Upcoming changes to Scots succession law mean no need to think about wills or power of attorney

OK, that is a statement for the start of April.

Everyone needs to think about having a will and power of attorney. And also thinking about having the right will and power of attorney in place.

The cruel April Fool that can be played on people is that the default law will help them and pass their estate to the ‘right’ beneficiaries and on the ‘right’ basis. It often (in the vast majority of situations) won’t. If you leave it to the default rules then disappointment or a random outcome will follow. Not a great way to arrange things.

Without a power of attorney assets will be frozen and no-one (even a spouse, civil partner, partner, child) has automatic (or really any) power to discuss and give any instructions on health and welfare matters. Delay and stress is likely to follow while a (slow) court process is gone through to get a guardianship order. Another potential very cruel misnomer is that power of attorney only for the ‘old’. Power of attorney can be vital irrespective of age or stage and health and wealth. More on younger people and power of attorney here.

A power of attorney allows you to choose who makes decisions and enables those chosen attorneys to discuss matters and make decisions as soon as required without delay. To put it one way… third parties (bank, doctor etc) want to speak with an attorney rather than a spouse… even if your attorney is your spouse, if you see what we mean.

On wills, where there is no will, the default law can create some unexpected and undesirable outcomes. True fact… yikes! There are all sorts of other unhelpful scenarios to go through that highlight that the default laws of intestacy are invariably bad (and all a bit random). And, as we have blogged on, even with changes to intestacy law coming in during the course of April, intestacy is still very much to be avoided.

Remember also that having a will in place is entirely different from also having sorted out the necessary on a power of attorney.

Having no will also causes delay and extra cost around the processes needed to appoint an executor. And while those processes are in some ways not overly onerous, if courts are busy, you can immediately add two or more months to the process of accessing accounts and being able to deal with assets (e.g. sell a house or investments). It can cause significant issues and stresses (financial and otherwise) to have that delay in being able to use bank accounts and other assets which are stuck frozen in the estate.

Not having a will also means the issues of having the ‘wrong’ beneficiaries, not having proper protective management mechanisms in place to hold wealth and tax inefficiency all make an appearance. Some individuals, such as cohabitants, are particularly vulnerable where there is now will.

And beyond wills, one should also consider the assets not always thought about… death in service, pension death benefits and insurances. Are these dealt with correctly and tax efficiently? Or are there disappointing surprises yet to unfold?

Is there ever a situation when no will is better than a will? You will note that the heading to this blog is “You don’t need to think about a will or power of attorney.” Everyone needs to think about a will and succession planning. There will be some cases – due to the mix of types of assets, asset value and family situation – where no will might be better. I had a situation before where the advice (if that is what the advice indeed was) to have a will could not have been right. Not right as having a will has meant that part of the estate will actually go to an unintended beneficiary in the form of an estranged child. That happens though the automatic rights of children called ‘legal rights’.

In that estate the correct answer would have been to have no will and the spouse (the intended sole beneficiary) would have scooped the whole estate (albeit with some of the extra hassles where there is no will but in that case it would have been worth it). So, with all of these things, a bit of thought and proper advice is needed to get to the right answer (especially if the answer is something counterintuitive and tactical such as not having a will)… everyone needs to think about succession and wills and powers of attorney as they apply to their own particular situation.

For help and advice on Scottish private client matters, get in touch with Alan Eccles: alaneccles@bkf.co.uk / 07359001038.

“Alan is a caring and empathetic private client solicitor who is dedicated to providing the best outcomes for clients. He has the technical knowledge and professionalism to meet client needs.” “Alan is a very articulate individual who is clearly an expert in his field.”  Chambers High Net Worth 2023 directory

“Alan is a professional, dedicated and passionate private client lawyer.” Another interviewee enthuses: “Alan has excellent experience and technical knowledge, and he is very generous with his time.” Chambers High Net Worth 2022 directory

That’s interesting… paying IHT by instalments

Paying inheritance tax by instalments 

A short blog. But it could be a valuable one. It is on the topic of interest rates on unpaid inheritance tax. 

By ‘unpaid’, we mean inheritance tax that is being paid by way of an instalment option. Asset types fall into non-instalment option and instalment option in terms when any inheritance tax must be paid. 

A significant member of the instalment option class is property (land and buildings). It means if there is a house in an estate or trust, there is no need to pay upfront all of the inheritance tax due on the house. One can decide to pay by instalments over a period of up to ten years. If the house is sold, the tax then becomes payable. It does however avoid the need for a rushed or firesale realisation of a less liquid asset to pay inheritance tax.

Business assets is another instalment option asset type. This is perhaps the less common instalment option asset in practice due to the application of e.g. business property relief. 

