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New Intestacy Rules – What do they mean?

1st Oct 2014
Today new rules come into force for the laws covering people who die without a will. ...
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New Intestacy Rules – What do they mean?

1st Oct 2014

What are the new Intestacy Rules and who do they affect?

Today, sees new rules come into force for the laws governing what happens to someone’s assets when they die without a Will (intestacy law) and who can make a claim against an estate.

One of the controversial parts of the new rules is around the modern family i.e. who receives what if you were co-habiting. Many professionals were pressing for those in unmarried relationships to receive a portion of their partner’s estate if they die without a Will.

At present, unmarried partners are legally entitled to nothing even if they share children or have cohabited for many years. The new laws do not change this. Die without a Will and your partner receives nothing. Their only recourse is to make a claim against your estate.

Having covered what is not changing, what actually does change?

One of the biggest changes is for married couples and civil partners without children. Under the old rules the survivor received the first £450,000 plus half the rest. The other half was split between blood relatives according to strict rules. Under the new rules the survivor receives everything.

For married couples and civil partners with children the theory of “life interest” is now eradicated. The new rules are significantly simpler, with the survivor entitled to the first £250,000 plus half the remainder. The children share the rest. Previously the spouse only got a life interest in half the remainder i.e. they received the income from their half but the capital was protected for the children.

Finally, one of the other significant changes is to the scope of people who are entitled to claim against your estate. As well as redefining who is classified as a dependant the new rules now recognise the ‘blended family’. For example, your partner’s child can now claim against your estate as if they were your child. Even if your partner died before you! Although, it’s worth mentioning that, this doesn’t automatically mean they will be successful if a claim is made.

The changes to the intestacy laws once again highlight the importance of making a Will. If you want to choose who inherits you need to have a Will. Furthermore make sure it’s up to date and relevant.

Above is just an overview of the main changes that will affect decisions when making a Will. There are other technical changes, including certain powers of Trustees, that we have not mentioned.

Please let us know if you or your clients require any further information.

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NEW code of conduct for Will preparation

15th Jun 2014
In response to the UK government’s decision not to regulate Will writing STEP has launched a new Code of conduct for Will Preparation. ...
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NEW code of conduct for Will preparation

15th Jun 2014

In response to the UK government’s decision not to regulate Will writing STEP has launched a new Code of conduct for Will Preparation that all STEP members who prepare Wills MUST adhere too.

Only STEP members can claim to be compliant with the code which sets out standards of transparency and service that a client can expect when using a member. This reassures a client that they are getting the best level of advice and service when doing a Will.

Some areas addressed in the code include;

  • Pressure to appoint the Will company as executors in the Will
  • Selling of unnecessary complex Wills
  • Misrepresenting the consequences of not making a Will
  • Obtaining advance payment for probate plans
  • Inadequate storage facilities

All Pavilion Row‘s Will advisers and Will drafters are members of STEP and are therefore bound by the new code.

When STEP announced the launch of the Code Geoffrey Shindler OBE TEP, STEP President , commented: “The Code will, I hope, become the hallmark to which all aspire when drafting wills. It is a condition of membership that we all adhere to the code, but it should be seen less as a burden and more as a positive benefit. It will demonstrate to clients, the public, to the government and to regulators that we are of a gold standard when it comes to preparing wills for individual clients.”

Pavilion Row see this as a very positive move forward to improve the quality and level of service within the Will industry. It will, we hope, help to eradicate ‘cowboy Will writer’ behaviours, practised by a very small minority, that are currently tarnishing the industry.”

Since the launch of the STEP Code the SRA have launched new non-mandatory guidelines for solicitors who prepare Wills.

The guidance has a focus on professional ethics and behaviour and includes;

  • NOT misleading a client to believe they have to retain a solicitor to write their will, or that it is the norm.
  • NOT as a default position appointing themselves as professional executors
  • The solicitor not encouraging the client to appoint them as executors unless there is a clear reason to do so e.g. it is likely to be contentious or complex

Whilst only STEP can guarantee a true level of qualification in this niche part of law we see that the STEP Code and the SRA guidelines are setting the path to creating a much fairer and transparent service for the clients

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Minimising the Risks of Inheritance Feuds

2nd Apr 2014
It is a simple fact that the number of probate claims continues to rise year on year. There are, in my experience, four major reasons for this. ...
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Minimising the Risks of Inheritance Feuds

2nd Apr 2014

Why do estates become contentious?

