Burdett

Unexpected – There may be Trouble Ahead

Today I discovered that a man who I had been pursuing gently with a view to making this new will had died, unexpectedly [1]. Not after a long illness, where one might expect to have time to make preparations, but suddenly. Not in the first flush of youth, certainly, but in the prime of working life – when one might be looking forward to retirement, but not there yet.

He leaves an old will, adult children and an ex-wife. And he did not want to spare the time from his busy schedule to make a will.

Which leads me to the thought that when making wills, it might be something that could be reviewed regularly – like getting your car serviced – and if you do this regularly, death might lose some of its sting, becoming something that is routine enough to be dealt with and put aside, rather than imbued with fear.

And that if you review the documents regularly, then if the unexpected should happen, you are in the right place – prepared.

[1] he had approached me first, but then had been busy, then on holiday, then busy…

Fraud and abuse

STEP have just sent a set of newslinks round and this story about a crooked solicitor is one of the things that I get an almost visceral reaction to. I can’t explain it – it just seems as wrong to take money that has been entrusted to you, as it does to abuse the trust of a child – something that is beyond acceptable, and quite revolting.

Its one of those high horse things, I suppose – and heaven knows I am not perfect – but to make a mistake is one thing – to set out to plunder the money that belongs to another in order to get yourself out of a hole is disgusting. Who is the person that you should be able to trust with your money, to look after you – if you pay them a fee for their time? a lawyer.

There are cynics out there who would undoubtably say that you should never trust anyone – and point out that we once had trust in bankers and look how long we’ve had to pay for that trust.[1]

I can understand that reaction – and especially in jurisdictions where there is a general breakdown of law and order, or where the political system may be less than transparent, and potentially corrupt, temporary or imposed by force. Those situations are not civilised, the rules of trust there are limited to you and yours and self preservation in a time of trial, of war or otherwise.

But we are living in England. We are not at war. We live in a democracy. Our currency is more or less stable. This is our civilised time, where we should have standards and trust and faith in those who profess to take care of us. Profess – abide by a code that is to honor the individual patient or customer or student, rather than to abuse. That professional code is not uncommercial, but should be reconcileable with business interests, and where they conflict, should prevail. All solicitors have that in their Professional Code of Conduct, in case you wondered.

I hope that this man does have some sort of criminal sentence. As justice must be seen to be done. And that by looking at his path, we can learn how to catch people sooner. Because this is a regulated profession – there must be some safeguard for the public and accountability. Let’s not even consider the unregulated business that deals with probate and attorney matters. Would an unregulated provider of such services face headlines in the papers and such destruction of their career and livelilhood and personal humiliation?

[1] I do not remember my bank or supermarket professing any ethical obligation to me, except in relation to the selling of investments under the FSA code. I expect my bank and supermarket, to be businesses whose prime objective is to make money out of me: how they treat me along the way is whether I choose to stay with them or not. I feel no personal connection to my bank other than that of inertia or convenience – a bottle of Ribena is the same in Tesco as it is in Sainsbury as it is in Asda. If my favourite item disappears from a shelf, I can choose to go without or find it elsewhere. I cannot trust that the supply is tailored to my needs, or desires, or that my continued use of a particular bank or store brings greater rewards than shopping around. But then they never promised that in the first place, did they?

http://www.bkltax.co.uk/aug13_brasstax_when-is-cgt-exemption-due.htm

http://www.bkltax.co.uk/aug13_brasstax_when-is-cgt-exemption-due.htm.

A commentary on a recent case (Piers Moore -v- HMRC, 1st Tier Tribunal, ref TC/2011/05305 where, on separating from his wife, a man went to live in a property that he had previously owned as an investment property. The taxpayer subsequently lived there for a period of time, but then moved to live with his new wife in a property they jointly owned. The first tier tribunal have determined that this is a case of the man not being able to claim PPR as he did not have the requisite intention for it to be his home, following the decision in Goodwin -v- Curtis where it was decided that a persons “home” was to be distinguished from a property which a person temporarily occupied

Cases referred to Goodwin -v- Curtis 70TC 478

http://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02827.html

Statute referred to TCGA 1992 s222, s223

Essential Principles for Executors when completing an IHT400 return

When applying for a grant of probate, Executors generally complete two declarations. One is on oath, when the probate application is sworn. One is the statement to the Inland Revenue of the financial value of the estate for taxation purposes.