The Bank of HMRC

In some cases, instalment option payment is chosen because the money is just not there. The estate or trust has an asset (e.g. a house) but not the cash to the pay the tax.

In other cases, there may have been a deliberate decision that instalment payment is a better way of funding the estate to keep the asset in tact. The view taken that it is better to continue to hold the asset and effectively borrow from HMRC.

The desire to keep the asset, the simplicity (e.g. not obtaining an external loan) and, at some points in time, the cost effectiveness of paying HMRC interest meant instalment option payment was attractive.

Now it gets interesting 

The headline is that as of today HMRC charges 7% (now 7.75%!) on outstanding inheritance tax.

In recent times the HMRC interest rate has been steadily increasing. 

For context, in the period 29 September 2009 to 4 July 2022, the rate was never more than 3.5%. Indeed, for the vast, vast majority of that time it was a decent amount less than 3.5%.

News about inflation in the shops or rates on mortgages has been grabbing attention. For those managing estates and trusts, the strategy for paying inheritance tax might be different now or at least require more consideration. External borrowing might feature more (or will it with Spring 2024 Budget announcement on ‘grants on credit’).

We are not in a period of HMRC offering ‘cheap money’ on instalment option tax. It also means informing clients of the interest rate is important to avoid later surprises and any grumpiness. The interest could tot up into a noticeable amount in some cases.

And for those who have paid too much inheritance tax, HMRC will pay you… 3.5% (now 4.25%)!

For help and advice on succession matters, get in touch with Alan Eccles: alaneccles@bkf.co.uk / 07359001038.

“Alan is a professional, dedicated and passionate private client lawyer.” Another interviewee enthuses: “Alan has excellent experience and technical knowledge, and he is very generous with his time.” Chambers High Net Worth 2022

Succession Bill: intestacy is still not good

The Trusts and Succession (Scotland) Bill makes one quite significant change to the laws of intestacy. A positive and sensible change in our view. But a change that still leaves intestacy as an unattractive option in managing and governing succession to an estate.

What is the change to the intestacy rules? Where the deceased has no children, the surviving spouse or civil partner will (once the Bill becomes law) inherit the estate.

The current rules of intestacy state that after certain provision for the spouse (the house up to a value of £473,000, a cash entitlement of £89,000 and furniture in the house up to £29,000 and then one-half of the deceased’s moveable estate) the remainder of the estate will pass to the deceased’s surviving siblings and parents.

The remainder not passing to the spouse/civil partner could be fairly disastrous in some situations. This is particularly the case where the deceased has a larger moveable estate – that could be from investments or a private business. It can be bad for a business if it is then effectively split between e.g. siblings/parents and a spouse. Siblings/parents and a spouse who might not get on with each other at all.

So, with the change in the Trusts and Succession Bill, is the law of intestacy going to be fit for purpose in regulating succession to an estate? Do we still really need wills? We suggest the answers are ‘no’ and ‘yes’.

Why the laws of intestacy are still often bad?

For a start, you don’t really get to choose what happens. The law, rather than you, decides. Unless you fall into the rare group where intestacy does work better (we have talked about this rare situation before and something to do with careful advice), you are allowing your estate to be divided according to the family make-up, age and stage of family members, size/type of assets held and rules as at your date of death. That could all be quite random and have quite unexpected and unfortunate outcomes.

Having no will adds to the timescales of dealing with an estate. One definite additional piece of process and time delay stems from the need to apply to the court to have an executor appointed. That should take around a month to happen but if there are delays at the court (or in the family), it could be longer. So, the estate will be running at least a month behind to start. And that can mean a month or so longer, at least, to have control of the assets in the estate.

It might give you the ‘wrong’ executor(s). The court does not have carte blanche to appoint the best or most appropriate individual(s) to be executor(s). There is an order of entitlement for the court to follow. That can create issues and risks. It can also bring together executors who are unlikely to work well as a team. If there is more than one person at the level of entitlement to be appointed as executor, all of them are entitled to be appointed. That can lead to an in-built tension in the estate’s decision-making.

A costly ‘caution’-ary tale. Where there is no will, executors (subject to a few exceptions) need to obtain a ‘bond of caution’. It is an insurance contract. For most intestate estates, it is an absolute requirement. This adds extra process. It also adds extra cost. A cost that in itself will usually eclipse (and in many, many cases by a long way) the cost of making a will. The bond of caution cost will be based on the value of the gross estate. In some larger estates, the bond of caution premium will be thousands of pounds. A completely unnecessary expense, some might say.

