Probate News
Private Client Department

We have experienced members of the firm who can assist with Wills, Trusts, Capital Tax Planning, and Powers of Attorney.

Elaine Stacey has many years of experience in these matters and particularly in Probate and in Lasting Powers of Attorney (see below). Martin de Bertodano has been a partner in this firm (and its predecessors) for many years; he is now acting as Consultant, especially in Capital Tax planning for individuals and also in the drafting of Wills, an important process which is too often ignored. The team is completed by Jan Iwaniszyn who has been a valued member of staff for over 30 years, dealing with Wills and Probate, and with long experience running our Accounts Department. Jan is also a qualified Energy Assessor.

A recent survey by the National Centre for Social Research suggests that nearly two thirds of people who die in the United Kingdom, have made no Will.  In the absence of a Will the law prescribes a formula for division of assets; this is described in the next article “Intestacy”.  All too often that prescribed division does not accord with the wishes of the person who has died, let alone with the needs and expectations of the heirs. We strongly recommend each adult should do a will, whatever your age.

Intestacy

Background: This note is intended to comment upon new rules about intestacy, the situation which arises when someone (an “intestate” person) dies without having made a Will. Partial intestacy can arise if a valid Will fails to dispose of all relevant property. This note is intended to comment on changes in the law effective as at 1st October 2014.

Difficulties frequently arise upon intestacy, particularly when a married person dies intestate, leaving a surviving spouse. References to a spouse should be read as including a couple in Registered Civil Partnership (“RCP”).

The Inheritance and Trustees Powers Act (herein the “New Act”) became law on 14th May 2014, its provisions being effective from October 1st 2014 in relation to deaths on or after that date. Comments on the new provisions are highlighted below.

Old Law: Prior to 1st October 2014 following intestate death a surviving spouse was entitled to a statutory legacy of:

  1. (a) £250,000 (£125,000 for deaths before February 2009) if there are children (or remoter descendants) of the person who has died intestate; OR:

  2. (b) £450,000 (£200,000 before February 2009) if there are no such descendants.

Both before and after 1st October 2014 the surplus assets (over and above the statutory legacy) are divided into two equal half shares.

New Law: Under the New Act the statutory legacy to a surviving spouse or civil partner (under a Registered Civil Partnership is £250,000 whether or not there are descendants of the intestate person. The spouse or civil partner also inherits outright the chattels or personal possessions which are defined in the New Act as:

“tangible moveable property other than such property which consists of money or securities for money or was used at the death….only or mainly for business purposes or was held at the death…solely as an investment”.

Surviving Spouse or RCP: Prior to 1st October 2014 (contrary to widespread belief) the surviving spouse was only entitled to the whole estate (following intestate death) in the unusual event that the intestate person had left no parents, and that there are no living descendants of either parent of the intestate person. Under the New Act the surviving spouse inherits everything on intestacy unless there are children or other direct descendants of the intestate person.

First half share: After payment of the statutory legacy the surplus is divided thus:

Prior to 1st October 2014, the first half share of the surplus was held in trust, as a fund to provide income for the surviving spouse during lifetime. The surviving spouse was usually entitled to give up the right to this income in exchange for a lump sum. The capital of the income fund thereafter passed outright to the nearest blood relations as indicated at "The Second Half Share" below, subject to any Inheritance Tax (IHT) payable on the death of the surviving spouse. From 1st October 2014 under the New Act the surviving spouse takes this first half share of surplus outright – that is without any form of trust.

The second half share: Should this exceed the tax free band for Inheritance Tax (“IHT”) (presently £325,000) the second half share is likely to be reduced IHT on the death of the person who has died intestate. Both before and after 1st October 2014 (and subject to any IHT) this second half share passes immediately to the nearest blood relations – very often the children or remoter descendants; if there are no children (or remoter descendants), succession opened to parents, followed by brothers and sisters and their descendants. Before and after 1st October 2014 there are intestacy provisions which (in the absence of surviving spouse) enabled more distant classes of relation to inherit both shares in the absence of nearer classes; broadly speaking no blood relation might claim upon intestacy without showing shared descent from at least one grandparent of the intestate person.

