Wealth Management

UPDATE – The MOJ have on the 21st April 2017, scrapped the proposed increase in probate fees. Whether this remains the case after the election is still to  be decided. 

The MOJ have recently announced a proposed increase in probate fees, despite strong objections from the legal profession.

The new proposed fees are to be based on the value of the estate left by an individual in their will, and will be set out in the following sliding scale:

Estate Value                                                      Proposed Fee

£50,000                                                                £0

£50k- 300k                                                           £300

£300k -500k                                                        £1,000

£500k- 1 million                                                 £4,000

£1m- 1.6m                                                           £8,000

£1.6m – 2m                                                         £12,000

£2m +                                                                    £20,000

The current fees are £215 or £155 for those applying through a solicitor.

It has been argued that the new sliding scale system is fairer, with the lower value estates being removed entirely from paying any probate fees. However with no set implementation date, solicitors and individuals alike who are dealing with high value estates, will likely be looking to ensure that all applications are submitted before the relevant date in order to avoid the hike in fees.

Solicitors with outstanding probate applications, will also need to ensure that there is no delay on their part in filing the relevant application, in order to warrant that no allegations of negligence arise.

In March 2017 the Supreme Court handed down judgment in Ilott v The Blue Cross and Others in the first case under the Inheritance (Provision for Family and Dependants) Act 1975 (IPFDA)  to reach the highest court.

This was an appeal that arose out of a claim for reasonable financial provision under IPFDA brought against the estate of Mrs Jackson by her daughter Mrs Ilott. The pair had been estranged for the majority of the 26 years before Mrs Jackson’s death in 2004. The estrangement began when the daughter left home to live with her boyfriend, now husband when she was 17. Mrs Ilott has lived independently of her mother with her husband and five children but in challenging financial circumstances and receiving benefits of an annual income of £20,000.

Mrs Jackson did her last will in 2002 bequeathing the majority of her estate to a number of animal charities and made no provision for her daughter. Even in 1984 Mrs Jackson had made no provision for her daughter in her will and Mrs Ilott knew this and had no expectation of benefit from the estate.

The District Judge found that Mrs Jackson’s will did not make any reasonable provision for Mrs Ilott and awarded her £50,000. The charities who were beneficiaries in the will challenged the finding that there was any lack of reasonable provision but that challenge failed and the dispute has proceeded on the quantum awarded to Mrs Ilott.

In the Court of Appeal, the Judges decided that the District Judge had erred on two points in his calculation:

1. Initially he held the award should be limited in light of the long estrangement and lack of expectation of benefit but did not identify what the awared would have been without these factors and the reduction attributable to them.
2. He made his award without knowing what the effect would be on Mrs Ilott’s benefits, some of which would be means-tested and would not be payable once Mrs Ilott’s savings were over £16,000

The Court of Appeal re-evaluated the claim and awarded Mrs Ilott £143,000 to buy her house and an option to receive £20,000 in one or more instalments to prevent the awards affecting Mrs Ilott’s benefits’ entitlement.

Judgment of the Supreme Court

Overturning the Court of Appeal’s judgment, the Supreme Court unanimously allowed the charities’ appeals and set aside the Court of Appeal’s order and restored the District Judge’s order of £50,000.The kernel of the decision was that the Court of Appeal had no proper basis for interfering with the judgment made by the District Judge and that the broad brush approach adopted by the District Judge was correct. The Supreme Court emphasised the importance of limiting awards to adult children to “maintenance”, highlighting that the purpose of the Act was NOT to provide legacies to an applicant. Reasonable provision for maintenance does not mean providing everything that the applicant reasonably needs but requires a single assessment by the judge and this assessment may be weighted by any of the factors in section 3 of the IPFDA, including estrangement; here the circumstances of the relationship  and estrangement between Mrs Ilott and Mrs Jackson carried weight.