It’s like giving lots of candy to a baby. Where there are children, the law prefers them to a spouse/civil partner where there is no will. This can create a whole host of problems. Not least, the children might now be wealthier than their surviving parent. The control dynamic in the family might be partly flipped. The laws of intestacy for the period until children are 16 puts in place a rather clunky management and inflexible system for a child’s inheritance. After 16, it is over to the children to do what they want without any management system in place. Sports car anyone? A will can put in place a proper and flexible management structure for younger beneficiaries. And one that can help protect family wealth for the family. It also ensures the management system for younger beneficiaries can be responsive to the assets in the estate (e.g. investments or business interests).

There is a lack of effective and protective management structure for vulnerable beneficiaries. Vulnerable beneficiaries can receive large and complex assets outright which might be difficult for them to manage or not be in their interest to receive directly.

It can be very bad for business. Allowing the laws of intestacy to govern what happens to your estate means a business you own might end up with some unexpected shareholders. Your business partners might find they have children or people who do not get on with each other (at all!) as their co-owners of the business. A will helps avoid this problem (as does the right corporate documentation).

Cohabitants are very vulnerable. If you are unmarried/not in a civil partnership, the intestacy rules create significant uncertainty. It can involve a court to sort out what happens. It also can involve the surviving cohabitant essentially having to raise a court action against the deceased’s surviving parents/siblings… does not make for a great Christmas dinner! The clear message is: if you are cohabiting, make a will.

The laws of intestacy can ‘infect’ other sources of wealth. Some ‘assets’ such as pension death benefits and death in service through work exist outwith one’s estate. But if the paperwork for those benefits has not been completed/kept up-to-date and there is no will, the rules on intestacy can impact what happens to those benefits. This can compound an already not fantastic situation… all due to the lack of a will.

Intestacy can be tax inefficient. Particularly where the law places a spouse/civil partner behind children, siblings and parents, the starting position is that the spouse/civil partner inheritance tax exemption will be lost. Generally, the laws of intestacy can be more difficult to take post-death steps to make the estate as tax efficient as possible.

Back to you don’t get to choose: loved ones and charitable causes. The laws of intestacy decide who benefits. If you want particular people to inherit, a will is the best thing to have. Looking at it somewhat more negatively, a will (and sometimes related planning) is the way you can control your estate including preventing/restricting certain people inheriting. And if you wish to make provision for charity, again, a will is the way to do that.

The law of intestacy: it is what it is. You get whatever the rules are at that given time based on the family make-up and value of the estate. You give up control of your the inheritance of your estate to (arguably out-of-date) legal rules and the roll of dice on the size of your estate and who has survived you. The Trusts and Succession (Scotland) Bill improves matters but only to a certain extent. Intestacy is still not a good idea. Make a will and related steps to make sure you control what happens to your estate in the best possible way.

Taking control of your estate: the next step

To take control of succession through a will and related planning, get in touch: Alan Eccles: alaneccles@bkf.co.uk / 07359001038.

“Alan is a professional, dedicated and passionate private client lawyer.” Another interviewee enthuses: “Alan has excellent experience and technical knowledge, and he is very generous with his time.” Chambers High Net Worth 2022 directory

“Alan Eccles is an excellent lawyer with a brilliant manner with clients – he relaxes them and builds confidence,” while another comments: “He is diligent, makes the complex understandable and is very approachable.” Chambers High Net Worth 2021 directory

Under new management? What happens to a business when there is no will?

The lack of a will can cause uncertainty for a family and business. There can be surprise as to who actually inherits a deceased’s interests in a business. That can have very real world impacts on the surviving spouse/civil partner/cohabitant as well as put strain on the business itself and the other partners/directors/shareholders. Having a will in place can be good for the health of the business. There may be other supporting arrangements that should also be considered including shareholder/partner agreements and insurance provision.

Why does a will matter… to the family?

For the family, where there is no will the default succession rules may create unhelpful results. The ‘wrong’ people might inherit. Unnecessary tax might be payable (where assets are not tax relieved children are less tax efficient than a spouse/civil partner). The management structure for that wealth might be missing.

Where there is no will the division of an estate starts as follows with a spouse/civil partner’s ‘prior rights‘. Under prior rights:-

• A spouse/civil partner is entitled to a home they lived in with the deceased (up to a value of £473,000).

• A spouse/civil partner is entitled to furniture and furnishings in that home (up to a value of £29,000).

• A spouse/civil partner is entitled to cash of £50,000 (where surviving children) or £89,000 (where no surviving children).

Then we pause. We turn to ‘legal rights‘. Legal rights are automatic rights that a spouse/civil partner and children have in an estate. It applies only to the moveable estate. Moveable estate includes a business (and can do even where the assets in the business include land and buildings). The legal rights entitlements are:-

• A spouse/civil partner is entitled to 1/2 of the net moveable estate where no children and 1/3 where there are children.