Guest Article – Martin Holdsworth, Jones Myers LLP

It is a simple fact that the number of probate claims continues to rise year on year. There are, in my experience four major reasons for this:

  • Too many people die either without a Will or an out of date Will. The Intestacy Rules then rarely allow for the distribution of an estate to provide for a family in the way which the deceased wanted. Without any kind of agreement between ALL the beneficiaries (assuming they are all over 18 years), an application to court is inevitable.
  • Many family units now include step-parents and step-children (the blended family unit). Extra care is needed when advising members of blended families as to the obligations that may exist across the whole family unit and perhaps most importantly how those obligations are met after the first parent’s death.
  • Individuals are now, on average, living longer. Figures from the Office of National Statistics demonstrate that life expectancy over the next 50 years will increase by an incredible 8 years; to 87 for men and 90 for women. With an aging population the incidence of dementia increases and with it allegations of failing capacity and Will challenges.
  • The final significant factor is the reality that, due mainly to house price increases, estates are now worth more than ever before. An inheritance or lack of one can make a huge difference to someone’s financial and emotional wellbeing and it is no surprise, that in a more litigious society, claims are investigated to challenge testamentary provision.

It follows, therefore, that when someone makes a Will, the person they use must give careful consideration to areas where claims are likely.

“With care and knowledge, it is possible to identify and minimise the risk of post-death litigation.” Martin Holdsworth – Jones Myers LLP

The best start point for this is undoubtedly to know your client and understand not just the extent of their personal wealth but also their family dynamics. From this the client must be made aware of the consequential obligations of their circumstances which arise in all manner of ways, some of which may not be obvious.

Whilst testamentary freedom exists, consideration must be given to anyone where the will maker has created a financial obligation. Some are obvious – a spouse, cohabitee or any children still in education for example. However, some are not. I have been involved with claims by ex-spouses, ex-cohabitees, tenants (living rent free in a property owned by the deceased), adult children, mistresses and other individuals who were maintained financially in some form. Seeing a client away from their spouse can make disclosure easier.

Before full advice can be given in regards to a Will it is crucial that proper instructions are taken and recorded. The instructions given must be comprehensive, the Will Adviser must be satisfied that the person has appropriate mental capacity and consideration must be given to the person’s various obligations.

There is little doubt that probate litigation will continue to increase but by ensuring your clients seek proper advice when doing a Will they will have awareness of where claims can lie and reduce their chances of such litigation.

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What about my inheritance?

13th Mar 2014
When a marriage breaks down and it comes to dividing up finances often people often ask 'What about my inheritance?' ...
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What about my inheritance?

13th Mar 2014

When a marriage breaks down and it comes to dividing up finances often people often ask ‘What about my inheritance?’

Guest Article – Angela Moore, Jarvis Family Law

During a marriage, particularly a lengthy marriage, it is very possible that one or other spouse may have received significant monies from the death of a parent which have been put towards reduction of the mortgage on the home, purchase of buy to let investment property or maybe a holiday villa in Spain.

The question is then raised ‘Does that money or property come back to me as it was from my parents?’

In short the answer is not necessarily. The ability to “ring fence” an inheritance will depend upon when it was received, how much it amounted to, what the other assets that are available for division, and what the respective financial needs of the parties are particularly for rehousing.

Whether you are trying to protect an inheritance upon divorce or claim against inheritance wealth, legal advice is certainly worthwhile.

Angela Moores says “a High Court case published during August 2011 known as AR v AR examines this topic once again. The principle of fairness is referred to throughout that case. What however amounts to fairness will vary from one case to another and from one person’s perspective to another”.

There is no mathematically exact calculation that can be done and each case is different- hence the need for expert family law advice at the outset to set everyone on the right track as to their expectations.

Another question asked around this inherited wealth issue is ‘What about any amount my spouse is going to receive post divorce from parents who are not yet deceased?’

An asset cannot be considered to form part of the assets for division on divorce unless and until it actually belongs to one or other of the spouses. Therefore something that may or may not happen in the future (such as the receipt of an inheritance) cannot be taken as certain and cannot be taken into account. The parent may need to utilise their monies for residential care prior to their demise. Similarly the parent may determine to spend spend spend on cruises, high living and enjoying their final years. Generally, an inheritance has no certainty or entitlement until a person dies.

