Professional Partners
We are particularly adept at providing generous support to financial advisers, wealth managers, accountants and their clients.
Please contact Lucy Thomas for an informal chat at lucy.thomas@legalmatters.co.uk or by phone on 01243 216901.
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Professional Briefings
Home sweet home…
“We have heard about this new scheme as a really great way of saving inheritance tax/avoiding probate fees.”
This sounds brilliant! What kind of plan is this? We’re all ears.
“All we need to do, is simply transfer our home into the names of our children and place it into trust”.
Oh.
This is a conversation that we are having more and more frequently these days. Whilst we are confined to the terms of current legislation, there will always be practitioners and advisors (and otherwise….) looking for more creative ways of apparently saving you time and money. And naturally, there will always be an appetite from clients to find ways to make their lives easier and more tax efficient.
How we truly wish that there was such a simple answer.
We at legalmatters confess to not being fans of this sort of lifetime gifting of property (also known as ‘home protection plans’ or occasionally ‘asset protection trusts’).
It may well be that, despite the advice to the contrary, the client’s circumstances and desires are such that this is something that could work for them. That is ultimately their choice. However, we have a responsibility to explain the pitfalls of these arrangements to avoid any costly regrets later on.
So why would a client look to give their home away? Often the driver behind this is to protect their children’s interest in the property and to ensure that the property will always be there for them to inherit.
Awkward Conversations
One of the main issues to consider is what would happen if the client’s children had a difficulty in their own relationships (either with a partner or spouse – or with each other). Family relationship breakdowns can leave the client vulnerable. Although the trust would carve out an interest for the client, the more obvious point is that this creates a very difficult dynamic within the family if there were to be a relationship breakdown of any kind. If the children (or their other halves) had a problem with any kind of debt or were maybe even facing something as significant as bankruptcy or divorce, then again their best intentions may be compromised.
Essentially, on paper the property is no longer the client’s and now belongs in the hands of trustees i.e. their children who are then going through that financially difficult period in their lives – all of which creates stress for the family as a whole.
Care home fees
People often cite protection from care home fee assessment as the driver to put their property into this kind of trust. However, the whole care fees funding situation is under review and we are promised a new Care Act shortly. Although we don’t yet know the detail of this, there is likely to be a cap on the amount of fees that any individual has to pay for their own care. This again brings into question whether or not an individual should even consider this sort of trust –especially as their home will often represent the major financial asset of their estate.
Not to mention the possibility that the transfer of an asset to a trust would be classed by the local authority as ‘potential deprivation of assets’. If the local authority chooses to treat the transfer as that (and they are robust and aggressive in their approach) then the risk is that the gift of property into trust would be clawed back and the whole exercise would been worth nothing – and would have cost several thousand pounds to boot.
The main issue is the question of why you would choose to give away your main asset and not give yourself the chance of getting the highest possible standard of care. Local authority care homes are not particularly nice places to be and if we were advising our own parents, the last thing that we would be saying would be to suggest they do anything that prejudices their ability to afford the highest possible standard of care.
Families often say to us that if a parent (as the former co-owner of a property) needed to go into care then the children / beneficiaries of the trust would top up the care fees and ‘do the right thing’. There is of course no guarantee that that would happen and indeed children may not be able to contribute financially in that way even if they wanted to.
Independence
Being in control your own destiny is also important, no more so than when a spouse has passed away. The structure of the asset protection trust is such that the client wouldn’t own their own home anymore and this is a very difficult thing for people to comprehend; it has always been their property and now it is not.
If the aim is to support your children in financial terms then there are better ways of doing this for example via lifetime gifts. The gift of a property into one these ‘asset protection trusts’ does not work for inheritance Tax planning purposes.
Practicalities
On a practical level, other things that need addressing when people place property into trust like this are ‘where will the maintenance fund come from to cover insurance repairs?’ Who would pay for that? Is that you or is that the trustees? Do you want to be going cap in hand to your children?