• Similarly, children are entitled to 1/2 where no surviving spouse/civil partner and 1/3 where there is a spouse/civil partner.

So, at this point, where there is e.g. a spouse and children, 1/3 of the value of the business is destined for the children. And inherited outright by children without the management structure of a trust. [There is a government body called the Accountant of Court who can become involved with younger children.]

We pause again. We have dealt with the house and (some) contents as well as (some) cash. Legal rights takes care of a significant chunk of the moveable estate. It leaves the remainder of the estate. That remainder forms the ‘free estate‘. What happens to it?

• Where there is e.g. a spouse and children, the children scoop the whole free estate. The children (how old are they? get on with them all?) could be in the driving seat for the business interests and the estate more generally. The children inherit outright.

• What happens if no children? Does it all go to the surviving spouse/civil partner? The answer is no. The law, in that situation, prefers the deceased’s parents and siblings to their spouse or civil partner.

So, where no children, a business could end up owned 50% by surviving spouse and 50% by the deceased’s parents/siblings. We wonder how well they get on? Who has been involved in the business before, if at all? Will there be alignment on strategy of the future of the business (e.g. trade on or sell)? What are the capabilities of these new business owners? It can go from your family business to the wider family’s business!

Where no will and a couple are unmarried or not in a civil partnership, the surviving cohabitant would need to apply to the court to share in the estate. The maximum the court can award the cohabitant is the maximum a spouse/civil partner could inherit. The best outcome for the surviving cohabitant might then not be optimal. There is risk that comes from it involving a court process. There is cost and time. And the court might not be willing to treat the cohabitant favourably depending on the circumstances.

Why does a will matter… to the business?

The lack of a will can provide for short and longer term uncertainties for the business.

In the short term, there might be issues such as who are the directors and who can appoint new directors. If the deceased was a sole director, there would then be a decision-making vacuum. It would then be for the deceased’s executor to appoint a new director. But where there is no will, the appointment of an executor involves the court. And there might be a competition or race to appoint an executor!

Where there are other directors and shareholders, they might now have a new group of people to deal with. A group they did not expect to have to deal with. A group who may have very different outlooks on life and the businesses. The surviving shareholders and directors own positions might be put at risk through the lack of a will. As well as the day-to-day running of the business, the lack of a will creates a strategic fork in the road for the business.

Other arrangements: articles, agreements and insurance

As well as having an up-to-date will, those in business will wish to consider other arrangements. These include:-

• Do the articles of association properly deal with the death of a shareholder?

• Is there a shareholder agreement? If not, should there be one?

• What does a partnership agreement say? If no agreement, put one in place.

• In partnerships, does the partnership agreement address legal rights where the partnership holds land and buildings (e.g. a farm)?

• Should or is there any insurance in place covering the death of a partner/shareholder? And, if there is, is it clear how, on what basis and to whom it pays out?

Look at the positives too

We have mostly looked at bad things here! With a will in place there is the opportunity to have lots of positives too. These include choice of executors and beneficiaries, management structure, clarity, asset protection and a platform for future estate planning across the generations.

Legal rights

We have mentioned legal rights a few times. This is an issue to consider whether or not there is a will. Especially for those with business interests, significant cash holdings or investments.

If you wanted to minimise the legal rights entitlement a spouse/civil partner or a child or children careful consideration and action during life is required. There can be ways to manage a legal rights entitlement.

Someone entitled to legal rights can give up their entitlement after death. But there can be barriers to that happening (or happening easily). There are three particular scenarios to watch out for:-

• Separated but not yet agreed terms of separation or divorced/dissolved civil partnership.

• Children under 16.

• A child or children you do not get on with and you wish to (in whole or part) disinherit.

Not all about death! Power of attorney

While we are talking about death, similar issues can crop up where capacity is lost through illness or accident. A power of attorney is a good idea to make sure decisions can be made and can be made by the right person or people. A power of attorney can be as important for business related matters as for personal finances and health and well-being.

For help and advice on succession in the context of a business, get in touch with Alan Eccles: alaneccles@bkf.co.uk / 07470808717.

“Alan Eccles is an excellent lawyer with a brilliant manner with clients – he relaxes them and builds confidence,” while another comments: “He is diligent, makes the complex understandable and is very approachable.” Chambers High Net Worth 2021 directory

“An experienced lawyer” who is “a superb strategist and is extremely knowledgeable”. Chambers High Net Worth 2020 directory

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Alan Eccles… a Legal Influencer for Private Client (UK) – Lexology Marketing Awards

Tony’s advent calendar: a Christmas tale of the disappointed beneficiary

Tony’s Chocolonely advent calendar created a storm on 8 December. There was, deliberately, no chocolate in that door. It was apparently designed to highlight inequality in the chocolate industry. For now, we will leave others to discuss that. It also seemed to cause disappointment. On that we will pick up. And teleport to the world of the disappointed beneficiary and the contentious estate with help of what happened with that advent calendar.