In answer to the question posed, it may be if a death is anticipated in the short term, that some form of contingent payment could be built into a settlement. If a settlement is not a “clean break” settlement (ie there are ongoing financial responsibilities between the spouses such as maintenance payments) then once an inheritance falls in, such ongoing issues can be revisited. However the benefit of a “clean break” deal is that each party is free to go forward in life without the risk of further claim from the other and that includes on any future inheritance.

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Planning your digital afterlife

4th Feb 2014
What happens to your digital assets when you die? ...
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Planning your digital afterlife

4th Feb 2014

What happens to your digital assets when you die?

Our lives in regards to who we are, what we do and what we own are increasingly managed digitally.

Any assets managed digitally, i.e. accessed or held online, are referred to as digital assets. These can range from online gaming accounts, to photos, digital music, bank accounts, domain names, cloud storage etc, etc.

Should you die the duties of your executors in relation to digital assets, as with any other assets, are to identify them and arrange transfer to beneficiaries or sell them. However;

  • How do the executors know the assets exist?
  • Are the assets worth anything?
  • Can the executors access the accounts?

As your Will is usually stored securely you could incorporate details, including passwords and usernames, within it. However this is not very practical; every time you change something you would need to change your Will.

The key is that people know the assets exist. A simple list stored with other important documents will at least tell your executors what you’ve got and where to find it.

But are these assets worth anything?

It has always been common for people to leave books, CDs, vinyl collections etc to someone in their Will but what about online versions? Buy music from iTunes and you don’t own it; you simply have a perpetual licence to play the music. The licence is personal and not transferrable. In effect you are just renting it. Similarly digital book providers, such as Kindle, prevent a purchaser from passing on e-books or sharing passwords.

By contrast online games may have a value especially where a lot of time has been spent accumulating a character’s skills, weapons, money etc. Websites such as www.armorybids.com run auctions of gaming accounts allowing you to sell on these characters.

However digital assets are of no value if nobody knows they exist. Frequently forgotten digital assets include loyalty programmes such as air miles which CAN often be transferred.

But how do my executors access the accounts?

The law in this area has been slow to catch up with technology. Currently accessing the deceased accounts with their username and password may mean the executor is committing fraud!

Many companies providing online services have created their own polices for dealing with deceased accounts such as Google’s ‘inactive account manager’. There are also online password storage facilities, like Password Box, with legacy features but these still don’t resolve the issue of whether or not your executors can access your accounts. The problem is there’s no set approach.

In a bid to resolve this issue STEP has created a Working Group to look at access, control and ownership of digital assets when a user dies or is incapacitated. The intention of the group is to create a protocol that can be adopted by all online providers. The challenge will be how, when this is an international market, to create one approach that can be adopted globally.

This is an increasingly important issue with, as yet, no definitive outcomes. We will keep you updated as things develop.

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What’s domicile? And why does it matter?

18th Dec 2013
The question of domicile is fundamental to how a person’s worldwide assets are taxed in the UK during their lifetime and on their death. ...
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What’s domicile? And why does it matter?

18th Dec 2013

Guest Article by Louise Battison, Chartered tax Adviser with Tax Perspective

The question of domicile is fundamental to how a person’s worldwide assets are taxed in the UK during their lifetime and on their death. It is particularly important that the issue of domicile is considered whilst the client is alive and able to arrange their financial affairs tax efficiently.

A person domiciled in the UK is subject to inheritance tax (IHT) on their worldwide assets. A person who lives in the UK but is not domiciled here will only be subject to UK IHT on their assets situated in the UK.

Sometimes it is easy to make assumptions about a person’s domicile position but because of the complexities of law those assumptions may not be correct.

“A common belief is that a person’s domicile is simply based on where they live or where they where born but this is not always the case.”

A child usually obtains their domicile from their father, regardless of where the child is born or lives. A child born in the UK to a father domiciled in India will have a domicile of origin in India. However, if the father changes his own domicile before the child reaches the age of 16 then the child’s domicile also changes.

Therefore, you may find you have to establish your client’s father’s domicile before you are able to establish your client’s domicile with any degree of certainty.

However, to counter potential tax avoidance HMRC have a concept of ‘deemed domicile’. If an individual is in the UK for 17 out of 20 tax years HMRC will deem them as domiciled in the UK and their worldwide estate will be subject to UK tax.

This means it is usually difficult to do any IHT planning based on a person being non UK domiciled if they have been in the UK for 17 or more of the last 20 years.

