Are You a Sophisticated Investor?
In March 2005, the rules relating to contacting people regarding financial promotions were relaxed, so that sophisticated investors and high net worth individuals (HNWIs) could be more easily approached to make investments in unlisted securities. The purpose of the relaxation was to remove impediments to business angels and others seeking finance for businesses of small to medium size and to aid the seeking of informal venture capital generally.
It is possible to ‘self-certify’ yourself as a HNWI or a sophisticated investor. To self-certify as a HNWI you have to earn at least £100,000 per year or have net assets (excluding your property, pensions and insurances) of at least £250,000.
To self-certify as a sophisticated investor you must:
1 have been a member of a business angels network for at least six months; or
2 have made at least one investment in an unlisted security in the previous two years; or
3 have worked in a professional capacity in the provision of finance to small or medium sized businesses in the last two years or in the provision of private equity; or
4 be or have been within the last two years a director of a company with a turnover of at least £1 million.
A promoter needs to have a ‘reasonable belief’ that the self-certification has occurred. The self-certification has to be in writing, but a promoter can rely on a verbal assurance that a person has self-certified as a sophisticated investor or HNWI. When accepted as a HNWI or sophisticated investor, the protections available for an investor relating to the promotion of securities by a person authorised under the Financial Services Act are removed. Appropriate ‘risk warnings’ must still be included in all promotional material given to potential investors.
With the markets in turmoil, ‘boiler rooms’ – so called investment advisors based offshore, who push dubious investments on the unwary – are increasing their activities. Clients are advised to be especially vigilant.
Boosting Your State Pension
With the Government issuing a stream of press releases praising the move, the Pensions Bill has been amended to allow people to buy up to an additional six years of pension contributions voluntarily in order to boost their state pensions.
The ruling applies to all those reaching state pension age between 6 April 2008 and 5 April 2015 who already have 20 ‘qualifying years’ on their pension record.
The move is particularly aimed at women who may have incomplete pension records when they come to retire. The state pension age for women will be raised to 65 from April 2020.
Non-working mothers in receipt of child benefit qualify for ‘Home Responsibilities Protection’ (HRP), which acts to reduce the number of qualifying years needed to obtain the basic state pension. Being in receipt of Invalid Care Allowance, Disability Working Allowance, Jobseeker's Allowance, Incapacity Benefit, Severe Disablement Allowance, Carer’s Allowance or Approved Training Family Credit operates in the same fashion.
A claim for HRP can be made at any time up to pension age, but if a claim is made in respect of any period during which you were at home caring for someone else, it must be made within three years of the relevant tax year.
In 2010, HRP will be converted into ‘pension credits’, when you will receive contributions for years during which you received child benefit for a child under 12, cared for a sick or disabled person for more than 20 hours a week or were an approved foster carer.
“Although many people give a lot of attention to their private sector pension arrangements, most leave the ‘state pension’ side of things to sort itself out,” says <<CONTACT DETAILS>>. “This is not usually wise. Whether the additional years of pension contribution will be a good investment will depend on individual circumstances. We can advise you on any aspect of retirement planning.”
Partner Note
The proposals were described as ‘more spin than substance’ in Pensions Professional, 30 October 2008.
Basic state pension information can be found at
http://www.thepensionservice.gov.uk/state-pension/basic/how-much-will-i-get.asp.
For information on HRP, see also
http://www.thisismoney.co.uk/help-and-advice/advice-banks/article.html?in_advicepage_id=125&in_article_id=426322&in_page_id=90.
Credit Crunch – Tips for Clients
Although this is not strictly ‘legal material’ we thought clients might welcome some tips on managing their household finances during these straitened times.
Cutting Fuel Costs
Despite the recent falls in prices, the cost of fuel is still considerably higher than it was just a couple of years ago. Shopping around between different providers may well produce decent savings, as may agreeing a ‘bundled’ deal to obtain your energy supplies from a single source. There are a number of comparison websites on the Internet which may help you make a decision.
Of course, one way to reduce your energy costs is a simple, old-fashioned reduction in use. For example, if you have fireplaces which are open but never used, a chimney balloon may significantly reduce your energy consumption by reducing the draft through the chimney. A one or two degree reduction in the thermostat settings of your central heating and a five to ten degree reduction in the temperature of your hot water will produce immediate savings, as will taking simple steps such as turning off lights in rooms which are not occupied, turning timed water and heating on a little later and off a little earlier (although in some properties it might be almost as cheap to keep the heating on), not leaving windows and doors (external and internal) open unnecessarily and turning electronic devices off at night rather than leaving them on standby.