Blood relations: Under the New Act the second half share of the surplus will pass at once to any direct descendants of the person who has died intestate. Remoter blood relations will not inherit, as (if there are no descendants) the surviving spouse will be entitled to both half shares anyway – see "Surviving Spouse or RCP" above. If there is no surviving spouse and no descendants, then under the New Act remoter classes of blood relation will be still be entitled to inherit – in the absence of a surviving spouse or descendants succession opens to parents, followed by brothers and sisters and their descendants. Before and after 1st October 2014 there are intestacy provisions which (in the absence of a surviving spouse) enable more distant classes of relation to inherit both shares in the absence of nearer classes; broadly speaking no blood relation may claim upon intestacy without showing shared descent from at least one grandparent of the intestate person.

Make a Will. The law obviously has to make provision for succession where there is no Will. Division along these lines suits very few even under the new Act.

TO AVOID DIFFICULTY, PLEASE CONSIDER MAKING A WILL TO INCLUDE PROVISIONS SUITED TO THE NEEDS OF THE PARTICULAR INDIVIDUAL OR FAMILY.

Supplementary. Under the relevant law (before and after 1st October 2014) the following points should be understood:

Where neither spouse (in a childless marriage) has made a Will the eventual result may benefit only the blood relations of the survivor. Should a surviving spouse die intestate without children or descendants, all property belonging to (and passing on) the death of that survivor will be inherited only by the nearest blood relations of that surviving spouse; this may well include property inherited by the survivor on the death of the first spouse. The blood relations of the spouse who died first will get nothing. Very rarely does an intestate person die without any qualifying blood relations; in that rare case property will pass to the Crown – equivalent to IHT at 100%!

The survivor of an unmarried couple has no rights upon the intestate death of the other.

Marriage (or RCP) almost always cancels a pre-existing Will but co-habitation (without marriage or RCP) does not (at present) cancel a pre-existing Will.

In the absence of marriage (or RCP) the survivor will get nothing under the intestacy provisions; in many cases, unmarried couples may have made separate Wills before partnership began. In those circumstances pre-existing Wills may well be valid; they will, almost by definition, rarely have made provision for the surviving partner.

Final Decree Absolute will effectively exclude each spouse from the Will of the other, but divorce does not otherwise cancel a pre-existing Will.

Children can inherit under intestacy; step-children inherit nothing under intestacy.

The moral of all this is: MAKE A WILL AND KEEP IT UP TO DATE.

Drafting of Wills and Powers of Attorney

Readers should be aware that the preparation of Wills and Powers of Attorney is not regulated in England and Wales; in other words anyone may prepare such a document for another person and charge for it. The work of qualified solicitors in these (and all other) respects is regulated by law. Readers should be on their guard against attempts by unqualified persons to obtain instructions for a Will.

In the absence of regulation it is impracticable for the customer to distinguish between good and bad unqualified Will drafters, some of whom are not covered by insurance, and some of whom disappear quickly from view. As was made clear on a Panorama programme in August 2010, expensive mistakes can be made; a low initial fee can conceal high hidden charges. We have heard of one case in which a couple was charged £25 a year for storage of Wills, a service which Pooleys provides without charge; worse still we have heard of threats to destroy Wills unless the charge be paid or the Wills be collected personally.

The moral is be on your guard and instruct only firms of solicitors with suitable expertise – such as Pooleys. After death, it is often too late to rectify incompetent drafting which is all too often found in Wills prepared by persons who are unqualified and unregulated.

Some of the Wills which we have seen (prepared by persons not qualified as solicitors) have left much to be desired. In one recent case the witnesses were not present together; the seven page Will was invalid. In another distribution of the estate was insufficiently detailed, leading to expensive efforts to trace the descendants of persons born over 100 years ago.

We are aware of a case in which a substantial “up front” payment was sought for an illusory guarantee that the payer’s executors would need to pay nothing after the payer’s death for full administration of the estate. We obtained full compensation for the victim from an appropriate insurance fund. If you have received an approach about such a matter ignore it; if you have actually made payment please contact us.

Asset Protection By Will

(for married couples or registered civil partners)

Advice is often sought about ways of sparing a family the cost of a parent’s long term care for which full payment is normally required. In general, should long term residential care in England be needed by an individual - often elderly and frail – the full cost will have to be paid by the resident; however once the resident’s assets fall below about £23,000, the state (usually local authorities) will assist with care costs, help being effectively means tested.

