Tax, Trust and Probate Articless ~ Winter 2009/2010

Better LPA Forms

 

The Office of the Public Guardian has responded to criticisms of its overly complex forms for creating a Lasting Power of Attorney (LPA) by issuing new and simplified forms.

 

An LPA allows a person to give a friend, relative or trusted advisor the power to make decisions about their property or personal affairs if they become unable to do so for themselves – for example as a result of a brain injury or mental disorder.

 

If you wish to be confident that in the event that you are unable to manage your own affairs they will be dealt with as you would want them to be, we would be pleased to advise you on the pros and cons of creating an LPA.

 

 

Partner Note

See http://www.publicguardian.gov.uk/about/969.htm.

 

Carer Excluded from Will

 

A carer, who was the sole beneficiary of a woman’s will, failed recently to persuade the court that a new will should not be created on the woman’s behalf.

 

The case arose when the deputy of the woman, who was agreed to lack mental capacity, requested the court to write a statutory will for her. A statutory will is a will created by the court for persons who lack the mental capacity to make one themselves.

 

The woman, a childless widow, was placed in a care home in 2008, having written a will in 2004 leaving her entire estate to her carer. This replaced an earlier will in which the bulk of her estate was divided between nine charities.

At the same time, she executed an Enduring Power of Attorney (EPA) in favour of her carer, with the result that more than £170,000 was paid to him over time. He failed to provide a proper accounting of these payments.

 

The local council objected to the carer’s authority under the EPA as it believed him to be an unsuitable person to fulfil the role. Proceedings ensued with the result that the Official Solicitor was appointed as interim ‘property and affairs deputy’ to look after the woman’s affairs, the judge concluding that the carer was ‘someone in whom the court cannot …have that trust and confidence which in this kind of situation the court must have if such a person is to be in a caring relationship with the patient’.

 

Vulnerable elderly people sometimes need protection from those who abuse their position of trust and seek to use their influence over them for personal gain. If you are worried about circumstances similar to these, contact us for advice.

 

 

Partner Note

In the Matter of the Mental Capacity Act 2005 and in the Matter of M
ITW – and –
(1) Z
(2) M (by her litigation friend the Official Solicitor to the Senior Courts of England and Wales)
(3)-(9) VARIOUS CHARITIES –  [2009] EWHC 2525 (Fam).

 

See http://www.bailii.org/ew/cases/EWHC/Fam/2009/2525.html.

 

 

Charity Fails to Win Farm in Court – But Seeks Appeal

 

After a bruising legal battle, which has cost more than £1.3 million in fees, a Yorkshire doctor has won the right to inherit her late parents’ farm, which is valued at £2.3 million.

 

In 1993, Dr Christine Gill’s parents made wills which left their estates to each other and, on the second death, passed the estate in its entirety to the Royal Society for the Prevention of Cruelty to Animals (RSPCA). It was Dr Gill’s contention that her mother, who was predeceased by her father, was forced by him to write a will ‘mirroring’ his own.

 

Dr Gill had helped to manage the family farm for many years and had been assured repeatedly that it would pass to her when her parents died.

 

In the High Court, it was ruled that Dr Gill had a legitimate expectation to inherit the farm. The RSPCA has sought leave to appeal against the decision and is requesting the Court to order Dr Gill to pay £400,000 towards its costs, arguing that it had previously offered to settle the dispute in exchange for a payment of £650,000 by Dr Gill. Dr Gill’s costs are said to exceed £900,000.

 

The charity’s legal advisers claimed that it was ‘legally obliged’ to fight the case, a claim that was ridiculed by Dr Gill’s lawyers.

 

Says <<CONTACT DETAILS>>, “With economic times being hard, charities are taking an increasingly tough stance when legacies to them are disputed. It is often thought that charities – presumably because they do good works – will be easygoing in cases such as this. This is often very far from the truth. If you wish to leave a legacy to a charity when you die, we can help you make sure that this is done in a way which will minimise the chance of a successful challenge. If you think you have been unfairly excluded from a will, contact us for advice on your situation.”

 

 

Partner Note

Reported widely. See, for example, http://business.timesonline.co.uk/tol/business/law/article6868765.ece.

 

 

Court Finds Solution to Funding in Disputed Will Case

 

When a will is in dispute, one of the concerns of those seeking to overturn it is that the beneficiaries under the disputed will may dissipate the estate assets before the matter can be resolved.