Investments that can offer fast returns in terms of reduced energy bills include using ‘low consumption’ light bulbs, installing loft insulation and draft proofing. The economic benefit of more sophisticated changes, such as switching to a condenser boiler, installing cavity wall insulation, solar panels and the like, are more difficult to calculate and should be considered carefully before purchase.
Living Within Your Budget
Make a budget, based on the costs you can’t avoid and those you can. Make sure that your ‘avoidable’ costs are known and that you control them. However, if you know you will need something in a year or so, it might make sense to consider buying it when prices are being slashed (as they are for many goods, especially expensive items), rather than waiting for the market (and prices) to rebound.
Shopping
It is claimed that a quarter of all food bought from UK supermarkets is thrown away. Look at your shopping habits and eliminate waste as far as possible. Make sure you are aware of ‘2 for 1’ and similar offers on goods you use frequently, but remember that a saving in the cost of goods may be lost in additional travel costs. Being aware of prices offered by different retailers for the items you want to buy is recommended – but avoid impulse buying. Buying on the Internet may be a good idea, especially if your normal ‘weekly shop’ involves driving and if you tend to buy on impulse. Planning meals in advance and buying only what is needed for them is a very effective way to reduce waste.
Making Your Money Work for You
With interest rates falling, financial institutions have been cutting the rates they pay to savers. Check the rates your savings are earning – you may be surprised by how quickly the attractive interest rates used to tempt new investors are reduced.
Similarly, look at the costs of financial products you buy – insurances, your mortgage etc. There may well be savings to be made.
Benefits
Nearly one fifth of all state benefits are not claimed, especially those made available for families and the elderly. Make sure you claim any benefits to which you are entitled. The www.benefitshelpline.com website may be helpful as a starting point.
Make Sure You Have a Will and an LPA!
You may think this is an odd suggestion, but having an up to date will may prevent your estate incurring unnecessary costs (and possibly avoidable tax liabilities) in the unfortunate event of your demise. Similarly, creating a Lasting Power of Attorney (LPA) will be hugely beneficial in the event that you are unable to administer your own affairs and need someone else to look after them for you.
More importantly, however, having the right documentation in place speeds up administration, which can be very important. Most wills and LPAs are relatively straightforward to prepare. Contact <<CONTACT DETAILS>> for advice.
Demand Booming for Registration of Powers of Attorney
Applications to register Lasting Powers of Attorney (LPAs) and Enduring Powers of Attorney (EPAs) are booming, according to the Office of the Public Guardian.
From a low level of only 4,400 in March 2008, applications are now running at over 9,000 per month.
The surge has brought delays in dealing with the applications, leading to over 100 complaints a month being received regarding the registration bottleneck.
The number of applications relating to EPAs, which need only be registered when the creator of the power becomes incapable of managing their own affairs, is stable at around 1,500 per month, but the number of applications for LPAs, which must be registered in order to have legal effect, has risen sharply. The LPA replaced the EPA in October 2007 and new EPAs can no longer be created. However, those created before October 2007 continue to have effect.
Says <<CONTACT DETAILS>>, “If you want a power of attorney to be registered, be prepared to have to wait for it to be approved. In particular, make sure it is correctly completed, as nearly ten per cent of applications are rejected owing to an error. We can advise you on all matters relating to LPAs or EPAs and assist you with any necessary legal paperwork.”
Partner Note
Reported by the Office of the Public Guardian, October 2008.
Expat Pensioners Not Entitled to Inflationary Increases
Excluding expatriate pensioners from index-linked pension increases that are available to UK residents does not amount to discrimination, according to a recent ruling of the European Court of Human Rights.
The case arose following a 2005 judgment by the House of Lords in which writer Annette Carson, who had been living in South Africa for 15 years, claimed pension rights equal to those of UK-resident pensioners. Ms Carson turned 60 in 2000 and was entitled to the same basic pension she would have received had she been living in the UK at the time.
Ms Carson had made all necessary contributions and also made voluntary payments after she emigrated. However, when in April 2001 the basic pension for UK pensioners was increased in line with inflation, Ms Carson did not receive an increase. UK pensioners ordinarily resident abroad are not entitled to the annual increase, unless the country in which they are resident has a reciprocal arrangement with the UK, which South Africa does not. All EU countries do have reciprocal agreements, but nearly 200 other countries do not.
