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Probate and Trusts Management expert update

Date: 18 Nov 2012

Citywealth

Nothing is certain but death and taxes said Benjamin Franklin in 1817 which is an oft repeated phrase but for wealth advisors involved with probate and trust management, there is a great deal of uncertainty circling the topics. There have been stories about Arabs not making wills because they believe their religion has automatically dictated their inheritance requirements. They then find, after long stretches in the UK and patriarchal death in the UK, that their estates may be subject to UK law and duties. The area has a lot of uncertainty. Citywealth decided to investigate the world of probate and estate management to see what issues are live and what our experts think about them.

Q&A style. Contributions from: Clare Archer, Partner, Penningtons Solicitors LLP, Jonathan Condor, Partner and Head of Private Clients, Macfarlanes LLP; Chris Groves, Partner, Withers LLP and Julia Abrey, Partner, Estates, Succession and Trusts, Withers LLP.

What do you think about the impact of the proposed reforms to the intestacy rules under the draft Inheritance and Trustees’ Powers Bill, and the draft Inheritance (Cohabitants) Bill to give unmarried couples greater rights of inheritance?

Clare Archer, Partner, Private Client, Penningtons Solicitors LLP, “The proposed changes in legislation would appear to reflect the public’s desire for unmarried partners to be given rights at law in the event of an estate being intestate rather than having to resort to making an inheritance act claim. One often hears reference to someone being “a common law spouse” but that has no meaning in law; perhaps until the introduction of this type of legislation.‚Äù

Julia Abrey, Partner, Estates, Succession and Trusts, Withers LLP, “The current intestacy rules have not kept pace with changes in family structures. The proposed changes will recognised that families now exist in a wider range of forms. The reforms will allow couples who are not married to each other to be clear what their position would be when one of them dies. Robin Paul, one of the UK’s leading probate lawyers and a partner of Withers LLP, was a member of the Law Commission committee which considered the scope of the current intestacy rules and recommended changes.‚Äù

Jonathan Condor, Macfarlanes, “The new laws are helpful and surprising respectively.‚Äù

Do you think the introduction of the new Statutory Residence Test will be of benefit to clients and bring additional certainty as to whether they are resident in the UK for tax purposes in any tax year?

Clare Archer, “Due to the detailed concerns raised during the consultation period, the Statutory Residence Test which was due to be introduced in the Finance Bill 2012 has been delayed until 2013 and is due to come into effect from April 2013. The profession seems to be divided as to whether the delay is regrettable or not, but clearly the aim must be to refine the drafting rather than to rush the legislation out. It does, however, leave advisors in the difficult position of telling clients not only what the current position would seem to be but also the anticipated legislation which may, of course, be subject to further change. The Government is increasing introducing legislation which is effective from a certain date, say, Budget day or 6 April, but the wording of the legislation is not available in either draft form until the Bill is produced at a later date or in final form until the Act is produced some months after the provisions take effect. This practice makes it very difficult to advise clients in the intervening period and does not assist with the general tenet that tax law should be certain.‚Äù
Julia Abrey, “The Statutory residence test will be an extremely welcome move, finally correcting the state of affairs whereby it was not possible to advise a taxpayer definitively on whether or not they were resident and which the Committee on Codification of Income Tax called ‘intolerable’ in 1936. It will be particularly welcome to those who wish to establish a presence in the UK, without becoming resident and for those who wish to leave, without seeking to significantly change the substantive rules that currently determine residence. It is perhaps the best example of sensible tax simplification so far.‚Äù

Jonathan Condor, “Yes it is welcome but I think it can be better.‚Äù

Do you agree that there isa need for a General Anti-Abuse Rule to deter abusive tax avoidance schemes?