 

In such circumstances, those disputing the will can ask the court to freeze the assets of the estate until the matter is resolved. This can also cause problems, however, as a recent case shows.

 

The family of a deceased person disputed his will. The will was made shortly before the man’s death and provided that all of his estate (which was considerable) should be left to his civil partner. An earlier will had been created, the terms of which were very different. The deceased’s family applied to the court to have the earlier will accepted as the final will, alleging that the later will was a forgery.

 

The surviving civil partner had been granted probate of the will and began to withdraw sums from the estate and also bought a number of expensive cars. The deceased’s family, fearing the assets would be dissipated, sought a freezing injunction to prevent further reductions in the value of the estate. This was granted by the court. The family also sought an explanation for the substantial withdrawals that had been made.

 

Once the freezing order took effect, the deceased’s civil partner had no other assets and thus no means of funding a legal defence against the allegations, so applied to the court for the freezing order to be lifted to allow him to defend the action and to withdraw living expenses. He failed to provide the explanations sought for his expenditure.

 

The court agreed that he should not be prevented from being able to mount a proper defence through lack of funds. Procedurally, this would be difficult, but the problem was solved by the somewhat unusual method of the claimants lending him the money to cover his legal bills on the condition that he sold the expensive cars.

 

The court took account of the man’s lack of cooperation in explaining his expenditure, however, and denied his claim for withdrawals to be made to cover his living expenses.

 

 

Partner Note

Re Ikin deceased sub nom Court and others v Despalliers, Ch. 6 October 2009 (see Solicitors Journal, 13 October 2009, p 30).

 

 

Disclose and All Will Be Well – Or Will It?

 

Although HM Revenue and Customs (HMRC) recently extended (until 4 January 2010) the ‘disclosure window’ to allow previously undeclared foreign income to be declared, clients seeking to use the festive season to make a disclosure might like to consider the following, which apply to disclosures made under the disclosure window:

 

 

 

 

 

For more details, see https://ndo.hmrc.gov.uk/ndo/index.jsp.

 

 

 

European Inheritance Law Overhaul Proposed

 

Owners of properties and other assets abroad will be relieved to hear that the European Union (EU) has brought forward proposals to simplify the administration of estates with a ‘cross-border’ dimension. The EU estimates that there are some 450,000 of these, but with more than 400,000 people in the UK alone said to have foreign property interests, and one in seven marriages in the UK being contracted with someone born abroad, this must surely be an underestimate.

 

The proposals stipulate that in cross-border cases, the inheritance laws of the state in which the deceased last habitually resided will apply in determining the division of the estate assets, unless the will of the deceased contains an election that the inheritance law of their native country should apply.

 

The inheritance law in several EU countries is very different from that in the UK and, in particular, many countries require that estates are divided in a certain way. This gives much less flexibility than is available under UK law.

 

If you own property abroad, it is very important that the inheritance law and tax implications are considered fully and appropriate arrangements made. We can advise you on these issues.

 

 

Partner Note

EU announcement, 14 October 2009. See the Solicitors Journal, 27 October 2009 pp 31-2.

 

Furnished Holiday Lettings – Time is Running Out

 

Owners of properties used for furnished holiday lettings (FHLs) are reminded that the tax regime relating to these is set to change significantly (for the worse) next April. Under the current tax regime, such businesses have advantages for both Income Tax (IT) and Capital Gains Tax (CGT) which will be removed from 6 April 2010.

 

As regards CGT, entrepreneur’s relief and roll-over relief will no longer be available. Tax losses made for IT purposes will not be able to be set against income from other sources and income from FHLs will not qualify as ‘relevant income’ for the payment of pension contributions.

 

There are other changes regarding how profits from such businesses are calculated for tax purposes.

 

Owners of properties let as holiday lettings should take advice now to ensure they understand the implications of the changes and are prepared for them. Forward planning may well be a very good investment. Contact <<CONTACT DETAILS>> for advice.

 

 

Partner Note

There is a good summary of the position at http://www.holidaylettings.co.uk/.

 

HMRC Can See Accountants’ Tax Advice to Client

 

HM Revenue and Customs (HMRC) recently won a significant victory in a tax case when the court ruled that tax advice given by an accounting firm to its client is not privileged. In other words, HMRC can force accountants to divulge advice given to their clients on tax law matters.

 

The case involved insurance giant Prudential, but the ruling will be applicable to taxpayers large and small who engage accounting firms for tax advice.