The House of Lords did not support the claim and so Ms Carson and 12 other UK nationals applied to the European Court of Human Rights, claiming that the UK authorities had discriminated against them, contrary to Article 14 of the European Convention on Human Rights, which prohibits discriminatory treatment on a number of grounds.
It is established case law that differences in treatment only amount to discrimination if they do not have objective and reasonable justification. In the case of the expat pensioners, the Court took the view that it was for the UK authorities to decide what was in the UK’s best public interest based on knowledge of the prevailing social and economic conditions.
As far as the European Court was concerned, individuals ordinarily resident within the UK are not in ‘an analogous situation’ to those residing outside the territory. The Court was reluctant to find an analogy between applicants who live in a frozen pension country and pensioners resident in countries outside the UK where uprating is available through a reciprocal agreement.
National Insurance Contributions (NICs) are only one part of the UK’s complex system of taxation and the National Insurance fund is just one of a number of sources of revenue used to pay for UK pensions and other social security benefits. Payment of NICs on the same basis as other pensioners does not therefore guarantee that the same benefits will accrue.
The Court agreed with the UK Government and courts that the same high level of protection against discriminatory treatment on the grounds of race or sex was not needed in this case. Furthermore, the UK had taken steps to inform its residents moving abroad about the absence of index-linking for pensions of those resident in some countries.
The European Court therefore held that there had been no violation of Article 14.
“The legal, economic and other implications of moving to another country can be very far reaching,” says <<CONTACT DETAILS>>. “Anyone thinking of taking such a step should consider their position carefully and take professional advice before proceeding.”
Partner Note
Carson and Others v United Kingdom (Application No 42184/05 in the European Court of Human Rights). See
Also, Carson v Secretary of State for Work and Pensions (House of Lords). See
IHT Nil Rate Band Transfers
In Inheritance Tax (IHT), allowances and reliefs are available individually to each taxpayer. Because transfers of assets between spouses or civil partners normally have no tax consequences for IHT purposes, it is easy to fall into the trap of thinking that there is nothing which needs to be done when doing so or when passing over the unused proportion of the IHT ‘tax-free’ allowance in the event of one partner’s death. However, when the estate of the last surviving partner has to be administered, specific documents are required.
HM Revenue and Customs have now issued guidance on the procedure for claim of the balance of the IHT nil rate band on the death of the second spouse or civil partner, which makes the retention of these documents important.
The personal representatives of the deceased will be required to supply the claim accompanied by the following documents relating to his or her late spouse or civil partner:
- the death certificate;
- the marriage or civil partnership certificate;
- a copy of the grant of representation (confirmation, where the deceased died in Scotland);
- the will (if any); and
- any deed of variation.
It is widely thought that the ‘excess’ of unused transfers (i.e. the difference between the transfers made and the ‘nil band’ at the date of death) simply passes across to a surviving spouse or civil partner, but this is not the case. The way the transfer works is quite different.
It is recommended that the required documents are assembled and stored in a safe place with your will.
“IHT planning has many facets and, whilst usually straightforward, needs to be carefully thought out,” says <<CONTACT DETAILS>>. “It is also important to start thinking about IHT issues as soon as significant wealth is acquired as, in general, the earlier IHT planning is started, the more effectively its impact can be mitigated.”
Intestacy – Changes
What happens when you die without a will?
The current law of intestacy was established in 1925 and sets out which of your relatives will receive how much of your estate and what will happen if there are none. The last time the rates for the statutory legacies were set was in 1993. The basic rule is that the spouse or civil partner will receive the first £125,000 of the estate if there are children and the first £200,000 if there are none. After that, there are complex rules about what happens to any amounts in excess of the statutory legacies (which include the house). The 1993 rates for the statutory legacy were just about reasonable at the time they were set but inflation has made them progressively more unrealistic.
In August 2005, the Government carried out a consultation exercise on whether there should be any changes. Three years on it disclosed the results of the consultation and announced the action it intends to take, in a press release issued on 27 August 2008, just after the bank holiday. There are two big changes. From 1 February 2009, the statutory legacies will increase to £250,000 and £450,000 respectively.
Furthermore, the Law Commission is going to review the present intestacy rules, including aspects of the Inheritance (Provision for Family and Dependants) Act 1975, under which dependants of a person who dies without making appropriate provision for them in his or her will can apply to the court for provision to be made. However, the review is unlikely to be completed before 2011.
