The problems of intestacy – a case in point
Where a person doesn’t make a will, it can often cause tension and squabbles among beneficiaries after their death.
This is particularly so where the deceased leaves behind a considerable amount of money, either in cash or tied up in trusts or property.
Such was the case when a wealthy widow died, leaving not just a property but an entire estate. She had two sons, one of whom still lived on the estate, independently.
Although the rules of intestacy state that both brothers should have been entitled to administer and benefit from the estate mutually and equally, what in fact happened was that without any discussion, one brother applied for the grant of letters of administration, without mentioning the other.
To be sensible and fair, the two brothers, once equally responsible for administering the estate, would then have had the additional discussion of how they wanted to divide the assets between them.
Instead, the second brother was both confused and anxious about whether or not he would be involved in the process at all and how to go about asking for a share of the estate, without upsetting the other brother.
The second brother was advised that if his sibling continued to refuse to cooperate, then legal action should be taken and ultimately, his brother could be removed as personal representative.
All of this was of course completely unnecessary and was a split which wouldn’t have happened, if their mother had quite simply made a will, detailing who should receive what.
Top law firms considered “financially unstable”
Research released yesterday by the Solicitors Regulation Authority (SRA) has revealed that 30 out of the top 200 law firms in England and Wales are considered to be financially unstable.
Contrary to the confidence they normally attract in clients, the SRA has put in place immediate supervision for all 30 of these law firms which have not yet been named.
160 law firms are now known to be in what is known as “intensive engagement” with the SRA, with eight considered to be at “immediate risk” of collapse.
This shocking revelation comes at a time when solicitors are campaigning to limit probate activities solely to law firms – a move which has always been contested by professional probate practitioners and one which it appears, will do little to serve the purpose of regulation.
Dementia sufferers and wills
A shock decision was taken by a judge recently regarding a woman who changed her will whilst suffering from dementia. Despite not having a solicitor present nor a medical examination, the deceased was later declared mentally fit enough for the will to be declared valid.
Previously, the woman’s will had seen the majority of her estate left to her eldest son, who not only ran the family company, but who took his mother in and cared for her, for the last decade of her life.
It was at her birthday party in 2005 – a party at which her eldest son wasn’t present; that the woman changed her will, despite suffering from mild to moderate dementia. This change saw all her three remaining children benefiting equally from her estate.
Accusations of forgery and coercion were hurled both ways during this recent trial, even after three years of legal battles. However, in the end, the judge ruled that the elderly should be able to document their wishes in a will, even with an impaired mental capacity. This latest will therefore, was declared valid.
Business owners risk higher inheritance tax bills
The introduction of the Finance Bill in July may see families of business owners being hit hard by changes to the way in which inheritance tax falls due.
Currently, should a business owner take out a secured loan against a personal asset such as their home for the purposes of business investment; inheritance tax will be calculated only on the difference between the asset and the balance of the loan. Inheritance tax relief specifies that no tax will fall due on the business asset.
So for example:
The owner of a taxi firm secures a £200,000 loan, secured against his home, in order to invest in ten new cabs. His home is valued at £400,000. If he dies and inheritance tax then falls due, this will be calculated at 40% of £200,000 which would be £80,000.
Under the new rules however, the calculations differ. Reliefs will be withdrawn and inheritance tax will be charged on the value of the asset against which the loan has been secured.
Example:
The same taxi driver takes out the same loan for the same purpose after July. If he then dies, inheritance tax will be charged at 40% of £400,000, making the bill £160,000 – twice what his loved ones would have had to pay in the past.
It’s easy to see then, the significant impact that this could have on many families – even if the business owner didn’t deliberately plan the manoeuvre in order to reduce his eventual inheritance tax bill.
There may be other strategies which can be put into place to lessen the impact that this could cause on a family’s finances, but with only a few weeks to put these in place, affected individuals must seek advice immediately.
Farmer wins inheritance tax fight
When I’ve spoken about farmland and agricultural property relief in the past, I’ve always advised the same thing, in order to qualify. The owner of the farm must remain within the farmhouse and ensure that the land continues to be farmed either by themselves, a member of the family or an employed farm manager or farmhand.
What we haven’t considered however, is what happens in the unlikely event when the property and the land are owned by different people.
Unlikely it is, but this was the case recently with a farmer, who took HMRC to several tribunals, to contest the removal of APR on a farmhouse which his family had owned for over 100 years.
HMRC’s position was that by interpreting the initial principles of inheritance tax, it was essential that to apply for relief, both the land and property must be owned by the same individual.
After appealing to both the First-Tier and Upper Tax Tribunals, the farmer’s adviser revealed that the Inheritance Tax Act 1984 used the word “property” rather than “estate” and that HMRC’s interpretation had been incorrect.