 

The Special Commissioners ruled that where correspondence with accountants would add to the relevant facts determining tax liability, the issue of a notice requiring disclosure of tax planning advice was valid, and that legal professional privilege did not apply.

 

Says <<CONTACT DETAILS>>, “Correspondence between solicitors and their clients in which legal advice is given is subject to privilege and will not be disclosed to HMRC.”

 

 

Partner Note

R (on the application of Prudential Plc & Another) v Special Commissioner of Income Tax & Another [2009] EWHC 2494 (Admin), 14 October 2009.

 

 

Identity Fraud – Americans Be Warned

 

A new and very convincing attempt at identity fraud is doing the rounds by email.

 

Aimed at US citizens living abroad, it purports to be from the US Internal Revenue Service (IRS). It requires non-domiciled or non-resident US citizens to complete the form (which is designed in the same style as the usual IRS forms) in order to renew their US non-resident tax status.

 

The form demands sufficient information (Social Security Number, bank details etc.) for the fraudsters to perpetrate an identity fraud and access funds from the disclosed bank account.

 

Do not be conned! The appropriate forms for claiming the non-resident deduction (US citizens pay tax on a world income basis, with a non-residence test based mainly on physical presence), which is currently $87,600, are form 2555 or form 2555EZ. These are sent with the package for completing form 1040 (the individual tax return). This package is sent annually to all registered US citizens living abroad. Normally, US citizens MUST file a tax return annually unless their income is less than a minimum amount (currently about $9,000 for a single person).

 

Identity fraud is a growing problem and businesses have recently been criticised for not doing enough to prevent it. The organisers of National Identity Fraud Prevention Week have published a guide to help combat identity fraud. This is available at http://www.stop-idfraud.co.uk/resource-centre.aspx.

 

 

Partner Note

The guide published by the organisers of National Identity Fraud Prevention Week can be found at http://www.stop-idfraud.co.uk/resource-centre.aspx.

 

 

Making Good is Not Good Enough

 

An Edinburgh solicitor who embezzled more than £400,000 from an elderly woman’s estate repaid the sum in full after being convicted in court. However, the courts tend to adopt a robust approach in cases where the perpetrator is a professional in a position of trust and the effect of his making full restitution was merely to reduce his prison sentence from five to three and a half years.

 

Thankfully, fraud cases of this kind are rare. They more commonly involve deception by a friend or family member of the deceased.

 

When embezzlement does occur, it is often driven by the embezzler’s need to repay debts or to fund gambling or other expensive habits. Where the perpetrator of the fraud is an uninsured executor, there may not be sufficient assets to enable repayment of the stolen funds to be made. The Proceeds of Crime Act would allow the gains from criminal activity to be confiscated, but restitution can only be made where the money is still in existence or the assets can be found.

 

Solicitors are required to adhere to rigorous standards and to have insurance to protect their clients from loss.

 

It is often a good idea to appoint more than one executor to administer your estate. Having a second person authorised to keep an eye on things may be a worthwhile safeguard. For this reason, many people opt to have their solicitor and a trusted family member as co-executors of their estate.

 

We can assist you in all matters relating to wills and act as executor of your estate should you so wish, thus ensuring that your estate is administered efficiently and without unnecessary delay.

 

 

Partner Note

Reported in The Scotsman, 6 October 2009.

 

 

Paranoia Invalidates Will

 

The will of an elderly woman who disinherited her children when she developed delusions that they had been physically violent towards her was successfully contested by her family recently. In 1998, the woman made a will leaving nearly all of her £2.5 million estate to the National Osteoporosis Society, saying that her children were well provided for.

 

The court heard medical evidence suggesting that the woman was suffering from paranoia and there was no evidence of mistreatment by her children. Despite the fact that the will was prepared by a solicitor, the court accepted that the allegations against her children were unfounded and that there was no logical reason why she should have cut them out of her will. Accordingly, it found that she disinherited them because of her delusions and therefore did not have testamentary capacity when the will was created.

 

 

Partner Note

Ritchie, Ritchie and others v National Osteoporosis Society and others [2009] EWHC 709 (Ch).

 

Verbal Will Directs £1/2 Million to Aunt

 

A will must normally be made in writing to have legal effect, but there are exceptions to this rule. One is that a sailor can make a valid will orally when at sea. Recently, this rule was held by the court to apply in the case of a sailor who made an oral will whilst at the home of a relative, because the sailor was under orders to return to his ship when the will was made.