In announcing these changes Justice Minister Bridget Prentice said, “This increase will give extra protection to married couples and civil partners whose spouse or civil partner dies without making a will. Don't leave it to chance. Make sure your loved ones are properly provided for by leaving a will.”
Making a will is straightforward and is recommended for everyone – even those with relatively small estates. We can guide you through the process to give you the peace of mind which comes from knowing that all your affairs are in order and your family’s interests are protected.
Negligent Trustees Replaced by Court
Unfortunately, it is all too common for family members to dispute a will, especially when there have been several wills made over time.
A recent High Court case involved the will of a multimillionaire made just four days before he died. The will left his estate, which consisted mainly of shares in family companies (which were put in trust) and his home, to be distributed by his executors. The trustees were a solicitor, the man’s son and two old friends who worked for a family business. The will provided for a very unequal distribution of the estate between the man’s children. The trust was a discretionary trust, giving the trustees the ultimate right to distribute income and capital and a codicil to the will provided that the income from the trust was also to be distributed unequally.
Problems arose when the solicitor, who was appointed to ensure the other trustees carried out their duties correctly, failed to explain their duties to them. Trust accounts were never prepared and the son decided independently to sell the company shares without consideration being given to whether this was in the best interest of the beneficiaries of the trust. The judge found that the trust had not been properly managed and held that the solicitor trustee was principally responsible for this failure. He ordered three of the four trustees to stand down and that professional trustees should be appointed in their place. The judge rejected the argument that because the mistakes were made innocently this did not warrant the original trustees being dismissed.
In addition, the other two children of the deceased argued that an oral agreement had been made between them and their brother, acting as executor, to divide their father’s estate equally. The judge dismissed this claim after examining earlier wills, which had also provided for an unequal split of the estate’s assets.
This case illustrates that keeping a copy of past wills is to be recommended, especially if it is possible that a will may be challenged after death. It also highlights that when making your will, you have the freedom (within limits) to distribute your estate as you see fit.
Furthermore, trusteeship is an onerous obligation. A breach of duty, even one made innocently, can have serious consequences for a trustee and this case underlines the importance of carrying out one’s duties as a trustee efficiently and correctly. If a trustee is unsure as to their rights and responsibilities, they should seek advice rather than carrying on regardless. <<CONTACT DETAILS >> can advise you on all will and probate matters and on your duties as trustee, attorney or executor.
Partner Note
Jones and others v Firkin-Flood and another [2008] EWHC 2417 (Ch), [2008] All ER (D).
New Law Journal, 28 November 2008.
Northern Rock – Tax Guidance
For those with shareholdings in Northern Rock bank, 2008 is probably a year they would rather forget. However, HM Revenue and Customs (HMRC) have issued a guidance note (Revenue & Customs Brief 32/08) dealing with the Capital Gains Tax (CGT) position resulting from the transfer of the shares into public ownership.
Where the disposal was made at nil value, as was the case for some shareholdings, the allowable loss for CGT will arise in the 2007/2008 tax year. Where compensation is paid, the allowable gain or loss will arise in the year in which the compensation is received.
Tax law requires you to deduct the allowable losses arising in a tax year from the total chargeable gains for the same year, even if this results in chargeable gains after losses below the level at which tax would be payable. For example, if you have made chargeable gains of £16,000 (more than the annual allowance) and make a CGT loss of £12,000 in the same tax year, the whole of the loss must be deducted from the £16,000, leaving a net gain of £4,000, which is less than the annual allowance. It cannot be carried forward. Unrelieved losses are carried forward, however, and are available to be deducted from chargeable gains in future years. In the case of losses brought forward, a claim may be made to restrict the loss claim to an amount which brings the taxable chargeable gains down to the annual allowance. Any balance of unrelieved losses brought forward is carried forward again to be deducted from future chargeable gains.
If net losses of £2,000 are made, for example, these can be carried forward until a tax year when a CGT charge arises and will operate to reduce that charge (by £2,000 x the effective rate of CGT).
Where shares are owned under employee share schemes, there may be Income Tax consequences.
HMRC have published a short guide to Capital Gains Tax. This can be found at http://www.hmrc.gov.uk/leaflets/cgtfs1.htm.
It is sensible to take professional advice on all tax matters. Contact <<CONTACT DETAILS>> if you have a problem you wish to discuss.
Provision for Dependants – Who is Entitled?