When completing the IHT400 in a taxable estate, the executors need to be aware that they are making official statements to the Inland Revenue. These are listed at page 12 (box 119) of the form. The executors, when signing the form state (in brief) that:

a) They have made the fullest enquiries reasonably practicable in the circumstances and that should any values be estimated, they will inform the Inland Revenue of these as soon as they know it.

b) That where spousal relief is being claimed, the executors have done their best to ascertain that the deceased was legally married to the surviving spouse

c) That they understand that they may be liable to prosecution if they deliberately conceal any information that affects the liability to Inheritance Tax arising on the deceased’s death or if they deliberately include information in the account that they know to be false

d) That they understand that they will have to pay penalties if the account is delivered late or contains false information that they fail to remedy within a reasonable time.

e) That they understand that the submission of the form does not guarantee that the Inland Revenue has accepted the facts are as stated

f) That the Inland Revenue may investigate the estate in detail after the Grant of Administration.

The executors should also be aware that the new rules on penalties apply to Inheritance Tax, just as much as to Income Tax and any other tax. Inheritance tax can face penalties of up to 100% of the tax due, depending on the severity of the error in the account (whether it was deliberate or careless, concealed or without concealment )and what assistance the taxpayer has given to the Inland Revenue to put matters right, and how speedily any error was noticed and rectified.

For more information on the penalty regime, please see http://www.hmrc.gov.uk/about/new-penalties/faqs.htm#39

What is an executor? What is an executrix?

An executor is a legal person (this can include a trust corporation) who carries out the wishes of a person who has died, and is appointed by a Will. If the executor is female, then they may be called an executrix. If all executors are female, then they may be called executrices.

If there is no will, then the people who do the same job as executors can only take authority by order of the court. They are called the Personal Administrators of the estate.

In both cases, collectively Executors and Personal Administrators can be called Personal Representatives (“PRs”).

Sometimes, the Executors of an estate look after assets for others in the longer term. In this case, they can also have the role of Trustees.

Tribute and the Wedding Gift

These specific gifts are called those in contemplation of marriage, defined in section 22 IHTA:
•a parent of a child to the marriage may give £5000
•a grandparent or remoter ancestor £2500
•a party to the marriage, £2,500
•If you are not related to the parties getting married, £1000

Weddings are both a time of celebrating, where a beautiful couple decide to make a declaration to each other that they will stick together through thick and thin. And the declaration is in front of friends and family (and sometimes colleagues) and published appropriately. Being married creates a contract that is witnessed before numerous people, which is as much kept by the parties to it, as it is sheltered by social norms.

A more jaded person might think that any time between May and September is wedding season, and judge just how expensive a wedding might be. Not only for the nuptial pair, but for all the rest. How many times can you wear that wedding hat? And can you really afford to attend seven weddings in a year, where the gift list ranges from the Denby cups and saucers through to the Villeroy & Boch and all the way through to the very best of wedding ranges on offer. Being a guest at a wedding can involve an outlay from £100 through to many thousands. The wedding lists can be enormously revealing – how can the happy couple expect to manage without silver napkin rings from Tiffany ? At what point does a gift become just the price tag for entry, the tribute to be rendered?

In ancient times, of course, the wedding of two people was the moment when they set up house together for the first time, when they left the home of their parents. In more recent centuries, a couple would have to work towards their “bottom drawer” of items for the new home. Making quilts for the bed was part of the way that friends and relatives could make a contribution, if you came from humbler stock, and wanted to wish the new couple well. Perhaps in previous decades even, the items commonly bought for the happy day was limited by the technology available – the automatic pop-up toaster was not patented until 1919, and so cannot have featured before then – the microwave, breadmaker, smoothie maker, vacuum cleaner, fridge, freezer, and electronic food processor also being recent inventions.

What might have been more important in those times would be the financial security of the couple – perhaps in a time when marriages left one party more financially vulnerable than the other. Marriage settlements safeguarding the assets of the female party were common amongst those who had significant assets to preserve.

Inheritance Tax legislation has existed in many guises, and has preserved a special category of gifts for the wedding event, but some might think that the allowances given do not reflect the size of gifts that are expected (moneysavingexpert
reported the average price of a wedding as £20,000 for this year)

These specific gifts are called those in contemplation of marriage, defined in section 22 IHTA:

a parent of a child to the marriage may give £5000
a grandparent or remoter ancestor £2500
a party to the marriage, £2,500
If you are not related to the parties getting married, £1000

When it comes down to what counts as a gift for this exemption, then clearly, proving retrospectively that a gift is made in this way requires a nexus between the event and the gift that is reasonable. For example, the delivery of presents to the home of the bride and groom two weeks after the event would be in contemplation of the marriage, on the basis that the event can clearly be tied to the item transferred. However, the gift of a cheque that did not clear the bank until three months after the marriage might not – as it might be unclear that this was a gift made for the marriage. The payment of the invoice for the cake might be closely connected with the wedding as to form part of a wedding-gift. Payment for a late honeymoon trip might not, if it cannot be distinguished from an ordinary holiday.

To err on the side of safety, all cheques to the couple should probably be presented and have cleared by the date of the wedding or civil partnership. You might keep a record of your gift card to the happy couple for later reference.