The Tony’s Chocolonely advent calendar: the moment of opening 8 December and the aftermath

At the moment of opening that fateful advent door, the first thing that seemed to happen was shock.

“Where is the chocolate? I had expected a chocolate.”

Then there would have been the disappointment. Was expecting chocolate. Now not got chocolate. Sub-optimal.

The disappointment will then be infused with questions. How and why could this have happened… to me? There will be possibilities:

Mistake. It was never meant to be empty. If it was a mistake, there must be a way to fix the mistake… or blame someone. The chocolate was supposed to be there but there was a failure to fill that door? Are there ways to rectify what has happened?

Capacity. Is this indicative of a lack of capacity to make an advent calendar? The whole calendar might be invalid!

Undue influence and ‘facility and circumvention’. Somebody has interfered with the calendar production process and that has resulted in the missing chocolate. Indeed, has someone diverted that chocolate to themselves?!?

A failure to account. We were supposed to get 25 chocolates and appear to have only got 24. Those responsible for the calendar have duties and need to account for this and make good any shortfall. (*spoiler alert* the Tony’s calendar has a full complement of chocolates)

And after those questions will come a desire for justice. How do we sort this issue out? How do we get our chocolate back? There might or might not be grounds for it to be remedied.

The real answer in Tony’s was of course more shocking. It was a deliberate omission! You were not to get that chocolate… or at least not to get it on 8 December. Sometimes one is disappointed because someone else did not want them to get something. Or they have conditions and controls on that chocolate as to when and on what basis you are to receive that chocolate (like a trust!). It also highlights that someone can choose not to give you a chocolate and they don’t have to have a good reason. Or indeed any reason. And worse still, they can be capricious and spiteful! Tony’s position is they did have a good reason.

It seems that in some cases parents jumped to the rescue. They bought replacement chocolate. Seemingly on the basis that the opener of the advent door had some sort of fixed chocolate entitlement. Such parents stepping in with an alternative chocolate offering as a protection from disappointment. As if they were ‘legal rights’ in this story of succession disappointment. Legal rights being a fallback for certain family members in a Scottish estate.

So, as with empty advent calendars, succession can cause disappointment. There can be a variety of reasons behind the disappointment. Some of which can result in actions to unravel the disappointment and get back to where you wanted to be. In some cases there will not be a solution… bah humbug or maybe you were just on the naughty list.

Merry Christmas.

For help and advice on succession law issues (or eating chocolate), get in touch with Alan Eccles: alaneccles@bkf.co.uk / 07359001038.

“Alan Eccles is an excellent lawyer with a brilliant manner with clients – he relaxes them and builds confidence,” while another comments: “He is diligent, makes the complex understandable and is very approachable.” Chambers High Net Worth 2021 directory

“An experienced lawyer” who is “a superb strategist and is extremely knowledgeable”. Chambers High Net Worth 2020 directory

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Alan Eccles… a Legal Influencer for Private Client (UK) – Lexology Marketing Awards

PET rescue: saving the Residence Nil Rate Band

April 2020 had “who wants to be a millionaire?” in focus with the televising of Quiz. Inheritance Tax, from 6 April, started to ask the same question as the Residence Nil Rate Band increased to hit the golden £1,000,000. Cue glitter!

Before celebrating just yet, you should be aware that the Residence Nil Rate Band has lots of quirks to it. It is much more than the initial headline grabbing “no more tax on family homes”. And with those quirks come chances to be hovering over the £1m (bet you just said that like Chris Tarrant) prize, for your final answer to take a huge chunk of it away. And unlike the gameshow, it is possible to lose everything. But there is a way to avoid that painful feeling of clinching defeat from the jaws of victory. A PET might just come to the rescue.

The prize

The maximum £1m tax free amount is made up of a mixture of:-

• a personal Nil Rate Band (£325,000)
• a predeceasing spouse/civil partner’s own Nil Rate Band that was ‘unused’ on their death becoming your Transferable Nil Rate Band (£325,000)
• a personal Residence Nil Rate Band (£175,000)
• a predeceasing spouse/civil partner’s own Residence Nil Rate Band that was ‘unused’ on their death becoming your Transferable Residence Nil Rate Band (£175,000)

So, £325k + £325k + £175k + £175k = £1m

How to not be a (nil rate band) millionaire

But there is a potential sting in this £1m tax relief prize. Helpfully, there is a solution to salve the pain.