When a person dies leaving dependants, and no provision (or inadequate provision) has been made for them in the will of the deceased, it is sometimes possible for them to succeed in a claim for financial provision to be made for them under the Inheritance (Provision for Family and Dependants) Act 1975. However, a recent case illustrates that the legislation exists to support dependants, not those who have benefited from the generosity of another.
Margot Baynes and her daughter, Hetty, made a claim against the estate of Mary Spencer Watson, who died in March 2006. Ms Baynes and Ms Spencer Watson had maintained a relationship as a couple for more than 50 years and over the years Ms Baynes and her daughter had received substantial gifts of money. In addition, a trust fund had been established for Ms Baynes some years previously. When Ms Spencer Watson died, she left her house to a charity and the residue of her estate to Ms Baynes and her other children. Hetty, however, was bequeathed a sum of £2,500 as the will noted that she had ‘already benefited’.
The first claim was brought by Margot Baynes and was based on the argument that:
1 The claimant was the civil partner of the deceased;
2 The claimant was a member of the deceased’s household; and
3 The claimant was maintained by the deceased for two years prior to her death (this being a requirement under the Act).
The court found that as there had been no legal civil partnership, and the women's partnership was not public, Ms Baynes was not the civil partner of the deceased. In addition, as the gifts to her had taken place some years previously, she could not be said to have been maintained by the deceased. Furthermore, because Ms Baynes had her own house, it could not be said that she was a member of Ms Spencer Watson's household. The claim accordingly failed.
The daughter’s claim received even shorter shrift. Although Ms Spencer Watson had been generous to Hetty in the past and had paid off her debts, this was not ‘maintenance’ and she had no reasonable expectation that other debts would be settled in a similar way.
In this case, there is little doubt that Ms Spencer Watson's will accomplished exactly what she wished it to: the gift of her house to the charity.
Partner Note
Baynes v Hedger [2008] EWHC 1587.
Tax Havens Sign Information Exchange Agreements
The war against those who shelter income and assets in offshore tax havens has increased in intensity, with the Isle of Man and the British Virgin Islands (BVI) having signed mutual disclosure agreements with HM Revenue and Customs (HMRC). A similar agreement was recently signed between the tax authorities of Jersey and a number of Northern European countries.
The latter agreement may well allow Jersey information to be obtained indirectly in some circumstances by HMRC. Jersey had previously negotiated deals with the USA, the Netherlands and Germany, with whose tax authorities HMRC already have information exchange agreements.
The BVI, in particular, have been widely touted as a ‘place to stash cash’ over the last three decades at least and it is likely that HMRC will want to take a good look at the affairs of taxpayers who have used it as a place to ‘park’ profits. Under the ‘controlled foreign companies’ legislation, HMRC can bring into the UK tax net foreign companies which are effectively managed from the UK.
The international exchange of information is increasing apace. Australia, which is not classified as a ‘low-tax area’ by HMRC but which has substantial economic links with the UK, has also recently agreed a cross-disclosure agreement.
Partner Note
Source, Accountancy Age, 31 October 2008.
The latest list of tax information exchange agreements can be found here
Tax Refund on Your Holiday Home?
The Finance Act 2008 introduced new reliefs for UK resident owners of foreign properties bought using a company. This is a common way to own a property in some countries, as the tax and legal advantages can be substantial.
The new legislation exempts from charge as a benefit in kind living accommodation outside the UK that is provided by a company for a director or other officer of the company or for a member of their family or household where all of the following conditions are met:
1 The company is wholly owned by the director or the director and other individuals (and no interest in the company is partnership property);
2 The company’s main or only asset is a relevant interest in the property; and
3 The company's only activities are ones that are incidental to its ownership of that interest.
In these circumstances, there is no UK tax charge whatsoever.
This means that where the provision of living accommodation outside the UK satisfies the statutory conditions, no liability to Income Tax in respect of the benefit of that provision arises for any tax year.
In practice, the way the legislation has been written means that if you are able to show that you have paid tax for any year before 2008/2009 on income resulting from ownership of a foreign property and the above conditions have been met, then you should be eligible for a tax refund.
Tax is only one issue of importance when considering the best way to own a second home, either abroad or in the UK. We can advise you on all the related issues.
Partner Note
ICAEW Tax Faculty newswire 421, 31 August 2008.
