The Importance of Capacity When Making a Will

Mental Capacity

For a Will to be a valid document the person signing the will (‘the Testator or Testarix’) must have capacity. Capacity can be assessed by looking at the testator’s decision making abilities and understanding on the date the document was signed. There is a presumption that a properly executed Will is made by a person with capacity. However this can be challenged with evidence.

The Testator must understand what he or she is doing. Any Will entered into where it can be shown that the Testator did not understand will be void. Key elements of this are;

  1. The Testator must understand the information relevant to the decision.
  2. The Testator must be able to use or weigh up any information when making any decisions in relation to the Will. So the Testator should understand what might happen as a consequence one way or another.
  3. The Testator must be able to communicate their decision. Communication can be verbal, using sign language, writing information down or any other means.
  4. A Testator will likely lack capacity if they suffer from a disorder of the mind. A disorder of the mind would cover any mental disorder that alters the Testator’s ability to make a decision or comprehend their decisions.

Please bear in mind that a person will not to be treated as unable to make a decision merely because they make an unwise decision.

If you have reasonable grounds to believe that your loved one lacked capacity when signing their will and you would like some advice please contact Sharon Matchwick on 01992 558 411

or click here: http://www.breezeandwyles.co.uk/index.php/form-wills/

NOTE:

This article deals only with capacity and does not cover other options that may be available if you have reasonable grounds to challenge the validity of a Will.


Where there’s a will, there’s a way...

LegacyWhen thinking of making a will, the idea of a Victorian lawyer taking down the last instructions at the bedside still springs to mind for many people.

And the 19th century lawyer would find things pretty much as they were if they time travelled to 2017, but a major change to how people can say what should happen after their death is likely to happen soon.  If the proposals from the Law Commission get the go ahead, the law is likely to catch up with technology, and in future we could see emails and other simple expressions of intention being acceptable.

But in the meantime, the only way to be sure of what happens after you die is to make your will following the formalities that have been in place for hundreds of years.  That is particularly important for those who may be living with partners, for whom the current law offers no protection, or where there are young children, for whom the choice of guardians may be important. Yet it’s estimated that around 40% of the adult population don’t have a will.

To be valid, a will must be in writing and be signed by the person making the will in the presence of two or more witnesses, who must also sign at the same time.

Without a valid will, the division of assets is decided by the Intestacy Rules under which, typically, the whole of the state of someone who dies leaving no surviving spouse or civil partner will go to children, or if they have none, to parents or other family members.  If there is a surviving cohabitee they could apply for “reasonable financial provision” under the Inheritance (Provision for Family and Dependants) Act 1975, but this is a very slow and potentially expensive option, and in the meantime, they may be blocked from living in the couple’s home if it was not held in shared ownership.

The main proposal from the Law Commission would see the Courts able to recognise wills that have not followed the existing strict rules, so long as the deceased's testamentary intentions are clear.  That will include provisions to recognise electronic wills, if fraud and undue influence can be ruled out. It is also intended that new rules would take better account of conditions such as dementia, which affect decision-making.

Said Patrice Lawrence, trust and estate law specialist with Hertford based Solicitors Breeze & Wyles:   “If these proposals go ahead, it will bring the law relating to will writing into the modern world, which is good news as long as there is sufficient protection, particularly for the elderly and vulnerable.  But nothing is going to change right away, and even if the rules do change there is likely to be a period of uncertainty during which any ambiguities in the new rules are tested in the courts, so for the time being it’s important that wills comply with the long-standing rules.  Not having a valid will in place can create a lot of stress for surviving family, at what is already a very difficult time.”

She added: “Making a will is something that people often put off, perhaps because they find it hard to think about it, but it’s the only way you can be sure of what happens when you die, and there are issues that will be important at different life stages.  If you have children under 18, it’s likely you would want to have named guardians to care for them, or to make special provision if a child of any age has limiting physical or mental health issues.  Older people may want to make plans to mitigate inheritance tax, and cohabiting couples may want to ensure property or assets pass to each other, as they do not have the protection that comes with marriage or civil partnership.”

The consultation period will run until 10 November 2017

If you have any questions, feel free to speak to Patrice in our Private Client Department on 01992 558411, we can arrange meetings in our Hertford, Bishop's Stortford or Enfield Offices

Web site content note:  

This is not legal advice; it is intended to provide information of general interest about current legal issues.

1837 Wills Act

Inheritance (Provision for Family and Dependents) Act 1975

Law Commission consultation

http://www.step.org/news/law-commission-proposes-judicial-power-recognise-informal-wills

 


Taking time to take stock pays off in inheritance tax planning

bankingAs the end of the tax year approaches, it’s a good time to make sure you’re maximising your opportunities for inheritance tax reliefs. This year, as well as taking advantage of exempt lifetime gifts and transfers, property owners should also look at how the new transferable residence nil rate band fits their profile.

The Residential Property Nil Rate Band

Under the new rules, when a person leaves a residential property to direct descendants there will be an additional nil-rate band for inheritance tax purposes – the transferable Residence Nil-Rate Band allowance (RNRB).

To qualify, the property must have been a residence of the taxpayer and be left to direct descendants, so that excludes brothers and sisters, nieces and nephews. It will include natural, adopted, step and foster children, grandchildren and remoter descendants.  The spouse or civil partner of a living or dead direct descendant may also be the beneficiary, unless they have remarried.