For estates over £2m the Residence Nil Rate Band starts to ‘taper’ (i.e. reduce). It reduces by £1 for every £2 over the £2m.

The way in which the Residence Nil Rate Band is calculated matters to how this valuable tax free amount can be lost. And it is the method of calculating that means not only could lose your own Residence Nil Rate Band but you can also lose the benefit of the ‘unused’ Residence Nil Rate Band from a predeceasing spouse/civil partner’s estate. There is a lot (£350,000 of tax free amount) at stake.

How to lose this £350,000?

Well, let’s say you own a residence at date of death which will be inherited by children and you survived a spouse/civil partner who passed their interest in the house to you. A not uncommon situation.

These facts mean you, in principle, qualify for Residence Nil Rate Band (£175,000) and since your spouse/civil partner did not use their Residence Nil Rate Band (as it passed to you tax free), your Residence Nil Rate Band is boosted (by £175,000). £175k + £175k = £350k.

But, if your estate is over £2m the amount of the Residence Nil Rate Band is reduced, bit by bit. If your estate was £2.3m, the total Residence Nil Rate Band is reduced by half to £175,000. If your estate is £2.7m, the entire £350,000 is wiped out… and that includes the Residence Nil Rate Band ‘unused’ by your spouse/civil partner.

PET rescue… recovering the £350,000

All can be saved though. Usually when thinking about the value of an estate in inheritance tax terms, we are thinking about the estate that is subject to tax. Not so for the Residence Nil Rate Band.

The £2m threshold is based on a cruder personal balance sheet looking at purely assets less liabilities. Within that will be assets on which there is no tax (e.g. a trading business or farm). More positively, the £2m does not add back in gifts made within seven years (which can add to an inheritance tax bill).

It is unusual for inheritance tax not to add these Potentially Exempt Transfers (aka PETs) to the estate you actually hold in your name at the time of death. PETs not being included creates a solution to the £2m taper threshold.

If your estate is above £2m, then to save the Residence Nil Rate Band, making a PET should be actively considered. So long as the gift means the estate ends up below £2m, the full £350,000 Residence Nil Rate Band can be secured again.

As the PET is not added back into the estate (for the taper calculation), it does not matter when that gift is made. It could be the day before death or a year or whenever… it does not matter. The only thing that matters is that as at date of death, your personal balance sheet is below £2m. Of course, a steadier route to £2m as part of considered estate and financial planning rather than a single ‘lurching’ gift will be usually preferred.

Making a gift, the PET, can be a very valuable action. A PET could rescue the full £350,000 which means £140,000 less inheritance tax is paid by the estate. That would seem worth it.

Before making a PET (for any reason), there will be points to check. A capital gains tax liability can arise even when a gift is made. The real-life effect of a gift should also be considered… how does it affect the donor, the recipient and others in the real world beyond tax.

Residence Nil Rate Band has other quirks!

This is not the only tricky aspect of the Residence Nil Rate Band. There are many ins and outs with a tax relief which had such a simple policy slogan of no more tax on family homes.

For help on this and other succession matters, get in touch with Alan Eccles – alaneccles@bkf.co.uk / 07470808717.

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Intestacy reform stalling? No problem, just make a will

Scottish Government has published a response on a spring 2019 consultation on parts of succession law. The current state of any reform in this area underlines that advice on inheritance, including making a will, is far and away the best step to take to protect your loved ones.

The main topics consulted upon in 2019 were: (1) how to divide an estate between surviving spouse/civil partner and children where there is no will and (2) the rights of cohabitants on death when no will. Perhaps unsurprisingly the consultation has not detected a consensus on how any reform should look.

No consensus on general expectations on inheritance

Unsurprising as what is viewed as fair in succession is very subjective. There might be no ”generally expected outcomes” given the nature of individuals and the dynamics and make-up of families. Indeed, there could be as many answers to this as there are individuals and families.

Reform unlikely to happen quickly

With a lack of consensus, Scottish Government says there will need to be further work to understand the “presumed intent of the general testator“. This in turn might lead to further exploration of the issues by the Scottish Law Commission. In other areas where previous consultations have identified greater consensus there is a commitment to make changes at the “next legislative opportunity“, but without an indication of when. It would seem that an entire package of reform may take some time. And for individuals and families, the resulting reform might not suit them and their needs. Their particular circumstances and plans might not fit with the “presumed intent of the general testator“!