 

There was an unusual aspect to this case. The person to whom he confided his last wishes was his cousin. She would have stood to inherit his estate, which was valued at more than £1/2 million, had he not expressed his wish that it should pass to his aunt in its entirety. His aunt had become a ‘second Mum’ to the man, who had been largely cold-shouldered by most of the rest of his family.

 

The man’s cousin gave evidence that it was his aunt, not she, whom he wished to inherit his estate.

 

Says <<CONTACT DETAILS>>, “In such circumstances, not many people will willingly give evidence that someone else should have such a large sum to which they would otherwise be entitled. Sadly, to rely on people ‘doing the right thing’ is normally false optimism: the sensible approach is to make sure you have a valid will, held in safe custody, and that your relatives know where it can be found.”

 

 

Partner Note

Reported in New Law Journal, 16 October 2009, p 1429.

 

 

When is an Agreement Not an Agreement? – When it is With The Tax Man

 

Getting your tax right can sometimes be complex and it is often the case that when HM Revenue and Customs (HMRC) investigate a taxpayer, they find that there are irregularities. When these result in an underpayment of tax, HMRC will normally levy interest and/or a penalty on the taxpayer.

 

HMRC have discretion as to the amount of the penalty they can levy and where a taxpayer is fully cooperative and the underpayment is not regarded as an attempt to evade tax, a penalty may be waived altogether.

 

In a recent case, a man who controlled a partnership which had under-declared profits some years earlier faced an additional tax charge (plus statutory interest) of £122,000. He intended to appeal against HMRC’s decision, but wrote to the tax inspector prior to the court hearing making the following proposal: he would pay the additional tax, interest on the underpaid tax at the statutory rate and HMRC’s legal costs and, in consideration for his so doing, HMRC would withdraw its amendments to the relevant tax returns. This would remove the tax-geared penalty. The offer was made in the form of a formal offer to pay under Part 36 of the Civil Procedure Rules.

 

The man’s tax inspector wrote back, indicating that his offer would be accepted ‘without prejudice to any penalty determination which may follow hereafter’ and the taxpayer considered that once he had paid the agreed sum, that would be the end of the matter. However, a 70 per cent (towards the upper end of the scale of penalties which are normally levied) penalty notice (£54,000) followed.

The taxpayer went to court to contest HMRC’s right to levy the penalty – and lost. The offer had not been sufficiently clear as regards the settlement of penalties and had not specifically dealt with them. Accordingly, HMRC were not bound to accept his offer as one which would remove their right to levy a tax-geared penalty.

 

Says <<CONTACT DETAILS>>, “If you are in dispute with regulatory or tax authorities, we can help you reach an appropriate settlement.”

 

 

Partner Note

Stockler v HMRC [2009] EWHC 2306 (Ch), 22 September 2009. See

http://www.bailii.org/ew/cases/EWHC/Ch/2009/2306.html.

 

 

Will Fraud on the Increase

 

It would appear that fraud in relation to wills is on the increase, as greater numbers of cases involving fraud reach the courts.

 

Recently, two suspected fraudsters, who it is alleged had forged documents relating to twelve separate estates, were put on trial after receiving nearly £1/2 million in a series of ‘inheritances’ since 2002.

 

They eventually came to the attention of the police when they claimed an inheritance of more than £3 million worth of property in what was described as a ‘determined and carefully orchestrated scam to acquire the properties and estates of elderly and vulnerable people who had, very often, lived their last years in isolation with no obvious friends and relatives’.

 

Says <<CONTACT DETAILS>>, “Cases like this are a reminder that it can be easy for those with criminal intentions and the greedy to prey on the elderly and vulnerable. To be certain that your estate will be distributed as you wish it to be, make a will and make sure a copy of that will is held securely. We can help protect your estate from the ravages of the criminally-minded and the unscrupulous.”

 

 

Partner Note

Reported in the Daily Telegraph, 22 October 2009.

 

Will Valid if Testator Had Capacity When it Was Drafted

 

Challenges to wills based on the argument that the testator (the person who makes a will) lacked mental capacity are becoming more and more frequent and, with an ageing population, this trend looks set to continue.