Conclusion

Lady Hale in her judgment reviewed the history of the Act and preceding legislation, commenting on the unsatisfactory state of the law where it gives no guidance as to the weight of the factors to be taken into account in deciding whether an adult child is deserving or undeserving of reasonable maintenance. At the moment, the approach is of a value judgment which could be problematic as there are wide varying opinions in judiciary and public opinion as to the circumstances in which adult descendants ought or ought not to be able to claim on an estate.

The case of Abingdon Health Limited v HMRC involved the First-tier Tribunal considering the requirements for qualifying for relief under the enterprise investment scheme (EIS).   EIS is essentially in place to encourage investment in smaller or high risk companies by providing significant tax relief to investors.  To qualify a company must have no more than 250 employees and gross assets not exceeding £15 million immediately before the share issue.

The case considered the provisions of the Income Tax Act 2007 regarding one of the clear conditions for tax relief that the EIS shares must not carry any preferential rights to company assets on a winding up.   In this case the Tribunal decided that there was such a preferential right carried by the ordinary shares due to the creation of a new class of “growth” shares. As a result the Tribunal agreed with HMRC’s position to refuse the issue of a compliance certificate in respect of the third issue of ordinary shares, and furthermore to withdraw relief in respect of the first two issues of ordinary shares.   This is a reminder as to the need to ensure that the company’s articles of association and the issues of shares, including any share restructuring, comply with the EIS legislation and HMRC guidance in order to obtain the tax relief for the investors.

Careful preparation for end of life is required to provide peace of mind for yourself and your loved ones, that your wishes will be respected after you have gone. A Will clarifies what happens to your assets after you die, who will receive what, when they will get it and it can also include details on how these assets are managed. If you do not make a Will, your property will be shared out according to certain rules. These are the rules of intestacy, and they may not give you the result that you would wish for. A properly drafted Will ensures that any gifts you wish to leave are given to the correct beneficiary. Without a Will, it may be legally necessary to sell items or could even lead to a family dispute.

With more unmarried couples living together, it is important to ensure that your partner will not be at risk should you die without a Will. The issue here is that the Intestacy Rules do not provide for cohabitees. These relationships do not have legal recognition and a ‘common-law’ partner has no automatic right to your possessions following your death. We can help tailor your Will to suit you.

Have you recently reviewed your will?

Not only should you make a Will, it is important to review your Will regularly and ensure it still reflects your wishes.

What could need to be updated?

1. Changes in your relationship or family deaths:

If you have had further children or grandchildren, then you may wish to change or update your Will accordingly. If you have married, remarried or registered a civil partnership then your Will is void. If you have got divorced since you last signed a Will, your Will is not void, however your ex partner will not usually be able to claim anything after you have gone. You should consider making changes to your Will however as ex-partners can contest Wills if they are still mentioned in them and this way it can avoid disputes.

2. Changes in assets:

If you no longer have the assets previously gifted in your Will or you own new ones since your Will was made, a new Will should be made.

3. Your Spouse passes away:

If a spouse were to pre-decease you, you may wish for your assets to go to another relative. You may also wish to distribute your assets in a different manner.

From the 1st October 2015, a creditor wishing to petition for an individual’s bankruptcy will need to be owed at least £5,000, rather than the £750 threshold that it has been for many years. No doubt this increase will have a significant impact on being able to recover smaller debts that will no longer contain the threat of bankruptcy proceedings.

This does not yet apply to petitions for a company insolvency where the threshold currently remains at £750.

A Lasting Power Of Attorney (LPA) allows to appoint one or more persons as your ‘attorney’.  They will have authority to act on your behalf where you have lost mental capacity, and/or are unable to make decisions at the time they need to be made.  There are 2 types of LPA:

Health and Welfare:

This gives your attorney(s) authority to make decisions about things like:

• your daily routine, e.g. washing, dressing, eating
• medical care
• moving into a care home
• to give or withhold life-sustaining treatment

It can only be used when you’re unable to make your own decisions.

Property and financial affairs:

This gives your attorney(s) the power to make decisions about your money and property, for example:

• managing a bank or building society account
• paying bills
• collecting benefits or a pension
• selling your home

Mental capacity does not have to have been lost here, and the LPA is useable by your attorneys post registration with your permission.