A few countries, including India, Pakistan, France and Italy, have double tax treaties with the UK that were written before ‘deemed domicile’ was introduced. The treaties with India and Pakistan offer the most scope for effective IHT planning and you don’t need to have been born there to make use of this.

If your client has lived in the UK for many years but their father was domiciled in India or Pakistan and they can illustrate that they don’t have any permanent intention to stay in the UK, you could save them a considerable amount of money through effective estate planning.

Importantly they must have an English Will for their UK assets and a non-UK Will to ensure their non-UK assets don’t pass through the UK Will. This must be done correctly and professional advice should be taken to ensure that one Will is not revoked by the other.

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Why should I remember a Charity in my Will?

9th Sep 2013
Pavilion Row has for sometime been a supporter and member of Remember a Charity in your Will. ...
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Why should I remember a Charity in my Will?

9th Sep 2013

Pavilion Row has for sometime been a supporter and member of Remember a Charity in your Will.

This week is dedicated to the cause with the aim of highlighting the importance of donating through your Will.

Currently 75% of us donate to charity during our lifetime but only 6% include a charity in their Will. This 6% generates over £2 billion of revenue for charities which equates to 19 Comic Reliefs!

Just a small increase of people leaving a charity legacy in their Will could make a huge difference.

As a reminder there are tax advantages of giving to charity in your Will. Click here to read our previous article explaining the benefits.

Download our updated ‘Why make a Will?’ leaflet for further information regarding making a Will.

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Who’s got the POWER!

17th Jul 2013
Is it who YOU would choose? ...
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Who’s got the POWER!

17th Jul 2013

Is it who YOU would choose?

All of us are constantly making financial decisions whether we realise it or not:

  • What bills to pay
  • Is it worth switching Utility providers
  • Shall I top up my pension fund or invest elsewhere
  • Shall I save for a big holiday this year

But what happens if you suddenly can’t do this; due to physical or mental incapacity.

We often think about getting insurance to cover the loss of income but who will actually manage your money?

If you suddenly lose capacity to deal with your affairs all your bank accounts are frozen – including, in many cases, joint accounts. Nobody will be able to access your money, even those who are financially dependent on you.

So what happens?

Your loved ones will have to apply to the court of protection to become what’s known as your ‘Deputy’. This is a costly, cumbersome process which may take up to 6 months.

Why does this matter?

  • No one can access your money until the deputy has been appointed
  • The person the Court select to be your Deputy might not be who you would choose
  • The Court may apply restrictions on what the Deputy can or can’t do
  • Often the Deputy is supervised by the Court incurring even more cost and stress.

But all this is simple to avoid if you make a Lasting Power of Attorney (LPA).

After a Will an LPA is arguably the most important document you can have. It gives somebody YOU choose (your Attorney) the legal power to look after your affairs if you can’t.

We all hope that we will not have to use an LPA but the consequences of not having one are too big to ignore.

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Regulation of will-writing is rejected

16th May 2013
The Lord Chancellor yesterday rejected the recommendation made be the Legal Services Board to regulate will-writing activity. ...
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Regulation of will-writing is rejected

16th May 2013

The Lord Chancellor yesterday rejected the recommendation made be the Legal Services Board (LSB) to regulate will-writing activity.

In their statement announcing the decision it recognises that the report produced by the LSB indicates a consumer detriment in the will-writing market. However it felt that the report doesn’t adequately demonstrate that regulation is the best solution or that all other options have been sufficiently exhausted.

The statement went on to say that as separate work is being done to look at simplifying the current legal services regulatory landscape and as part of this the Lord Chancellor will consider whether it would be appropriate to bring will-writing within the scope of legal services regulation, it wouldn’t be beneficial to add complexity to the regulatory landscape in advance of this work.

Whilst the will-writing industry will not be regulated at this stage it is clear that it will continue to be under scrutiny. Pavilion Row’s advice remains; when making your Will choose somebody, whether will-writer or solicitor, who is a member of the Society of Trust and Estate Practitioners (STEP).

A key concern arising from the original LSB report into will-writing was the poor technical quality of the Wills. One in four of wills examined by the panel were found to be inadequate. However simple or complex you believe your affairs to be it is imperative that you get the right advice and your Will is drafted correctly. Too often problems with Wills are not found until the person has died and it is too late to rectify.

STEP members are the most highly trained in this specialist area of law.

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When is a pound worth 60p?