 

Most such challenges are made by disappointed family members who were expecting to be beneficiaries under a will and then find themselves not provided for (or inadequately provided for) when the terms of the will become known. One common ground for contesting a will is that it is not rational on the face of it and there was no rational explanation for family members being excluded from benefiting under it.

 

In a recent case, a man’s son challenged his late father’s will, which left the father’s entire estate to the woman with whom he lived. The father had been diagnosed with multiple sclerosis and had not executed (signed and had witnessed) the will until 17 months after it had been drafted. During that period, the father’s condition had deteriorated significantly.

 

In the view of the court, the son’s exclusion from benefiting under the will was not irrational on the face of it. Although his father lacked testamentary capacity when the will was executed, he was in possession of his faculties when he had the will drawn up and it reflected his wishes at that time. Accordingly, the court ruled that the will was valid.

 

 

Partner Note

Perrins v Holland and others [2009] EWHC 1945 Ch.

 

 

 

Will Writer in the Dock

 

The trial of an unqualified will writer took place in Bristol recently when a 45- year-old man was charged with the theft of £800,000 from a succession of elderly clients.

 

The man had duped childless elderly people into inserting a clause into their wills which ostensibly allowed him to determine to which charities money they intended to leave to good causes was to be allocated. Instead, he used the money to fund a lavish lifestyle for himself, including the purchase of expensive cars and a property in Spain.

 

He was charged with four counts of theft and one of forgery. On conviction, personal assets acquired by crime may be subject to forfeiture. However, in most such cases, the losses are never fully made good.

 

Using an unqualified will writer is a risky business. Recent research by the Law Society revealed the extent of the risks members of the public are being exposed to by using unregulated, unqualified and uninsured will writers.

 

The findings revealed instances of badly drafted wills that rendered the deceased person’s estate wholly or partially intestate, poor tax planning and cases where the will simply disappeared. In addition, the research found that there are often hidden charges which inflate the cost of the will writing service so that the final bill ends up being far higher than the advertised price.

 

Unlike solicitors, unregulated will writers do not have to be legally qualified or insured. As there is no regulatory body, there is no mechanism for bringing a complaint, and without insurance there may be no means of redress should things go wrong. Solicitors, on the other hand, are professionally qualified to do the work, are bound by a stringent code of professional conduct and, in the very rare event of a loss to a client, clients are protected by the solicitor’s professional indemnity insurance, which is compulsory.

 

If you are seeking to write or amend your will, we provide a professional service at a reasonable cost and give you the peace of mind that comes from having your will drafted by qualified specialists.

 

 

Partner Note

Reported in the STEP UK News Digest, 15 October 2009.

 

See also the Law Society press release of 21 October 2009 at http://www.lawsocietymedia.org.uk/site.php?s=1&content=35&press_release_id=1181&mt=34.

 

You’re an Heir – Now Sign This!

 

Until the recent publicity afforded by television shows on the subject, many people might not have realised that ‘heir tracing’ companies exist, let alone that they research ‘promising’ estates by looking at public records and then contact potential beneficiaries of those estates.

 

The prospect of obtaining a windfall following a knock on the door by such a firm makes many people only too glad to sign the contract offered, but quite often these can involve very considerable sums being paid to the heir locators – a figure of 25 per cent of the inheritance is not uncommon.

 

It is often the case that your entitlement to an unexpected legacy can be achieved more economically. Many such approaches result from the firm researching into the background of substantial unclaimed estates and much of the work that is done can be done by an ‘amateur’ (especially one with an interest in genealogy) without great expense.

 

Here are some things to think about if you are approached by such a firm. Often, the details they give you will be scanty and will not include the likely value of the inheritance. The withholding of critical information in order to make you sign the contract may make their agreement with you unenforceable.

 

Firstly, try to establish who the deceased is, your relationship to them and the value of the estate. The latter can normally be found with a little research, as wills are public documents. The more distantly related to them you are and the more other possible beneficiaries, the less you are likely to receive.

 

Do not rush! If the visit arises because of an unclaimed estate, the estate will not pass irrevocably to the Crown until 30 years after the death of the testator, so there is plenty of time. The Treasury Solicitor’s website contains details of unclaimed estates (www.bonavacantia.gov.uk), which is a good starting place for your research.

 

If the approach arises through a solicitor, always ask the name of the solicitor.

 

We can help you understand your rights and negotiate with ‘heir hunters’. Contact <<CONTACT DETAILS>> for advice.

 

 

Partner Note

Title Research released a guide on this in autumn 2009.