Trusts are also living and breathing things and they need active management and this means two things; administrative hassle and legal fees! At the very least, HM Revenue & Customs would need to be notified that the beneficiaries of the trust are declaring the income on their own tax return.
Finally, what would happen if you wanted to get out of the arrangement? The trust terms are such that an individual could, but the trustees have to consider why the trust was created in the first place and they have to balance the needs of all beneficiaries. Even if an independent professional trustee was appointed, they would still need therefore to consider the other beneficiaries (i.e. the client’s children) and their own situations – which can lead to a conflict if their interests don’t match.
In our view, the risks and cons far outweigh the potential advantages of placing your property into one of these asset protection trusts.
For that reason, we would rather therefore recommend alternative routes such as properly structured Wills or carefully planned lifetime gifting.
For help with your clients wishes, call us on 01243 216900 or email us at info@legalmatters.co.uk.
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X marks the spot: Legacies outside the box…
Having been raised on a televisual and literary diet of capers, adventures and swashbuckling, we at legalmatters remain slightly disappointed to find that the amount of Will legacies involving treasure maps are rather thin on the ground. Setting aside the compliance and logistical headaches, we have always been a fan of a deceased individual setting out a series of tasks, each one more cunning than the last, in a bid for their relatives to race against the clock to discover their worldly goods buried in a field just outside of Totnes, or similar.
Now with around 60% of the UK population currently without a valid Will, that leaves a hefty chunk of UK citizens with no clear instructions as to what happens on their death. If you are one of this majority, perhaps you are looking for some inspiration. Maybe the traditional “all to spouse and then to my children” route is not for you. Well whether it’s non-standard gifts, or unusual methods of dispatch, we have collated some of the more colourful published Will terms out there as food for thought.
Lis-bon vivant
As near to film-script worthy as we have come across, is that of the fabulously named late Portuguese Aristocrat Luis Carlos de Noronha Cabral da Camara. The childless bachelor randomly picked 70 names from the Lisbon phone book to be the beneficiaries of his considerable estate.
Determined that nothing should go to the state, the ‘wealthy loner’ left his 12-room apartment in central Lisbon, a house near the northern town of Guimaraes, a couple of healthy bank accounts, a luxury car and two motorbikes to be divided amongst his random heirs in 2007. Each walked away with several thousand euros worth of legacy.
Hair Apparent
Wealthy Brixton resident Henry Budd left the sum of £200,000 in trust for his two sons Edward and William back in 1862. The overriding proviso being that neither of them grow a moustache or their inheritance would be forfeited.
That same decade, a Will prepared in for a Mr. Fleming, an upholsterer of Pimlico, left £10 each to each of his male employees that did not sport moustaches. Those who persisted in wearing the facial hair would see their legacy reduced by 50% to £5 each.
Staying with the theme of the pursuit of the hirsute, Napoleon Bonaparte‘s last Will and Testament directed that his head be shaved and his hair be distributed among his friends. Whilst not exactly the most traditional of gifts, should any of the original recipients have kept hold of their bequests, they may be more generous that initially thought. A lock of the ex-Emperor’s hair found in a house in Camberley, Surrey sold at auction in 2005 for £9,000 (including auction fees). That same year, a single strand of hair from Napoleon’s head, sold for £130 at auction in Dorset.
One man’s Treasure
Scottish Novelist and Victorian teller of tales, Robert Louis Stevenson left a jewel of his own to his good friend, Annie Ide. The Treasure Island and The Strange Case of Dr. Jekyll and Mr. Hyde author bequeathed his very own birthday of 13 November. Annie’s fell on 25 December, Christmas Day and she had always felt cheated. The great man himself died in 1894 whilst struggling to open a bottle of wine with his wife on the island of Samoa. There are surely worse ways to go…
Floral Tribute
Celebrated Comedian and Actor in the 1930-60’s, Jack Benny, was also a true romantic to the end. Following his death in 1974, he directed in his Will that a large sum of money was left to a local florist. However, the Will went on to stipulate that the florist was to send a single long-stemmed red rose his wife of 47 years, Mary Livingstone, every day for the rest of her life. By the time Mary died she had received over 3,000 red roses.