1st May 2013
In George Osborne’s most recent Budget further provisions were made to prevent Inheritance Tax avoidance schemes. ...
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When is a pound worth 60p?

1st May 2013

When you needlessly pay Inheritance Tax (IHT)

In George Osborne’s most recent Budget further provisions were made to prevent Inheritance Tax (IHT) avoidance schemes.

In many ways this helps to reinforce false perceptions; that to reduce your IHT liability you need complicated schemes that will be scrutinised by HMRC.

But for many this can’t be further from the truth. There are plenty of options for standard IHT planning before you need to think about complex and aggressive solutions.

We often come across clients in later life with assets over the IHT band and good incomes that they are saving. But for every extra pound they save they only save 60p i.e. their eventual beneficiaries will be giving 40p to HMRC in IHT!

For these clients gifts out of income are an excellent way to minimise IHT – and one that is often over looked.

But what is classed as ‘income’? And what criteria will HMRC apply when accepting gifts out of income?

  • Normal income includes salaries and pensions – plus interest, dividends and investment income (including rental income and annuities).
  • The gift must be out of normal income and MUST leave the person fully able to maintain their usual standard of living, including luxuries such as holidays
  • The gifts must form part of a regular pattern or provide proof of a commitment (for example, the first payment of a life assurance policy).
  • HMRC will generally accept the expenditure as ‘normal’ if it happens three or more times.
  • Often mis-understood – the gift doesn’t need to be the same amount to the same person – it just has to be of a similar nature. For example, ‘every year I give 50% of my surplus income to family members.’

Gifts out of income are extremely valuable as there is no maximum amount (as long as they fit within the above criteria). They can provide substantial IHT savings and are simple – but they MUST be done correctly and well documented to ensure they don’t form part of HMRC ‘s IHT calculations.

Pavilion Row are specialists in Wills, probate and trusts. If you have any queries regarding the above or would like to understand more about how decisions made now affect what happens in probate please feel free to contact us.

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Budget 2013: Changes to the inheritance tax (IHT) nil-rate band are confirmed

21st Mar 2013
It was announced yesterday that the nil-rate band for IHT will be frozen until 2017/18. ...
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Budget 2013: Changes to the inheritance tax (IHT) nil-rate band are confirmed

21st Mar 2013

The Government announced in the budget yesterday that the tax-free nil-rate band for IHT, which currently stands at £325,000 (£650,000 for married couples & civil partners), will be frozen until 2017/18. This supersedes their announcement in the Autumn Statement last year that increased the level to £329,000 in 2015/16.

In addition the Chancellor announced plans to further stamp down on IHT avoidance schemes. HMRC will change the existing treatment of liabilities, setting new rules on when deductions would be allowable or restricting the deduction altogether so as to avoid any possible tax advantage. This measure is in support of the government’s anti-avoidance strategy.

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If you love me you’d make a Will!

14th Feb 2013
How many of us have said ‘I must make a Will’ but never got round to it. Better things to spend your time and money on, maybe? ...
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If you love me you’d make a Will!

14th Feb 2013

I’m sure not many of us have dreamt of our love one coming home tonight presenting us with their Last Will and Testament as a Valentines gift. However you could argue that this is one of the kindest, most thoughtful, considerate and selfless things that somebody could do.

How many of us have said ‘I must make a Will’ but never got round to it. Better things to spend your time and money on, maybe?

But a Will is not about you. You are not making it for yourself. It is about looking after the people you love when you are not around to do so.

You won’t be here to see the consequences of not making a Will but it can be painful.

When you die assets including bank accounts may be frozen
Not having a Will creates delays in sorting out your affairs during which time your money/assets may be frozen and nobody can access them. This can result with those left behind having to borrow money to pay for day to day bills and expenses.

Your partner may not inherit everything and in some cases may get nothing
If you do not leave a Will the law determines who inherits your estate – see our flow chart. If you are not married or in a civil partnership your partner will get nothing. If you have not got children it could be your parents, siblings or even aunts and uncles that inherit!

A claim may need to be made against your children
If your partner has received a reduced or no inheritance they will need to go to court to make a claim on your estate. The claim will be against the other people who benefit, including your children. Imagine that. A court case pitching mother or father against their children’s inheritance!

Failing to make a Will not only causes extra cost and delays it creates a huge burden and stress for those who are left behind at a time when they least need it!

Series: 6 Ways to Avoid a Probate Nightmare, Article: 2 (click here to read Article: 1)

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