This note is intended to suggest how such assistance can sometimes be maximised to protect (for the benefit of heirs) assets against means testing. It is assumed that a husband and wife share ownership of their own home, and that they wish to make wills by which they leave as much of its value as possible to their children, or other chosen heirs; however the suggested scheme can be used to protect part of any shared assets for the benefit of heirs (whoever they may be) by any married couple – or any couple in registered civil (same sex) partnership. To use the trust route suggested in this note owners who share “jointly” must ensure that they become “common” owners. This is easily effected, as is shewn by the separate note “Shared Ownership” which appears later in this newsletter.

Each of the couple should consider creating (by Will to take effect on the first death) an arrangement whereby that half of the shared assets passing on the first death is held in trust for the lifetime of the surviving parent, whereafter children can be the outright beneficiaries. The surviving parent and some (or all) of the children can be included as Trustees. The terms of the trust should give to the surviving parent legal rights to occupy (rent free) a residence, to have proceeds of sale invested in another home, or to have the income from the proceeds of sale paid to the surviving parent. Properly arranged such a trust can preserve the exemption from Capital Gains Tax which presently applies to a tax-payer’s own home. A trust of this sort can preserve for heirs (without risk of erosion by care costs) the full value of that half share of the family home belonging to the first of the couple to die. The Trust can be constructed so as to leave open the option of terminating it during the lifetime of the surviving partner or parent; though this option is desirable, it should be exercisable only by the Trustees in that capacity - not at the behest of the survivor alone. Exercise of the option to terminate the trusts would require careful thought, as it is likely to destroy the underlying protection for released assets which would otherwise be given to the heirs by the Trust arrangement. The survivor can be given discretion to allocate the Trust’s assets (which have passed on the first death) between a defined class of persons, perhaps children or grandchildren.

The effect of a trust arrangement of this sort will be to protect from means testing the full value of the Trust asset, often the half share of the parent’s family home which has passed on the first death. The arrangement can preserve the trust asset (for children or other eventual heirs), however long the period for which the surviving parent may need full time care; this objective must be desirable, on the basis that “half a loaf is better than no bread”.

It should be remembered of course that the survivor of the couple will usually be the outright owner of the other half of the trust assets; that other half will be normally subject to means testing, so that the survivor pays for costs of care from it. It follows that a trust scheme of this sort, though available, is unlikely to benefit the heirs of a surviving parent who is outright owner of assets so ample as to cover all expected care costs. However it may be possible for the survivor to invest in assets which are themselves not subject to means-testing. We can put clients in touch with suitably qualified Independent Financial Advisors (IFAs) who can make appropriate recommendations.

Lasting Powers of Attorney

This note is intended to comment on the present facility to appoint another person to act for oneself, in such a way as to cover the possibility of losing mental capacity. Since 1st October 2007 a Lasting Power of Attorney (“LPA”), created under the Mental Capacity Act 2005, enables an individual (the “Donor”) to give appropriate powers to another person or persons.

(a) to deal (on behalf of the Donor) with property and financial affairs, thus avoiding obvious difficulties which can arise, for example arranging (or completing) the sale or purchase of a house should the Donor have become mentally incapable.

(b) to deal (on behalf of the Donor) with welfare matters such as medical treatment.

Age can lead to mental incapacity; it can also result from accident, hospital treatment or from any of the many other ills to which mankind is heir. Without an LPA mental incapacity can lead to real difficulties for the family of a mentally incapable person; these can often only be resolved by an application to Office of the Public Guardian (“OPG”) for the appointment of a deputy (formerly a receiver), an expensive slow progress.

It needs to be remembered that attorneys do have very considerable powers. It is important to choose trustworthy persons to act in that capacity. By LPA a Donor can appoint successor or alternate attorneys. As LPA powers cease immediately upon the death of the Donor, it may be sensible for a Donor to appoint as attorneys those persons who are to be Executors of the Donor’s Will.

The forms required for registration of an LPA (also with OPG) are lengthy, ten pages for each form. The OPG often finds that the forms have been filled in incorrectly; to avoid difficulties and to discuss the forms contact Elaine Stacey on 01793-488848 or by email at Elaine.Stacey@pooleyssolicitors.co.uk

P.S. Please note that it is no longer possible to create an Enduring Power of Attorney. Should one have been completed before 1st October 2007, it will continue to be effective after that date. A properly completed Enduring Power of Attorney will still enable the Attorney to deal with financial matters (but not welfare matters) even after 1st October 2007.

