registering LPAs and EPAs, but both can only normally be revoked by the person who made the power, providing he or she has the mental capacity to do so, or if that person or the attorney is made bankrupt. However a LPA for personal welfare will not be revoked by bankruptcy. Before applying to register an EPA on someone’s behalf, a prescribed list of that person’s relatives must be notified whereas the notification requirements for LPAs will be more flexible.
If you do not appoint someone to handle your day-to-day affairs, in the event that you are unable to do so yourself, and later require this help, a receiver (either a relative or a professional person) has to be appointed by the PGO. This process can take time and cause unnecessary delays and problems for your family if they need to do things on your behalf but have no power to act.
EPAs are relatively simple to operate. Should you wish to have one in place, you will need to arrange to do this before the EPA is replaced by the LPA. EPAs already in existence at that time will continue to be valid.
If you would like to discuss the options available regarding the arrangements you can make to allow your affairs to be managed in the event of your incapacity, contact <<CONTACT DETAILS>>.
Problems with Chattels
One problem often encountered with wills is that whilst some of the property bequeathed is easy to identify, other items may be less so. This is particularly so when the items concerned are normal household items (called ‘chattels’ in legal parlance, although the term also includes other items, such as boats, cars etc.). Given the nature of many chattels, these may change or be replaced over time. However, chattels can also be valuable, so it is often sensible to think carefully about how they are to be distributed under your will.
For example, you might replace your Ferrari with a Volkswagen, so a bequest of ‘my car’ could be one of widely fluctuating value. Where a will stipulates that the chattels are part of the ‘residue’ of the estate – i.e. what is left after all the specific bequests have been made – it will be up to the executor to determine how best to divide them between the beneficiaries.
However, one of the biggest problems with chattels is that of valuation. It may not be obvious, for example, that some possessions are valuable. A stamp collection might be worth pennies or millions. A 1957 Gibson Les Paul might look like an old guitar to an executor not interested in such things, but these days it might well be worth tens of thousands of pounds.
Firstly, if you have any particularly valuable chattels, it will help your executor a great deal if these are identified. Taking photographs and obtaining professional valuations (no bad idea from the point of view of making sure insurance cover is adequate also) are to be recommended and a note should be placed with the will as to where the valuations can be found.
You might wish to arrange for your chattels to be distributed equally among your beneficiaries, but again there might be drawbacks. For example, a matching pair of Ming vases is likely to be worth far more as a set than as two individual vases. Particular consideration should therefore be given to the valuation and distribution of any chattels which logic dictates should be kept together as sets.
In practice, unless a chattel is particularly valuable or has sentimental value, and is capable of exact identification, it is normally better not to mention it specifically in your will. A ‘letter of wish’ for your executor, outlining to whom which items should be given, might make the process of the division of the estate more manageable. Such a letter is not legally binding and the will always takes precedence if there is a conflict between its provisions and those of a letter of wish. Any letter of wish should be signed and dated, so the executor knows which version is the most recent if you have written more than one.
For advice on making a will or on any aspect of family wealth protection, contact <<CONTACT DETAILS>>.
Reliance on Undertakings Not as Good as Reliance on New Will
A recent case illustrates that it can be unwise to rely on the verbal assurances of an executor, especially one who might also be a beneficiary.
The case involved a husband and wife, both of whom executed wills in early 2000. The couple bequeathed their respective estates to each other on the first death and then, on the second death, passed the entire estate to their elder son. However, when the husband died, the surviving spouse decided to change matters so that her grandsons inherited the estate.
A one-page will was executed in November 2000 to accomplish the required change. When the woman died in 2002, most of her family were unaware of the existence of the new will, although a friend of the family knew of it. At a family meeting, the son entitled under the original will stated that the estate would be passed to the grandsons, so the new will was not mentioned at that time by the one grandchild who did know of its existence. As a result, the original will was allowed to pass unopposed by the family. Probate was granted in 2003 and the property in the estate was transferred to the elder son shortly thereafter. In 2005, the property was sold and payments were made to the son’s children.
