Category: IHT

Wright and another v National Westminster Bank Plc [2014] EWHC 3158 (Ch)

Applying Pitt v Holt – Unilateral transaction — life death litigation.

I can’t find a publicly downloadable account of the judgment in this case, and this report does quote some of the detail.

The lesson being highlighted for practitioners is that the gift of something must be certain.

I wonder whether there was adequate advice on the part of the advisor assisting them with setting up an intervivos trust.   Perhaps it might have been part of the advisor’s targets to sell this sort of structure.

Perhaps even, there were detailed attendance notes of what was said when, and whether it appeared as if the clients understood that they could not have the income from what was given away, that a valuable source of income on a daily basis would be removed.  Hindsight has a terrible clarity, but surely that is the basis of any advice about giving up assets.  A clarity that this money is no longer yours, but you can watch over it.  With perhaps more care than you have done with your own assets, precisely because it belongs to another

 

Solicitors are fat cats. They deserve to be undermined…

The reason I became a solicitor is nondescript and boring – it seemed like a good idea at the time.  Frankly, I have become more cynical, but strangely more idealistic as I have grown older, and seen more.  That strange principle, of what it means to be a professional, separates me from those whose only motive is to make money – with no overwhelming and overriding principle of responsibility.

 

Perhaps it is being a parent.  Or perhaps it is having the knowledge that you are told so much in confidence, in complete trust, by people who are vulnerable by imparting such information, let alone by the circumstances that brought them to you.  You are the last bastion of truth and honesty before the marketers get their way.

 

But we are also businesses – we no longer have a monopoly of being service providers.  And I am told that this is because solicitors are fat cats (don’t make me choke, if I rented a house I would be on housing benefit and that would bring in more).  And because solicitors are the establishment.  Such establishment needs competition.  Competition is good, competition makes us thrive.

 

Except, it is not a level playing field. There are some activities that are not restricted to solicitors only – activities like will writing and estate management – both of whom I would suggest do ask for a high level of trust and confidence not only in the skill concerned, but also in putting the customer first.  There is a huge amount of regulation that a solicitors firm has to comply with, not only in relation to client money, but also in relation to good behaviour of the individuals (outside their working hours) and there is a standard by which they can be judged – even passing the standard by a very small amount does not mean you have come away looking good – being called to account in itself is potentially damaging, and something that most law firms will try to avoid.

All modern law work is about risk assessment for the solicitor – either risk of getting it wrong, risk of appearing not to do the right thing, risk of overcharging, risk of having a complaint made against you.  And that’s all well and good – we should be kept on our toes.  But…  here’s the rub – not all people providing legal services are bound to the same standards.  If you choose an unregulated body to do the work for you, then you may be in the unfortunate position that you cannot complain that the charges are too high (look in the small print of the glossy charges brochure) or that the service is too slow (who are you to say what is slow?) or that you think they have not done their best to sell your auntie’s house – they virtually gave it away – it was worth far more! or that they never kept you informed (after all, you are the one that gets the proceeds of the estate in the long run.

 

How is it that unregulated companies manage to sell their service in this way, calling themselves “almost solicitors” and yet are not obliged to abide by certain professional standards?  Everyone from the establishment agrees on how to play fair, and makes an effort to give the customer the benefit of the doubt in all things, and yet…

Is it the pricing?  Solicitors have been charging by the hour for a long time – because that is one of the ways of working out how long something will take – how much work you have to put in, means the fee is commensurate with the job concerned.  Solicitors should give an indication of how much it is likely to be for each stage of the work – there is an estimate of costs for you.

Would customers prefer that every little detail is written down and added to the bill?  So that they know the price of every single step?  Having recently seen the third party disbursements brochure for a non regulated business, I can see all sorts of things that I just bundle into the price of doing the job.  And consider them essential in order to do the correct job for the client.  There is no way that I could cut the corner, then blame the client on the basis that “you didn’t want me to do that search, so I didn’t do it, and lo and behold, look at what a pile of mess you are in”.  The search is an essential part of the transaction, without which you have not correctly advised.  Interpretation of the search is my job, and advising on it.