Gallows’ Humour
And to end on rather an uncharitable note, a list compiled by London genealogists Fraser and Fraser ranked the Will of Annie Langabeer as being number one for most bizarre legacies. On her death in 1932 at the age of 59, she left her brother-in-law Daniel Jones, 2shillings and 6d to buy a rope to hang himself with.
It should be noted that not all of these requests were successfully carried out. If you would like advice for drawing up yours or your clients’ wishes, do get in touch with one of our solicitors who would be delighted to help enshrine your wildest dreams (where legally possible)! Call us on 01243 216900 or email us at info@legalmatters.co.uk.
For more like this, Follow Us on LinkedIn or sign up to receive “legalnatters” direct to your mailbox. Launched in September 2017, “legalnatters” – designed specifically for our Professional Partners – is our regular news, views and updates service.
All Power Corrupts?
Lasting Powers of Attorney (LPAs) have been getting their fair share of column inches this summer, mainly due to well publicised comments from former Senior Judge Denzil Lush made last month on BBC Radio 4 (if there ever was a better name for a Judge then legalmatters has yet to hear it).
Following on from his retirement from the Court of Protection (COP), Judge Lush recently shared his views that LPAs were fraught with opportunities for abuse. Specifically, he commented that due to the ‘devastating effect’ it can have on family relationships, he would never choose to sign an LPA himself but rather would instead prefer the costly alternative of a court appointed Deputyship.
LPAs enable a trusted individual to make decisions on behalf of someone who is unable to do so or has lost mental capacity. They can be a vital element of later life planning when considered and drafted effectively, providing peace of mind for those who need it the most.
After 20 years at the coalface of the COP, Judge Lush is undoubtedly one of the most respected figures in the profession (and, as it happens, a thoroughly nice chap) but whilst his comments are certainly food for thought, it is important to consider them in context.
In light of the 2.4 million LPAs registered in England and Wales, around 6,000 cases concerning abuse have been brought to the courts; a comparatively tiny proportion. Having spent two decades dealing with the fallout of family disputes and fraudulent behavior, Judge Lush is understandably cynical of the process, in the same way that very few Personal Injury lawyers cycle a pushbike to work. They are more wary than anyone of the risks and consequences.
But to discount LPAs entirely is unhelpful and unfair. With the risks he highlights, there are also great benefits for vulnerable individuals of any age, providing them with both stability and peace of mind knowing that decisions will be made by someone that they trust.
It seems instead that rather than throw the baby out with the bathwater, the issue is perhaps not ‘don’t appoint an attorney’ but instead ‘don’t appoint the wrong person as attorney’. If an individual does find themselves in a position where they do not have an appropriate (and above all, trusted) friend or family member to appoint, there is always the option of appointing a professional attorney to undertake that role in any case.
LPAs are important documents delegating major powers and should not be taken lightly.
The relaxing of the safeguards that were previously in place have undoubtedly exacerbated the issue of misuse. But this just strengthens the argument that these types of documents should be implemented with proper qualified, regulated, legal advice.
Rather than focus on the negatives of the LPAs, it has instead been suggested that the public should be educated as to their importance. Whilst their negative impact will often make headlines (goodness only knows the Daily Mail loves a scoop), cases arise every day where an LPA could have prevented a dispute ending up in court. Increasing awareness would improve attitudes towards later life planning, as well as encouraging people like you to understand the role of an attorney. In turn, this would lead to greater and more careful contemplation when you come to making the decision, therefore reducing the risk of problems arising in the first place.
The most effective way to ensure that you’re making the right decision is to seek professional advice. Not something that can be rushed, LPAs require careful consideration and will be unique to the circumstances of the individual, accounting for specific needs and requirements.