Clare Archer, “There are real concerns in the profession whether a General Anti-Abuse Rule will be limited appropriately or whether it may inadvertently catch individuals or companies who are legitimately attempting to organise their affairs in a tax efficient way. I tend to act for families and individuals and I have seen their ability to plan for the benefit of their families over the years to be limited by successive Finance Acts, some of which provisions have been penal in their effect. I have concerns as to whether there is a need for such a Rule, as opposed to relying on the wealth of legislation currently on the statute books. Sadly most attempts in recent years to simply tax legislation as tended to make it more complicated and indeed longer.‚Äù

Chris Groves, Partner, Withers LLP “The prevailing mood of the public, press and parliament is clearly set against what George Osborne regards as “morally repugnant‚Äù tax avoidance. For taxpayers the chief difficulty has been the increased keenness for the judiciary to take account of this mood in decision making and to develop a judicial anti-avoidance rule through the expansion of the Ramsey doctrine. This has meant that there is probably little to be gained from the introduction of a statutory GAAR in combating tax avoidance. What can be gained is certainty for tax-payers in knowing where the line between acceptable and unacceptable tax avoidance is drawn and if a GAAR can provide that, it will satisfy a need.‚Äù

Jonathan Condor, “No.‚Äù

What isthe effect of the Alternative Business Structures (ABS) regulation (where non lawyers can own practices and seek investors) and are you seeing any effect so far in the profession?How might that impact on practices going forward?

Julia Abrey, “There has been little take up for this currently. Undoubtedly practice areas that can be easily commoditised, such as personal injury, or practices that would benefit from an introduction of capital, will rapidly move to adopt new structures. For other practices there will be opportunities for consolidation with complimentary services, although these may take longer to manifest.‚Äù

Jonathan Condor, “It will mean a lot more competition in the profession.‚Äù

How do you use software management and accounting systems tostreamline and reduce the risk involved inyour probate andtrust case management?

Clare Archer, “There is continuing pressure to minimise risk in probate and trust accountancy and case management. This is coupled with the possibly opposing and continuing pressure on time efficiency. It is therefore crucially important to utilise information systems to help perform the function. At Penningtons, the trust administration team uses Troika accountancy and case management software to assist with the administration of trusts, which helps achieve these goals. We are about to roll out a new release of the same software for probate users to assist in probate case management. The system will provide an automated process to deal with accounts production, IHT forms preparation, document production and case management. It is an exciting time and we are looking forward to seeing the benefits in the years to come.‚Äù

Julia Abrey, “The trust management software we use is excellent in assisting us to deliver a timely and efficient service for the annual management, accounting and taxation for the large group of trusts we run. We find that the probate management systems currently on the market do not fit well with the complex and often cross border probate matters we deal with.‚Äù

Jonathan Condor, “We mainly use it for efficiency and presentation purposes.‚Äù

Do you find the HMRC’sintroduction of the “inheritance tax tool kit” (which is voluntary) of use when dealing with the completion of IHT400s?

Clare Archer, “I think the toolkit should be considered a useful aide memoire to ensure that the appropriate enquiries have been made in an estate and a way of reducing risks or errors. Whilst they only apply for deaths after 6 April 2010, the Revenue have made it clear that whilst the toolkit is aimed at those who perhaps do not deal with probate matters regularly, they have also made it clear that in the event that a situation arises in an administration of an estate where penalties may arise, the failure to utilise the toolkit would be considered unfavourably.‚Äù

Jonathan Condor, “We haven’t used it.‚Äù

Are your clients considering taking advantage of the reduced inheritance tax rate from 40% to 36% when at least 10 % of a person’s estate is left to charity?

Clare Archer, “We have had a number of clients who are considering taking advantage of the reduced inheritance tax rate but in my experience the interest really lies with those people who were considering leaving a share of their estate to charity in any event. These are people who often have benefitted from close associations in their lifetimes to certain charities and wish to reflect this connection in the division of their estates.‚Äù

Julia Abrey, “A limited number of clients are interested in this opportunity. Most of the interest is from clients who already intended to leave funds to charity on death as the 10% threshold is high for clients who previously did not have any charitable intention.‚Äù

Jonathan Condor, “Yes it is of interest to our clients.‚Äù

What are the main issues currently in creating a will across different jurisdictions. What can you do to make the parts from different jurisdictions work well together?