Happily, the court concurred that the farmhouse was “of a character appropriate to the land” and awarded the man his APR, no doubt leading to many future appeals of a similar nature.
How old do I have to be to make a Will?
Many people of differing ages prefer to either postpone drafting a will or choose not to do it at all, rather than face the inevitable prospect of their death.
Sadly, this of course means that the loved ones they leave behind are all too often faced with unforeseen costs, family battles, financial worries and uncertainty amidst their grief.
Intestacy, when a person doesn’t leave a will, means that the court decides who will be natural beneficiaries and what they will receive – which may not be what the family or the deceased would have wanted.
It is sensible then, to consider making a will as soon as you have any dependents and/or assets which will need to be distributed after your death. In England, the minimum age for writing a will is 18.
I would certainly advise that if you have significant savings, own a property outright or have a mortgage on a home, then you should consider making a will and sparing your loved ones the heartache and stress of having to pick up the pieces, should the worst happen.
Success for campaign to increase charitable legacies
A government trial has revealed that the percentage of those leaving money to charity in their will, depends on the approach taken by the will writer.
In the trial, 3000 prospective customers were separated into three groups in order to have their will drafted.
In group one, the will writer simply asked if they wanted to donate money to charity in their will. 10.8 percent agreed.
With group two, the will writer emphasised that many people leave charitable donations in their will and asked if there were any particular causes or charities which would interest the person. 15.4 percent agreed.
Charitable donations were not mentioned at all to anyone in group three and as a result, only 4.9 percent asked to leave a charitable legacy.
It was also noted that individuals in group two left a donation of around £6,661 on average, whilst those who agreed in group three left around £3000.
It seems therefore that the will writer has a large part to play in the success of charitable legacies. This is supported by an earlier study which indicated that 35 percent of respondents wanted to leave money to charity in their will but only 7 percent actually did so.
The Lambton probate battle
This week’s probate battle focuses on the estranged family of TV presenter, Lucinda Lambton.
Unfortunately, although exceptionally wealthy, Ms Lambton’s family appears to have been dogged by controversy and arguments over the years.
Her father, the late Earl of Durham, had lived in Italy for thirty years prior to his death in 2006 – driven there by a sex scandal which had broken several decades earlier.
In his will, Antony Lambton left his entire estate to his only son Ned, leaving his other children out in the cold. Three of his daughters in particular were understandably miffed and tried to force Ned’s hand by claiming they could use Italian forced heirship laws to gain a share of their late father’s estate.
The row continued for years, with Ned offering to give each sister £1 million to drop any legal proceedings. Unfortunately, the girls refused this offer and took the case to court in 2011, seeking a clawback of assets gifted during their father’s lifetime, which included Lambton Castle in the north east.
Ned has now issued a counter-writ in an attempt to prevent his sisters from citing Italian succession law, stating that the late Earl did indeed leave provision for all his other children.
What are the Rules of Intestacy?
The English Rules of Intestacy are exceptionally complex, which is why it is always best to plan for the inevitable – and have a will written whilst you’re alive and well.
Firstly, you should be aware that if you were involved in a romantic relationship with the deceased, you will only stand to inherit if you were formally married, informally separated or in a recognised civil partnership at the time of their death. If you were simply living together, you will not be able to claim inheritance this way. Divorced or formally separated spouses will not be considered.
If the estate is valued at more than £250,000 and there are children or other direct descendents, you will automatically be entitled to all the deceased’s personal property and belongings, along with the first £250,000 from the estate and a lifetime interest in half of the remaining estate. This means that you can gain interest on it but cannot spend it.
If the estate is valued at more than £450,000, what you will receive depends very much on who is left behind, including children, direct descendents, parents, spouses and nephews or nieces. As a minimum however, you can expect to receive all personal property and belongings, the first £450,000 of the estate plus any interest accrued and half of the remaining estate.
Survey shows most popular inherited items
Survey shows most popular inherited items
So what would you include in your will? Aside from cold hard cash, think about which specific items will mean so much to your loved ones, after you’ve gone.
A recent survey carried out by funeral director CPJ Field & Co, listed the most
popular items which are left to next of kin. These include:
• Photographs and paintings
• Jewellery
• Ornaments, crockery & glassware
• Recipes
Almost 3000 recipients took part in the survey, which revealed that for many of us, items of value are considered not only in terms of monetary value but emotional attachment, too.
39 percent of respondents intended to pass down photographs and paintings, matched closely by jewellery, which was identified by 35 percent. Next in line were the ornaments, crockery and glassware (which are often of course passed down through the generations), coming in at 28 percent.
Surprisingly, almost a quarter of those surveyed said that they had inherited recipes from loved ones, showing that even in times of such financial strife, we place family values high on our list of what we hold dear.