If you spend more than £5000 on your son’s civil partnership, as one of the more honoured guests, you might have to use your annual exemption for gifts (ss19 IHTA) to the total. This could give you up to £6,000, if you did not use the previous year’s allowance. As this allowance relates to you as an individual, then potentially there might be four parents with their allowances intact.

Gifts, Tribute and Taxes

In my family, where there are important gifts to be made, gift giving is noted formally, and full notes are kept. For this purpose, when I’m talking about gifts, I mean a gift of money or items that have a resale value that is relatively substantial – and which has a meaning for Inheritance Tax – since the particular giver (aka donor) is someone who might be expected to have an estate that would suffer inheritance tax on death.

In my own circumstances, where there are children who share one parent, but not both, recording gifts has also been a way of making sure that the pattern of giving is fair.

Fair is a subjective term – of course it is. Children born earlier may be fully “paid for” by the time a person dies. Children (and of course grandchildren) born later may not be so. To keep things fair is a difficult subject. What is fair to one might not be to another. What makes judging these things so hard is that usually, no records are kept.

Not in my particular family – largely because my father is very familiar with family disputes and inheritance tax law, having been a succession and tax lawyer for many decades.

Being a person who likes to understand the principle of equity and to practice what he preaches, he has devised a way of making sure that all his children understand the impact of the gifts that have been given over the years and the exemptions that cover each gift, so that in the event of his death, his executors have an easier time of it, and that if there are any disputes (polite or otherwise) between his heirs, at least there are some documents to back up the process. On the basis that knowledge can give you truth, if not happiness.

If the role of being a child is to learn from a parent, then this is something that I hope to be able to use – in the role of a lawyer learning from another in the same field, I would also like to take this on board.

And tribute? That’s the way the family choose to look at an enforced gift – one that has to be made, for social or other purposes. Like gifts for a wedding… or gifts on the occasion of an event that is made popular by greetings card manufacturers. It does have the feel of an individual approaching a tribal leader, laden down with gold and silver, spices and fine goods, to impress or placate. On reflection, that is rather like the wedding gift table.

Lasting Powers of Attorney: Live or dormant?

Is it better to register LPAs straight away? It’s up to the individual – but on the whole, the PGO might be right. To err is human, and the best way of getting to the right end result is not to test humanity’s weakness.

If we look at the system from a solutions-based viewpoint, then the best way of getting what the client wants or needs might be to get the document registered sooner rather than later. If there is an error that was missed somewhere along the line, then if the LPA is registered early, there is a chance that the donor still has capacity to execute a replacement document. If left until the very last moment – whilst this can still afford protection from attorneys managing your affairs before you are ready for them to – runs the greater risk of all your plans coming to nothing. With no prospect of recovery other than a deputyship application.

Abuses do exist in the system. As do errors. Because there are human beings involved. The most important thing is to focus on the end result. If a mistake has been made, can it be recovered? If an abuse takes place, can the abuse be stopped and the offending person prosecuted. If you want yes to either of those, then the best answer is to register the LPA as soon as possible. And to choose people who you trust (not people of last resort). This gives the widest margin and cushion against abuse or error.

HMRC -v- Hanson [2013] UKUT 0224 (TCC)

I’ve been sent a copy of a judgment to read through – hopefully I will be able to decode it into something slightly more reasonable. If anyone wants to join the bookclub experience, it is [2013] UKUT 0224 (TCC) FTC/44/2012.

So far, I have established that, barring an appeal, this is about IHT, APR, the nexus binding the relationship between a “farmhouse” and the land pertaining to that farmhouse being different from that previously understood.

I am working my way round to simplifying the judgment in my head, but I think the nexus of ownership rests less on the taxpayer being the common owner, and more on the basis of the land being used for a common purpose, so moving towards ownership *and* purpose. But it’s deep stuff, and a cursory read is all I can manage at the moment. Very technical academic stuff.

Fixed fee or by the hour?

Some people think that solicitors charging for their time is a bit old fashioned. There is a huge move towards the commoditisation of legal services – so that, rather like Tesco, you buy something off the shelf. This is greatly to be praised – it means the customer can see what they get and be able to compare services.

The difficulty comes when you compare a retail item to a service and a skill. If you want a T-Shirt, do you get it from Tesco, Gap, or somewhere designer? What is it about the T-Shirt buying experience, or the product that you buy that appeals? The good quality? The cheap item that you need before heading to the beach? The one with the special label that means you are exclusive and/or you look more attractive?

When you think about other trades – plumbers, electricians, mechanics, gardeners – then they also charge for their skills on the basis of how long it will take. Some charge a combination – a call out fee with one hour included.

What’s the worst thing about fees being charged on the basis of the time that is spent? Not knowing where you are. And being faced with a huge bill. And how large a bill depends sometimes on what you are used to. And what you think the job is worth.

I’d like to run a survey – how should your solicitor charge?