Why wait for law reform when a solution exists

Individuals who are waiting for reform to happen are likely to be waiting a long time. Any reform that does come along will not necessarily result in the exactly right outcome for them and their loved ones. But there is a solution and it is a quick one. The solution is to seek advice on how to divide your estate including writing a will. Even during lockdown wills can be made using video-call tech.

For help on inheritance and to make a will, get in touch with Alan Eccles – alaneccles@bkf.co.uk / 07470808717.

Alan Eccles is “one of the leaders in private client expertise in Scotland.” Chambers High Net Worth 2019 directory

Wills: have you seen pics from lockdown DIY haircuts?

#WFH = #WillsFromHome… but not DIYWills

The internet has been flooded with pictures of the outcome of the world becoming DIY barbers and hairdressers. It is probably safe to say that most people are now clear being a coiffeur is not easy. It takes skill, experience, know-how and the right tools. The same can perhaps be said about wills.

Sure ‘DIY’ wills can sometimes come out perfect – just like some attempts at lockdown hairdos. Other attempts will come out anything but the right style.

Even an attempt at a ‘simple’ will (query what one of these actually is) can cause disappointment. And there are other things to think about that affect how an estate is inherited beyond what is written down in a will.

While a haircut that goes awry is immediately identifiable and grows out or can be fixed quite quickly, a faulty will can sit untouched until the time when it is needed… following a death. At which point the damage may have been done and difficult or impossible to unravel. Unravelling can be particularly tricky where the ‘wrong’ individuals are inheriting or benefiting from the estate or inheriting the wrong amount or in the wrong way. Serious disputes can ensue. There can also be tax consequences to how a will is made. A DIY will might result in an unnecessary tax bill.

Wills From Home… va va Zoom!

While there are restrictions on movement at the moment, Scottish law coupled to guidance from the Law Society of Scotland allows wills still to be made. Now is a good time to make or update a will and can be done without a visit to an office. Video calls can now be used.

To make a will get in touch: Alan Eccles – alaneccles@bkf.co.uk or 07470808717

Covid-19: I’m an executor, get me out of here!

What should executors be thinking about during the pandemic?

Executors administering estates under a will during the pandemic could actually be facing some similar issues to businesses. And with that sobering thought, executors also need to be very aware that the starting point is that executors have unlimited, personal liability for their actings.

Let’s look at some issues executors will need to keep in mind at the moment and for the foreseeable.

What are the liabilities in the estate? How will they be met?

It is trite that executors have a duty to ascertain the assets and liabilities in an estate. In more stable times one hopes ascertaining the former is the ‘main event’. But in the current climate, the value of the assets might be more fluid and so keeping a close eye on any labilities and the ability to meet them is a more prominent issue. Cash could be all important. Identifying known and potential liabilities should be high on the agenda.

But what liabilities should executors be looing out for? Some will seem obvious like any inheritance tax, a funeral account, outstanding mortgage (including equity release) or consumer loan.

Other liabilities might be more complex. In Scotland certain family members have an entitlement in the estate irrespective the terms of the will: known as ‘legal rights’. Legal rights are due in cash and are payable before any of the beneficiaries. If legal rights are due, executors should look at this issue early… particularly where the asset values could fluctuate. The staring point for the amount of legal rights due is the date of death value of the estate. A doomsday scenario is that the value of the estate plummets and that unintended/undesired recipient of the estate (getting their legal rights) receive even more than the intended/preferred beneficiaries! The intended beneficiaries may well then turn to the executors to explain what happened.

There might also be liabilities connected to business such as personal guarantees. These other liabilities might not be fixed and there will need to be work carried out to quantify the potential liability, perhaps negotiate settlement and have funds available to meet the debt.

Executors need to be able to meet the liabilities. They need cash or access to funds to do that. As well as liability management, the executors will need to carefully manage the assets and consider producing and holding cash. The executors will also need to, with appropriate robustness, communicate to beneficiaries. Communictaing a message that until third party liabilities and legal rights are settled/fully provided for beneficiaries cannot receive their (full) inheritance.

There may also be an even greater than usual desire or advantage in working to ‘pay out’ beneficiaries as soon as practicable and proper. This would be especially the case to transfer the risk of asset price fluctuation from executors to the benefciaries.

When can executors deal with and sell assets?

If being able to manage and sell assets during this period is going to be important for executors, having title and power to do so will be critical. The pandemic might partly get in the way of that. Executors need to plan ahead and even think creatively (like many businesses have had to pivot about how they deliver their products/services). Asset-holders such as investment managers will also need to consider their processes.

Confirmation (‘probate’) is the key milestone for executors that gives them title to assets. It enables executors to complete the sale of house or instruct the realisation of investments. Without confirmation executors can be exposed to a period in which the world moves, prices and values move, but they are restricted in how nimble they can be.