The cynical among you may find it interesting to learn that these comments were made in the foreword to his new book on the subject. Reports that his next publication will be called ‘Crystal Ball and other reasons why I don’t need a Will’ are yet to be confirmed.
As professionals, Accountants, Financial Advisers and Wealth Managers are often asked for advice which may be outside their area of specialism. As well as guiding you through the process, talking to an expert at legalmatters can help clear up any concerns you or your clients may have.
Working collaboratively and effectively with Accountants, Financial Advisers and Wealth Managers is a key aspect of the legal services that legalmatters provides. We believe that clients benefit greatly from combined financial and legal advice.
For more like this, Follow Us on LinkedIn, or if you have an immediate query, call us on 01243 216900 or email us at info@legalmatters.co.uk.
Winter is coming; be prepared. The legal lessons we can learn from Game of Thrones…
As Game of Thrones season 7 is fully underway, the shenanigans of the inhabitants of Westeros are attracting viewers in record breaking numbers. Whether or not this fictional romp of dragons, zombies and war is your cup of tea, once you remove the fantasy element, you are left with the very bread and butter of a private client practitioner’s workload; family relationships, wealth and death. A tenuous link? Perhaps, but undoubtedly these universal themes are very much at the heart of both worlds.
Admittedly, the level of death is a little more frequent and varied than the average probate practitioner’s workload. Her Majesty’s Courts and Tribunal Services have a difficult enough job processing paperwork without having entire family dynasties wiped out in one fell swoop (one can only imagine the Oath drafting…)
But on a serious note, the programme highlights that death will not always present itself in the chronological order of a family tree. Even despite the wealth of information in the public domain, we are still faced with clients who do not have a Will as they believe their wealth will automatically be inherited by their children on their death. The Intestacy Rules will only go so far in handing down your estate to your lineal descendants but, of course, there is so much more to a Will then simply enshrining this course of events.
Warring offspring? Dubious marriage choices? Unruly illegitimate children? All in a day’s work in the Seven Kingdoms yet in the real world, these issues are just as much cause for concern for our clients today. If you are worried about protecting the family wealth (however big or small) correct estate planning can prepare for such eventualities and ring fence funds for your intended recipients without the worry of funds falling into the wrong hands.
Indeed, so many of the show’s main conflict points could have been easily avoided and managed had the characters’ legal affairs been put in order.
Had the ‘Mad King’ been furnished with a fully registered Lasting Power of Attorney, then his appointed attorneys could have stepped it at the first sight of faltering capacity and a much cheerier (and less bloody) outcome could have been achieved by all.
A Lannister always pays their debts, and loans and gifts are indeed an excellent form of estate planning if done in the right way. A flexible family trust is a great way of allowing for loans and repayments to be made to and from the family pot of money. Running out of blood descendants? A trust also allows for the person setting it up (the ‘settlor’) to add friends or charities into the mix.
There is certainly a stark solution for making provision for ‘blended families’ (with children born from different relationships) in a straightforward manner, without having to lose your head.
Whatever your family situation, legalmatters will find the right solution for you to ensure that your death does not leave any nasty surprises for those left behind.
An appropriate, professionally prepared and properly executed Will can provide security for your family, during an already emotional time. There is a time and a place for drama and conflict, and your death shouldn’t be one of them. Make a Will, make your wishes clear, because goodness only knows transferring the ownership of a dragon is an administrative nightmare at the best of times!
As professionals, Accountants, Financial Advisers and Wealth Managers are often asked for advice which may be outside their area of specialism. As well as guiding you through the process, talking to an expert at legalmatters can help clear up any concerns you or your clients may have.
Working collaboratively and effectively with Accountants, Financial Advisers and Wealth Managers is a key aspect of the legal services that legalmatters provides. We believe that clients benefit greatly from combined financial and legal advice.
