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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  • Too many people die either without a Will or an out of date Will.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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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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