Inheritance (Provision for the Family & Dependents) Act 1975 (‘the Act’) Ilott-v-Mitson and others (2015) EWA797

This note is intended to comment on the Court of Appeal decision in July 2015 in this case, brought under the Act. The Court was required to decide whether a testator acted reasonably in excluding her only child from benefit.

A. CHILDREN: The case arose from the Will of the late Mrs Melita Jackson who died in 2004 leaving her whole estate (about £480,000) to charities with whom she had no known connection. She left nothing to her child Heather Ilott, from whom she had been estranged since 1978, when the daughter (then aged seventeen) left home, without Mrs Jackson’s knowledge, to live with Nicholas Ilott by whom she had five children. There had been three unsuccessful attempts at reconciliation. Mr Ilott knew that she would be left nothing in her mother’s Will.

When matters came before the various courts Heather Ilott was living in a council house in straightened circumstances. Earnings were small but supplemented by state benefits, the greater part without means testing of capital, but also some fully means tested housing benefit.

With her Will Mrs Jackson left a letter including the following:

If my daughter should bring a claim against my estate I instruct my Executors to defend such a claim as I can see no reason why my daughter should benefit in any way from my estate.

The first Court to deal with the matter held that the mother had acted in an unreasonable capricious and harsh way towards her daughter, but that both sides were responsible for the failure of the attempts at reconciliation. Mrs Ilott was awarded £50,000 which was insufficient to house her, but sufficient to disqualify her from means tested housing benefit.

On appeal the High Court refused to award Mrs Ilott anything. On further appeal to the Court of Appeal that Court stated that Mrs Ilott was entitled to a payment, referring the matter back (for decision on the amount) to the High Court which then restored to Mrs Ilott the original £50,000. Upon further appeal to the Court of Appeal that Court awarded her (in July 2015) £143,000 to enable her to buy her council house, as the value of the house would not be means tested, and the effect on her family’s overall income would be slight.

Clients are frequently advised, when excluding one potential beneficiary, to leave an explanatory side letter. A letter of this sort can be considered by a Court in relation to an application by a disappointed beneficiary. However, unless the letter shows really substantial reasons, it may do more harm than good. In the recent case the courts felt that the mother Mrs Jackson was more to blame for the estrangement than the daughter Mrs Ilott. Indeed the recent attempt at reconciliation (which followed a causal chance meeting) had broken down because Mrs Jackson took offence that her daughter’s fifth child had been given the name of Mrs Jackson’s own mother-in-law whom Mrs Jackson did not like.

The question for us, in advising clients, is how far testamentary freedom to dispose is reduced. The recent case concerned an adult child on state benefits. If a testator has children who are all in gainful employment (without being in straightened circumstances) the testator probably remains free to distribute the estate as he or she chooses. The estate is likely to be a risk when there are disappointed applicants (children or otherwise) whose standard of living falls below what is reasonably required for maintenance. The recent case shows however that a potential beneficiary’s ability to live within existing income does not have any bearing.

A Will-making client may wish to exclude one of a class of potential beneficiaries, e.g. a child. Such a client should be asked to consider carefully how far a child who is to be disinherited is to blame for estrangement. Mrs Jackson’s letter simply stated that she saw no reason why her daughter should benefit – clearly insufficient. It will usually be sensible to state (perhaps in a separate letter) the reason for giving benefits elsewhere e.g. to children who have been supportive. Bear in mind however that an inadequate letter may do more harm than good!

B. SURVIVING SEPARATED SPOUSE: The estate of a deceased client separated (but not divorced) from a spouse may be in real difficulty if no provision is made for that surviving spouse, especially if the Will-making deceased spouse is already maintaining the other one. It should be borne in mind that under the Act a surviving spouse is more generously treated than anyone else – children or others. A side letter should be considered, explaining the circumstances – for example that the separated spouse is being supported by someone else.

C. COSTS AND DELAY: A Will-making client should perhaps also be reminded of the cost of litigation and the appalling delays that it can impose upon the testator’s intended beneficiaries, even if they succeed in fighting off a claim. In the case of Mrs Jackson’s estate almost one-third was awarded to her daughter. It is improbable that (even ten years after her death) the charities will benefit by very much, once the remaining two-thirds of the estate has paid all the costs of the initial hearing and two High Court appeals followed by two appeals to the Court of Appeal.

As will be seen from the foregoing the legal position is uncertain.

Pooleys will be happy to advise on individual cases.


MdeB

POOLEYS SOLICITORS LLP – JANUARY 2016