Clare Archer, “I would tend to recommend clients with assets in different jurisdictions should make Wills in each of the jurisdictions. It tends to ease the administration of the estate in due course and ensures that people have the correct advice at the time of making Wills on the effect of issues surrounding, say, forced heirship or wishes to leave assets away from a spouse or children. Of course great care has to be taken as to how Wills made in different jurisdictions work in consort together particularly bearing in mind the effect of revocation clauses.‚Äù

Julia Abrey, “Conflicts of law, inheritance, taxation and compliance and the main themes where cross border succession issues are to be considered. The position, especially where multiple jurisdictions are concerned, can be very complex. Coordinated planning advice from those with experience of all the countries concerned is the key to success.‚Äù

Jonathan Condor, “There are lots of inconsistencies and conflicts between jurisdictions. We get independent, professional help from the best overseas lawyers.‚Äù

Is it important to write in wills how money is to managed after death by managers for instance transparent investments and not those with a multiple or hidden fees and charges if beneficiaries are financially unaware?

Clare Archer, “Irrespective of whether this is considered in the Will or not, it is certainly something that Executors and Trustees should consider when making investment decisions on behalf of beneficiaries. Not all beneficiaries are financially astute and it is the role of a good Executor/ Trustee to assist them where appropriate in making sound financial decisions.‚Äù

Julia Abrey, “No. A will is not the appropriate mechanism for this. A will establishes the structure in which funds are held for the benefit of beneficiaries. The trustees are the persons who need to have the power and responsibility to determine who best to discharge that duty. The identification of the best people to act as trustees for the future is one of the key decisions for a testator to make.‚Äù

Jonathan Condor, “No.‚Äù
What steps could clients take in their wills to help minimise disruption to businesses should they die “in harness‚Äù.

Chris Groves, “The will is an important part of the arrangements that should be put in place to ensure continuity on the death of a business owner, but cannot in itself make up for a lack of adequate planning in the business itself, be it the identification of successors or financial forethought through key man life insurance and other tools.‚Äù

Jonathan Condor, “We would not put this in wills except with regard to who owns the shares. Management and succession has to be sorted out separately.‚Äù
How helpful are trusts in Wills or Settlements? Are the costs and complications really worth it?

Clare Archer, “Very. Clearly costs have to be considered carefully but there are all sorts of occasions when trusts are the most appropriate way of balancing competing beneficiaries’ interests, holding money for future generations, looking after vulnerable beneficiaries. I think the erosion of the ability to use trusts in recent years is a retrograde step.‚Äù

Chris Groves, “As a mechanism for the management and control of property trusts are unsurpassed. The key decision is whether that level of management and control is desirable in each context. Properly administered trusts in the appropriate circumstances can offer a welcome level of simplification above outright ownership.‚Äù

What would you recommend to clients to protect wealth in case of mental incapacity?

Clare Archer, “I would recommend to a client, who has individuals he trusts that they look after his/her affairs in the event of loss of mental capacity, by making a Lasting Power of Attorney (property and affairs). The advantages of considering for oneself who one would wish to appoint to act as an attorney in the event one was not able to look after one’s own affairs are enormous. Lasting Power of Attorney are drawn in such a way to allow the donor of the power to give a real framework to the decision making process and to give real guidance to attorneys in matters that they should be considering.‚Äù

Julia Abrey, “They should think ahead by executing a Lasting Power of Attorney Property and Financial Affairs document to put in place a person or persons to make financial decisions should a client lose the capacity to decide for themselves. Those concerned about healthcare and welfare decision making if they become incapable- for example where they live and what medical treatment they should have- should also consider a Lasting Power of Attorney Health and Welfare.‚Äù

Jonathan Condor, “I would use a combination of joint ownership and trusts. The LPA (Legal Power of Attorney which appoints someone on your behalf) is a last resort.‚Äù

The Government is encouraging testamentary gifts to charity (even though restricting gifts out of income). How will you use this?

Chris Groves, “To a limited extent, mainly for clients who already have charitable legacies included in their wills.‚Äù

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