It was only when the son failed to honour in full his verbal undertakings that the family sought to have the later will accepted and the original grant of probate reversed in favour of the grandsons.
The Court was able to accept that in the absence of any suspicious circumstances the later will was validly executed and that the woman knew and approved its contents. Accordingly, the probate was granted with the grandsons appointed as executors of the estate.
This case shows that relying on verbal assurances is always risky. In this instance, the sensible thing would have been for those who knew of the existence of the new will to have made the family aware of it as early as possible in the proceedings, so that it would have been the basis of the original administration of the estate.
Bodh v Bodh  EWHC 2419 (Ch)
Revocation of Wills
It is important to make sure that your will both reflects your current wishes as regards the disposal of your property and is correctly drafted.
If a will no longer fulfils its intended purpose, the testator can revoke it: it is not necessary to make a new will. However, if a new will is not made or an invalid will is drawn up, the effect will be that the testator dies intestate and his or her property will be distributed according to the intestacy laws.
Recently, the court had to consider what to do with the estate of a nun. She had made a will and later revoked it. She left a short, new will, written for her as she lay dying, which revoked her earlier one and stated that if she were to die before making a further will, she wished to pass her entire estate to the Diocese of Westminster to ‘hold on trust for the black community’ of four London boroughs. The bequest as stated did not specify exactly what it was that she intended be done with the gift and it was considered that the terms of the document might not be specific enough to be valid. If this were the case, the will would fail.
The questions before the court were:
did the woman die intestate?
if not, on what basis did the Diocese hold the funds?
In the court’s view, there was no intestacy. The estate passed to the Diocese. The courts will always attempt to uphold a testamentary gift to the extent permitted by law and the law permits a gift to a community, even if no precise purpose is specified. In such cases, the gift is construed to be held specifically for charitable purposes. Accordingly, the Diocese received the funds on that basis.
“Had the new will’s bequest failed,” says <<CONTACT DETAILS>>,“the estate would have been distributed according to the intestacy rules, as if there had been no will at all. Had that been the case, what is certain is that the charitable aims which the testator wished to pursue would have been frustrated altogether.”
Gibbs v Harding  EWHC3 (CH), 28 January 2007.
It is a source of concern to lawyers and families alike that the majority of people never make a will. Often, the intention to make a will is there, but somehow the person never seems to ‘get around to it’ and dies or becomes incapable before a will can be made.
It is possible, however, for a will to be written for someone who lacks the mental capacity to make one. The Court of Protection can, when there are objectively reasonable grounds for doing so, order that a statutory will is created. Such a will can be a variation on an earlier will or, where there is no earlier will, a will can be written from scratch to prevent the estate being distributed according to the laws of intestacy. Sometimes, a statutory will is desired when there has been a change in the circumstances of someone who has an existing will which is no longer appropriate.
For a statutory will to be created for someone, that person must lack the mental capacity to do this for him or herself. The task which faces the Court of Protection is to create the will which would have been written by the person at that time were he or she mentally competent to do so. In doing this the Court will consider the known views and attitudes of that person with regard to relevant matters and people. The Court will not try to steer the middle path in order to ‘keep the peace’ within a family if it is the Court’s view that that is not what the person would have done.
To have a statutory will prepared, sufficient evidence must be gathered regarding the person’s lack of mental capability. Only if the Court is convinced that the evidence is there will it permit a statutory will to be drawn up. The Court will then take account of the person’s circumstances and known views in order to take a reasoned view of the content of the will.
If a statutory will is being considered, it is important to take legal advice early in the process, especially where the statutory will is intended to vary an earlier will, as there may well be technical legal issues to address. Consideration will also need to be given at an early stage to possible claims on the estate by dependants. Once all the necessary information has been gathered, it is presented to the Court, which will consider the evidence before it: the Court will seek to take a ‘broad brush’ approach and will not seek to create a will filled with detailed provisions.
An application for a statutory will can be made by:
· the receiver for a patient under the Mental Health Act or the person who has applied for the appointment of a receiver if none has yet been appointed;
· anyone who would benefit from the person’s known will or under the application of the intestacy rules;
· any person for whom it might be reasonably expected that provision would be made under the will;
· the person’s attorney; or
· any other person authorised by the Court.