Executors will in the first place want to swiftly compile the information needed to be in a position to apply for confirmation. Social-distancing measures at Scottish courts (and any issues with HMRC transacting business for taxable estates) mean executors have not been able to confirmation during lockdown. There is now a slight unlocking for this process, but there will be likely backlogs and longer timescales. Given the confirmation delays, what might executors want to consider given these constraints?

The area that is likely to be most sharply affected is investments. Prices can move and executors will want to be able to react promptly. Executors should speak to the investment manager. Where the investments are held with a nominee company, the deceased would not actually have held title to the particular share… the nominee company has title. Via the nominee, it might be possible for the manager to take instructions and sell. Ordinarily, they would then hold the proceeds of sale until confirmation is obtained. If this is difficult there are some interesting rules in the Charities and Trustee Investment (Scotland) Act 2005 that executors and investment management houses might want to consider.

Executors and financial institutions will also benefit from checking the terms and conditions that apply to the account. Some Ts&Cs set out who can give instructions on the account. That could unlock some situations.

Remember, executors should take investment advice.

Advice will be critical to support executor decision-making

Beneficiaries are owed duties by executors. Remember, executors have personal, unlimited liability. Unhappy beneficiaries have rights to call into question executor actings and ultimately could seek redress from an executor’s own pockets.

To support decision-making and their actions, executors will want to establish a good audit trail of the advice they have taken and considered.

Perhaps the most obvious requirement will be advice about investments. But other advice might be needed such as accountancy or corporate finance support where a private business holding is involved. Assistance might be required to understand the position on a debt due to or by the estate. There might be the need for the ongoing management of property.

Advice could also be crucial for the executors to demonstrate fair value has been obtained for an asset sold in the estate. This could even be the case where one beneficiary seeks to buy an asset from the estate (there are also confilct of interest rules to think about here where a beneficiary is also an executor).

Government ‘schemes’… or more accurately post-death tax repayments

Covid-19 has led to a raft of new government support schemes being created. Executors need to be aware of existing mechanisms to reduce a tax liability.

The starting point for an inheritance tax liability is of course the date of death value of the estate. Values can however change after that date. Famously the value of an investment can go down as well as up. Executors need to be aware of all reliefs that can reduce the tax liability. However, two might come into their own at the moment.

First, where within 12 months of death, investments (certain listed shares andunit trusts qualify) are sold at a loss, it is possible to make a claim for a repayment of inheritance tax based on the difference between the date of death value and the lower sales. The lower value is based on the net of all sales in the 12 month period. A valuable step that must be considered.

Secondly, where the sale of a house or land is involved, a similar rule to sales of investments applies. This time however, the window of opportunity is up to four years after death.

We should mention (with an optimistic outlook) that for deaths that occurred during a period of low asset values, executors should be keeping a careful eye on asset price increases. There is the potential for capital gains and steps that might be taken to minimise the tax consequences of that.

Engagement with beneficiaries

Executors are appointed by the deceased to do a job because the deceased trusted those chosen executors. The deceased will want the executors to be able to get on with the job as unhindered as possible. Executors are not expected to provide beneficiaries with a running commentary on the estate. Indeed, there might be some matters that are rightly confidential to the executors. But, executors do owe duties to the beneficiaries.

With those duties in mind and to help navigate what might be difficult times, executors will want to consider the best form of engagement with beneficiaries. What updates should be provided? Are there matters the executors will consult upon with beneficiaries to take their views before acting? Could there be decisions on which the executors would seek to get positive consent and approval from beneficiaries?

It’s all about surviving… survivorship destinations

We’ve discussed issues with not being able to obtain confirmation and subsequent barriers to selling assets. However, for some assets, the title is held in such a way that automatically on death and without the need for confirmation title will transfer to the survivor. This is where the title has a ‘survivorship destination’. The survivor can then deal with the asset. These destinations can appear in the title to any type of asset from houses to shares.

As well as ‘survivorship destinations’, the terms and conditions of an account (e.g. bank, platform or share) might contain terms similar in effect to a survivorship destination. That might be a basis upon which a financial institution will allow the survivior to access and deal with the assets.

Executors don’t need to take the ‘job’

Maybe this has been a gloomy blog… Or one to help ready executors at this time! But there are risks and issues, particularly at the moment, that a well-informed executor should consider. It might be the case that for various reasons an inividual does not want to take on the role. The law does not force someone to become an executor just because the deceased named them in the will. There might be moral or family ‘duties’ involved, of course. If someone does not wish to take on the position, they can decline. If someone wants to decline, they need to do this at the start of the estate and before they have begun acting in a manner consistent with having accepted the role. The decision to decline should be documented.