When a Problem Solved is a Problem Created
In the current economic climate, it is more than likely that some people, for example those who have guaranteed business borrowing, are concerned about losing their personal assets. One traditional way of limiting such risks is to transfer assets into a trust but to retain use of them. There are a number of rules which apply to make such arrangements ineffective where the effect is to limit the claims of creditors within a reasonable time period. If carried out properly, however, such arrangements can be effective and can also have Inheritance Tax (IHT) benefits.
As in all cases, however, solving one problem can create another. In these circumstances, it is common for the owner of the assets being placed in trust to retain the benefit of them. Where this occurs, a ‘gift with reservation’ is normally created for IHT purposes, which effectively treats the asset as if it stays in the estate of the donor. However, when it is possible to avoid the gift with reservation rules, a different set of legislation bites, which operates to levy an annual Income Tax (IT) charge on ‘pre-owned assets’.
The Pre-Owned Asset Tax (POAT) regime is complex, but applies to chattels, intangible property (such as intellectual property rights) and land owned by UK residents. For land, the IT charge is based on the open-market rental value and for chattels on a percentage of the value of the asset.POAT also applies when one person supplies money for someone else to buy a property in which the first person lives.
Where the taxpayer opts that the transaction which would give rise to POAT is to be treated as a gift with reservation, the POAT charge will not arise but the asset will remain in the estate of the donor for IHT purposes. There are also other exemptions for transfers between spouses and ex-spouses and certain other arrangements.
The key issue is that if you are considering transferring assets to family members, a trust or someone else, whether to protect them from a possible claim or not, the consequences can be significant. All such transactions should be carried out with the benefit of professional advice which takes account of the ‘bigger picture’. Failing to think through all the implications of an action can sometimes create worse problems than those for which a solution is sought.
Contact <<CONTACT DETAILS>> for advice on IHT planning and wealth protection.
Partner Note
There is a good summary of the law relating to POAT in The Solicitors Journal ‘Private Client Focus’, October 2008, pp 4 and 6.
When a Problem Solved is a Problem Created
In the current economic climate, it is more than likely that some people, for example those who have guaranteed business borrowing, are concerned about losing their personal assets. One traditional way of limiting such risks is to transfer assets into a trust but to retain use of them. There are a number of rules which apply to make such arrangements ineffective where the effect is to limit the claims of creditors within a reasonable time period. If carried out properly, however, such arrangements can be effective and can also have Inheritance Tax (IHT) benefits.
As in all cases, however, solving one problem can create another. In these circumstances, it is common for the owner of the assets being placed in trust to retain the benefit of them. Where this occurs, a ‘gift with reservation’ is normally created for IHT purposes, which effectively treats the asset as if it stays in the estate of the donor. However, when it is possible to avoid the gift with reservation rules, a different set of legislation bites, which operates to levy an annual Income Tax (IT) charge on ‘pre-owned assets’.
The Pre-Owned Asset Tax (POAT) regime is complex, but applies to chattels, intangible property (such as intellectual property rights) and land owned by UK residents. For land, the IT charge is based on the open-market rental value and for chattels on a percentage of the value of the asset.POAT also applies when one person supplies money for someone else to buy a property in which the first person lives.
Where the taxpayer opts that the transaction which would give rise to POAT is to be treated as a gift with reservation, the POAT charge will not arise but the asset will remain in the estate of the donor for IHT purposes. There are also other exemptions for transfers between spouses and ex-spouses and certain other arrangements.
The key issue is that if you are considering transferring assets to family members, a trust or someone else, whether to protect them from a possible claim or not, the consequences can be significant. All such transactions should be carried out with the benefit of professional advice which takes account of the ‘bigger picture’. Failing to think through all the implications of an action can sometimes create worse problems than those for which a solution is sought.
Contact <<CONTACT DETAILS>> for advice on IHT planning and wealth protection.
Partner Note
There is a good summary of the law relating to POAT in The Solicitors Journal ‘Private Client Focus’, October 2008, pp 4 and 6.
Who Decides the Location of the Funeral?
The general rule regarding a person’s funeral is that the executor of the estate has the right to make any necessary arrangements. Where there is no will, the person granted the letters of administration of the estate has the right.
That seems straightforward and it usually is, but not always. A recent case dealt with the funeral arrangements of a man who died intestate. His divorced parents were jointly entitled to administer his estate.
The father wished his son to be buried in the town in which he had lived for several years and in which his brother, most of his friends and also his fiancée lived. The man’s mother wanted him to be buried near where she lived.