What is it like for the customer?  Do customer’s seriously like a contract that is followed by pages and pages of sub-costs for this that and the other?  Trouble is – if you are paying for work from an unregulated body, you can’t complain anyway!  How is that remotely fair for the public, who can’t be expected to know what sort of expenses are involved.  If replacing the engine oil is a necessary part of my car service, as the current oil is drained to reach the part that needs replacing, am I happy with the thought that the service is £200, plus oil drainage fee, plus environmental disposal fee, plus 6 litres of fresh oil, plus an oil gauge testing fee?  (you can tell I know absolutely nothing about how much oil is needed for a car…    You might as well charge me the amount it will actually cost you, rather than adding on spurious details that make it seem like you had to do more…

*cough*  This has turned into something of a rant.  Partly because it seems so damn unfair  – how does the public know what they are buying?  And how do they know the difference between a regulated person and someone who is not?  How do they have any idea of how vulnerable they are, if the service is not good, or the product is substandard?  To whom do they turn?  Just have a quick word with the Legal Ombudsman, as I did, and you will find that they cannot be turned to, if the will writer is not an “approved person”.

 

Being a solicitor is for me about trying (I am human, so I fail, hopefully not too often) to do the right thing, the legally correct thing, and to use the law to protect and serve the interests of those who do not know the law, but have other excellent reasons for needing assistance.  When I come up against people whose main ethos is to make money and to push customers in at one end and relieve them of their money at the other end, without regard for the actual person, that offends me.  I told you I have got more idealistic as I’ve had more experience…

Give Generously: why leave it to the taxman?

It is a truth universally acknowledged that a person with fortune must give some of that wealth to the government of the day.  But it is not necessary to do so with every appearance of enjoyment, and it is not a moral obligation, but a legal one.

Death and Taxation are two of the great certainties.  In the UK, we have a wealth tax that is calculated on the amount a person leaves when they die (Inheritance Tax).  This is in addition to the wealth tax that a person pays when they dispose of an asset that has increased in value (Capital Gains Tax) the wealth tax that a person is in the process of acquiring (Income Tax) and the wealth tax paid on the transfer of a property (Stamp Duty).

It might almost seem as if the money that a person makes, saves, invests and then finally dies owning has been taxed two or three times over before it can be passed on to one’s family.  The moral certainty about paying one’s fair dues can wear a little thin, in the circumstances.

If you are an individual and have assets exceeding £325,000, then there is a real possibility that you will be giving the taxman a large chunk of what you have worked hard for – everything over this amount will be taxed at 40%, unless it goes to an exempt person.  The figure of £325,000 is not an arbitrary sum – it is the amount that an individual can leave at 0% tax, and has been set for the next three tax years.

Happily, there are some ways of lowering an inheritance tax bill. Essentially, the basic way to reduce the tax is to be poorer by the time you die.  To spend so that there is less money, or give money whilst you still have many years to live, when your children can appreciate it.  By the time you die, your children might be well into middle age, and perhaps may have got past the difficult years.

The very basic patterns for giving are permitted by legislation – an annual amount per donor of £3000, together with small gifts that can be given, and gifts out of surplus income.  The one that people know best is the Potentially Exempt Transfer – this is where you give something away (completely, and do not keep any benefit from it) and if you survive that gift, it is out of your estate.  You are thus poorer when you die.  A direct gift is a potentially exempt transfer.

My uncle, now in his seventies, made a trust for the benefit of his children and grandchildren.  That trust fund was set up a few years ago, and is the means of providing for not only his daughter (who is not quite married but not quite divorced), his disabled granddaughter but also his able sons and grandsons.    By using the trust, he can retain control of the assets, to a certain extent, and make sure that the money is used in a way that truly benefits his grandchildren, rather than giving them too much money too young.  This also indirectly benefits his adult children, who have their lives lifted slightly, by knowing that there are some reserves for school expenses when times are tough.  And best of all, with luck, in a few more years, the amount put into the trust will have ceased to be counted as part of his estate planning strategy.  This latter sort of giving is not potentially exempt – but if kept within a single 0% band, is effectively without any lifetime Inheritance Tax to pay.

This is not a complete list of all the ways in which you can reduce your inheritance tax liability, and if you are planning to give away a substantial sum to lessen the inheritance tax burden, you are best advised by a professional, to make sure that your objective is achieved.  Your own situation is the most important to bear in mind, when giving, and your legal adviser can give a particular view based on your particular circumstances.

 

Auth comment:  yes, this was written to be a small article.  Now I look at it, I know it is not really a blog post.   Soz.

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.