For more like this, Follow Us on LinkedIn, or if you have an immediate query, call us on 01243 216900 or email us at info@legalmatters.co.uk.
LPAs and clauses to enable discretionary management of funds
Are you able to continue to manage your clients’ assets in the event of their mental incapacity? Do you know what you should be looking for in a Lasting Power of Attorney (LPA) for Property & Finance in order to ensure that you and your client can avoid costly court applications?
What’s the problem?
Controversy currently surrounds whether express instructions need to be contained within a Property & Finance LPA where your client has (or may in the future have) funds managed by a discretionary fund manager (DFM). A recent case involving HSBC has highlighted the problem and has led to guidance from professional commentators to say that, if the Bank can cause an issue with it, then there is every chance that we could have similar problems with other DFMs.
The issue is that an LPA without express provision carries the risk that DFMs may not be able to make discretionary investment decisions without an application to the Court of Protection. This is because (in the absence of express power in an LPA) only attorneys can make these decisions and they cannot delegate them.
Action
We recommend a careful review of all existing LPAs to make sure that there is a clear basis for a DFM’s appointment. The guidance we have had is that a DFM should only accept engagements where this is the case.
Some financial organisations have taken a formal line and have their own specific wording, which is fine if you know where the investments are at the time and also if you can be sure they will never be moved. For example, HSBC came up with wording but it was very specific to them.
Our suggestion
Therefore, we are warned to be mindful to check with any current DFM to see if our proposed wording (below) will be sufficient or if they have other requirements.
Recommended wording is:
“My attorney(s) may transfer my investments into a discretionary management scheme, even though this means that investment decisions will be made by the managers of the scheme and my investments will be held in the name of the managers of the scheme or their nominees. Alternatively, where prior to my loss of mental capacity to make financial decisions, I already had my investments managed in a discretionary management scheme, I want the discretionary management scheme to continue, even though this means that investment decisions will be made by the managers of the scheme and my investments will be held in the name of the managers of the scheme or their nominees.”
What if there is no relevant provision in your client’s LPA?
There are of course lots of LPAs out there with no such provisions about discretionary fund management. The question therefore is will the DFM be able to continue to make decisions? Different organisations have different approaches and it may be that some are not bothered by the absence of the express power (but if LPAs without express powers have been accepted by DFMs then we would suggest that it is more by luck than judgement!) Worse still, an unhappy beneficiary of the donor’s estate may challenge the action of the attorney for not considering the risks.
If a DFM refuses to accept an LPA without sufficient powers, then the next steps depend entirely on whether or not your client still has mental capacity:-
- If they do, they should be advised to revoke the earlier LPA and re-make it. The downside is that there are additional fees for drafting the replacement as well as the additional registration fee (£110) payable to the Office of the Public Guardian (OPG) on registration.
- If they don’t, a Court of Protection order will be needed.
Best practice
The reality is that we know about the case with HSBC and both the OPG and the Society of Trust and Estate Practitioners (STEP) have produced guidance, hence the profession should be alive to it. Our point is that firms shouldn’t just draft the LPA blindly with nothing in the instructions paragraph – they should at least consider whether or not these kinds of clauses (and indeed any others) should be included. This is where we add value in providing cost-effective, yet robust and bespoke services to your clients. Making an effective and useful LPA is about more than simply typing in names and addresses.
Until more is known, ‘best practice’ for practitioners is to take a pragmatic approach and to follow such practice notes and guidance as are recommended by the OPG and STEP.
Conclusion
The risk with all of this is that if the LPA doesn’t contain the right powers the fund manager could reject it and then a Court of Protection order would then be needed – with the subsequent costs, delay and potential financial loss while the attorney is unable to delegate those functions to the DFM. Without a prudent approach, lawyers, advisers and even attorneys could find themselves at risk of non-compliance and negligence.
If you have clients who you need assistance, we are happy to help. Please contact us at legalmatters on 01243 216 900 or lucy.thomas@legalmatters.co.uk.