It took a court hearing to determine that he should be buried in his home town.
Says <<CONTACT DETAILS>>, “In this case, the failure to make a will didn’t cause problems over the division of the man’s estate, but over the administration of it. Had he made a will, whoever was appointed executor under it could have decided on and made the appropriate funeral arrangements, no doubt saving much distress as well as time and money. There are reasons other than the disposal of property for making a will.”
Partner Note
Hartshorne v Gardner (Chancery, Birmingham), unreported.
See Solicitors Journal, 21 October 2008, p 24.
Will Validity and Testamentary Capacity – The Burden of Proof
An unusual case, which recently came to the High Court, led the presiding judge to the conclusion that the validity of a will does not require the person creating it (the testator in legal terminology) to have a perfectly balanced mind, nor indeed good motives. Even frivolity is acceptable. Provided that the will is rational on the face of it, the court will presume that the testator is mentally competent unless the person challenging it can show sufficient evidence that the person was of unsound mind at the time the will was created. However, once sufficient evidence has been produced to show that the testator was not of sound mind, the burden of proof to demonstrate otherwise falls on the person seeking to rely on the will.
The case concerned a woman born in Poland who died in 1991, leaving a property in London worth several hundred thousand pounds. She executed a will in 1978 and then two further wills in 1990. The latter wills changed the distribution of the woman’s estate very considerably in favour of another woman who had lived in the property for several years and who failed to produce any evidence that she had contributed in any way to the running costs of the household. She also held a power of attorney over the testator’s financial affairs.
Copious evidence was produced in court of the confused mental state of the testator for a period of several years before she died. The judge also commented at length on the witnesses to the wills, whose presence had been arranged by the beneficiary. These were, in one instance, an Irish couple who were about to return to live in Ireland and, in the second case, a pair of young Italian men with an imperfect command of English. It was claimed that the 1990 wills were not, as a result, duly executed and were therefore invalid. The judge also considered it unusual that the firm used to draw up the later wills was some distance from the testator’s home, when there were local firms which she had consulted in the past. It also appeared that considerable effort had been put into preventing the local council from having the testator examined by a geriatric specialist. Faced with such a volume of evidence, the burden of proof regarding the woman’s mental capacity fell on the beneficiary.
The unsurprising decision was that the 1990 wills should both be put aside on the basis that the testator lacked testamentary capacity at the time she signed them. Interestingly, however, the judge said that he had “not been persuaded that the two wills were not duly executed… however, this is a conclusion which I have reached with considerable hesitation.” It would seem, therefore, that it may be particularly difficult to sustain a claim that a will has not been ‘duly executed’ where this is based on the quality of the witnesses.
The finding in this case was not surprising, although it took a large volume of evidence to create a successful challenge to the 1990 wills on the ground of the testator’s lack of mental capacity. If you have elderly relatives who have failed to make a will, contact us for advice.
Partner Note
Couwenbergh v Valkov [2008] EWHC 2451 (Ch).
Wills – Mutual Promises
‘All to other’ wills, whereby both members of a couple agree to leave their entire estate to the other, are commonplace. It is less common for two people to agree to make corresponding wills, whereby each agrees to make a provision in their will in exchange for a provision being made in the will of the other.
In such cases, what is the legal position when one of the two dies? Can the other person then change their will?
The law, in such circumstances, is that the rights of the inheritor under the first will are limited with respect to the property they inherit under the ‘mutual wills’ doctrine.
In a recent case, the survivor sought to dispute that an agreement for mutual wills had been made. The mutual wills had originally been made to prevent the family of the survivor of the two people concerned from putting pressure on them to change their will. The agreement was recorded in a codicil to each of the wills.
The judge concluded that mutual wills had been created and the survivor appealed that decision, arguing that the agreement was insufficiently detailed in that he did not know what his rights were with regard to the assets that he had inherited from the deceased. He argued that the will did not bind him, but instead bound his personal representatives on his death.
The Court of Appeal’s decision was that a trust was created under the mutual will which immediately bound the survivor and that the precise terms of the trust thus created would have to be determined by the court on application by him.
Says <<CONTACT DETAILS>>, “In this case, the two people who made the mutual wills could, and probably should, have made their intentions clearer. As it stands, the survivor knows he holds assets on trust, but not the precise terms of the trust created under the will. It will take more time and legal expense to ascertain what these are.”
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Partner Note
Walters v Olins [2008] EWCA Civ 782.