For information and advice on dealing with the affairs of a family member who is not mentally competent, contact <<CONTACT DETAILS>>.
Tax Investigations Under the ‘Civil Investigation of Fraud’ Procedure
For the last couple of years more serious tax investigations, of the sort which used to be carried out by the Special Compliance Office, have mainly been carried out by local teams of officers from HM Revenue and Customs (HMRC), using a procedure known as the Civil Investigation of Fraud (CIF).
HMRC’s strategy is based on undertaking risk assessments to ascertain where risks are highest of there being under-declarations of tax. In 2005/6, this led to there being approximately 15 per cent fewer enquiries than in the previous year, but the average tax yield per enquiry was 17 per cent higher than before.
The major indication that a tax enquiry is ‘getting serious’ is when taxpayers (or directors if it is a company that is being investigated) are invited to attend a formal meeting accompanied by their advisers. The invitation will be accompanied by a copy of the Code of Practice 9 (2005) Booklet. The meeting will be tape recorded and conducted under the Police & Criminal Evidence Act 1984 Codes of Practice. Attendees will be given a copy of the tape of the interview.
The interview begins with what is called the ‘Hansard warning’, which is in effect a promise by HMRC not to undertake a criminal prosecution provided a full disclosure of all irregularities is made. There follows a short series of questions in set form which require ‘yes’ or ‘no’ answers and which deal with the completeness and correctness of accounts and tax returns. After this, more specific questioning begins which will normally cover a wide range of topics, such as the operation of the business and its pricing policy and the lifestyles of the business owners and managers.
At no time will HMRC reveal the information they have in their possession regarding the taxpayer’s affairs. HMRC have very considerable powers to obtain information from third parties such as banks etc. and can conduct covert observations if they so choose. The scope of the investigation will include the taxpayer and, where the taxpayer is a company, the company’s directors.
A full disclosure report is required when any dishonesty is uncovered. This is a statement of all assets of the person under investigation. It will normally be subject to detailed verification. If material under-disclosures are made, HMRC reserve the right to prosecute, not for the tax offence, but for rendering false documents.
An investigation by HMRC is not something to take lightly and in the most serious cases HMRC will launch a criminal investigation with a view to a prosecution. In such cases they will not offer the CIF procedure.
If you are the subject of an HMRC enquiry, make sure you take professional advice at the beginning of the process.
Tax Mistakes are Your Problem
No matter how badly HM Revenue and Customs (HMRC) administer your affairs and what losses this may cause you, you have no right to claim damages. That is the depressing message resulting from a recent case in which a builder from Cumbria was denied a claim for damages against HMRC.
Neil Martin worked as a building subcontractor who, as many do, decided to incorporate his business. This meant that he had to get his subcontractor’s certificate (SC60) transferred into the name of his company. This is normally not an extended process, which is a good thing as without an SC60 payments to the subcontractor are made net of income tax as opposed to gross.
Despite his following normal procedures, owing to a catalogue of errors by HMRC Mr Martin’s application for an SC60 in the name of his company was not granted until September 1999 – three months after the application was made. As this caused him significant cash-flow difficulties and financial loss, Mr Martin commenced action against HMRC in May 2005, seeking compensation for his losses resulting from HMRC’s maladministration of his application. He had suffered losses estimated at £400,000. HMRC had offered him £300 as an ex-gratia payment by way of compensation.
Mr Martin’s case was that the Income and Corporation Taxes Act 1988 (ICTA 1988), which contained the legislation administering the SC60 scheme, allowed compensation to be paid. The Act does provide an appeal process if an SC60 is cancelled or refused, but does not provide for compensation when cancellation or refusal occurs. Since the right to compensation is discretionary, the court held that Mr Martin had no right to bring a claim on that basis. Mr Martin also argued that he was entitled to compensation as a result of HMRC breaching the duty of care it owed to him. The court, however, ruled that if the legislation contains no statutory liability to pay compensation, the intention must be that no duty of care is created which would apply to HMRC.
However, that still left the tax officer responsible for processing Mr Martin’s new SC60 application in the firing line. He could be found liable if Mr Martin’s loss was foreseeable and was a direct result of a breach of a duty of care, if it would be ‘just, fair and reasonable’ for the finding that a duty of care existed to be made. In the opinion of the judge, if the tax officer did have such a responsibility, it was not undertaken voluntarily and it would be unfair to impose a duty of care on the tax officer.
Accordingly, in spite of the judge’s finding that HMRC had been negligent and in breach of its statutory duty under ICTA 1988, Mr Martin was not entitled to any compensation.
It has been reported that Mr Martin intends to appeal against this decision.
Neil Martin Ltd. v HMRC EWHC 2425 (Ch)
Varying Bequests After Death
It is widely thought that a will can be changed after the death of the person who made it (the testator). Although this can be the practical effect of arrangements between beneficiaries, technically post-death variations do not in fact vary the will itself.
There are two ways by which the effects of a will can be varied. The simplest of these is a disclaimer, whereby the beneficiary under the will refuses to accept the bequest. A disclaimer must be made before any benefit under the will is accepted by the beneficiary. Disclaimers are normally only made when the property passing under the will is subject to a significant detriment (for example a building which needs massive expenditure for repairs). If a specific bequest is disclaimed, the bequest will fall into the residue of the estate (the assets left after all specific bequests have been made). If the residue of an estate is disclaimed, it passes according to the laws of intestacy.
The other way of rearranging the distribution of an estate after death is by way of Deed of Variation. These require the agreement of all the affected beneficiaries and are often undertaken to redirect all or part of an inheritance for Inheritance Tax (IHT) purposes.
For Capital Gains Tax (CGT) and IHT purposes, a valid Deed of Variation is regarded as being a variation of the will, provided that it is not a sham, no inducement is given to the beneficiaries to persuade them to sign it, it contains the correct tax wording and it is executed within two years of the death. Only a single Deed of Variation can be executed in relation to any given property. However, it is possible to execute a Deed of Variation even if the administration of the estate is complete.
For IHT purposes, a Deed of Variation is treated as if it were made by the testator. Normally, the CGT treatment is similar, although there can be complications, especially when trusts are created under the will. For Income Tax purposes, the Deed of Variation normally takes effect when it is executed, not on the date of death. Again, there are circumstances when the Income Tax effect can be retrospective.
“Deeds of Variation can be effective tools for the redistribution of assets in a family, especially where the original will has not been brought up to date for the changing circumstances of family members,” says <<CONTACT DETAILS>>.“If you are the executor of, or a beneficiary under, a will which does not best meet your family’s circumstances, contact us for advice.”
Witnesses to a Will
Quite often, the question as to who should witness the signing of a will is treated as an afterthought but, when a will is contested, the ability to hear the evidence of the witnesses can be crucial.
A recent case where this was in point involved a daughter who believed her mother had died intestate after revoking a will she had made in 1994. When her mother died, in 2004, she applied for letters of administration over the estate. Shortly afterwards, her mother’s French Canadian niece filed, in Canada, what she claimed was the deceased woman’s will. That will left the entire estate to the niece and was said to have been written when the niece visited her aunt in 2000. It was claimed that the will had been posted to the niece after her return to Canada. She claimed that she was not present when the will was created.
The earlier will had made a number of bequests and the woman was close to her daughter, especially in her latter years, which made the contents of the ‘new will’ all the more surprising.
The woman’s family doubted the authenticity of the later will. Firstly, it was typewritten and no one recalled her having a typewriter. Secondly, there was some doubt as to whether the will was written by someone whose native language was English. Against this, the court did accept that the signature on the will was that of the deceased.
The key issue, however, was that the daughter could not recognise the names of the witnesses to the will. As the mother never left her flat unaided, the presence of the signatures of unknown persons was strange to say the least. The absence of any evidence from them regarding the circumstances surrounding their witnessing of the will led the court to the conclusion that the niece had been involved in the preparation of the will, which was not validly executed.
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Murrin v Matthews  All ER (D) 297.