The RNRB will be available from April 2017, in a phased introduction over the next four years, starting at £100,000 per person. This additional IHT nil-rate band for residential property will be on top of the £325,000 per person nil-rate band, which continues to apply to all assets in your estate, regardless of their nature and without restriction on who inherits the assets.

Like the existing nil-rate band, the RNRB will be transferable to a surviving spouse or civil partner, if unused on the death of the first to die, as long as the first to die owned the property or a share in it. A transferable RNRB will be available even where a spouse has died before April 2017 and in this case, the property does not have to have been held in joint names.  By 2020, the RNRB will be £175,000 per person, giving a potential total IHT nil-rate allowance of £500,000 for a single person or £1m for a couple who satisfy the criteria. These RNRB figures are maximum figures: if the value of your house, or your share in a house, is less, then that lesser value will be your RNRB.

The potential savings are significant – by 2020, the estate of a couple could see a saving of £140,000 in inheritance tax where all criteria are satisfied and the maximum RNRB allowance is utilised. So, in tax planning terms it’s high priority and it is worth making sure your estate doesn’t miss out on the allowance if you are a potential match on the criteria.

What may not qualify for the allowance

The additional residential property relief will taper away once an estate is valued at £2m, and estates worth over £2.35m will not benefit, and neither will certain types of trusts. The treatment of trusts has been subject to review since the original announcement of RNRB, as it was not clear initially how they would be treated.  Trusts are frequently used to protect assets, for example when children are young or otherwise not fully capable of handling their affairs, or to provide for a new spouse after re-marriage while still making sure assets pass to children of an earlier relationship.   It’s now been clarified that the RNRB will be available where beneficiaries of a trust are direct descendants and the trusts provide an absolute right to benefit, or where a disabled person is the main beneficiary, but will not be available for so-called discretionary trusts.  As the position is complex, anyone who has any form of trust in their will should make sure that it is still the best arrangement.

People will be allowed to sell a larger house and still retain the relief from inheritance tax, as the Government are keen to encourage older owners to down-size to free up larger properties. Only one downsizing move may be taken into account, so if there are several downsizing moves between 8 July 2015 and the date of death the executors can choose which is to be used for the purpose of the RNRB.  Downsizing can include disposing of part of a property, for example part of your garden.

However, to hold on to the relief after downsizing, the proceeds of the downsizing cannot be passed to a direct descendant during a person’s lifetime, as the relief will not apply to reduce the tax payable on lifetime transfers that are chargeable on death within seven years of the gift. Again, this is rather complicated and requires specialist advice.

Gifts and exemptions

More straightforward is the opportunity to mitigate inheritance tax by making smaller gifts or out of surplus income.

Everyone can make use of the £3000 per annum annual exemption which can be used to make gifts up to the total each year, and if the allowance is not used fully in any year, it can be carried forward one year.

On top of the annual exemption, the rules on small gifts allow individuals to gift up to £250 per recipient per year with no limit to the number of recipients.   However, if you give more than £250 to any individual, you lose the exemption completely, even on the first £250.   And you can’t use your small gifts allowance together with any other exemption when giving to the same person.

Looking at these two allowances together, if you had three children, ten grandchildren and four godchildren, you could make gifts of £1000 to each of your three children by using the annual exemption of £3,000 for all such gifts.  Then you could give up to £250 per year to each of your grandchildren and godchildren using the small gift exemption.  You cannot make an exempt small gift to your children as you have already used the annual exemption to make a gift to them.   These allowances are automatic, but it’s a good idea to log and track the gifts as it makes it easier for your executors and simplifies dealing with HMRC.

Another opportunity is relief on gifts made out of surplus income, but the exemption for these gifts must be claimed by your executors after your death. Here, good record-keeping is vital, because to qualify as normal expenditure out of income it must:

  • Be part of a regular pattern of giving
  • Taking one year with another, be made out of income
  • After the gifts and other usual expenditure, you must be able to maintain your normal standard of living

So, to make such payments, you need to record in writing that you intend to make the gifts regularly and then keep a record of income and outgoings so that your executors will be able to demonstrate that you had surplus income from which the payments were made. Examples of the sorts of payments range from regular monthly payments to a grandchild’s savings account or payment of school fees through to regular gifts on special occasions.

Any other lifetime gifts you make, other than gifts into a trust, are known as potentially exempt transfers (PETs).  A PET becomes an exempt gift if you survive the making of the gift by seven years.  However, if you die within seven years of making the gift, the value must be brought into account when calculating inheritance tax due from the estate.  Tapering relief may be available on the tax attributable to PETS if you die more than three years after the gift, but only if the total value of the lifetime gifts made in the seven years before your death exceeds the nil rate band in force at your death.

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If you’re concerned about inheritance tax and hope to mitigate it through gifting, asset transfer or the new residential property allowances, it’s important to check the position regularly. Getting it right, and reviewing any existing will, is key to making sure reliefs are maximised. Give or Private Client Team a call on 01992 558411 to discuss it further.

Check list for the new inheritance tax residential nil rate band

 

  • You have direct descendants and intend to leave your residential property to one or more of them on your death
  •  You have a total estate worth more than the current £325,000 IHT nil rate band per person threshold, but less than £2.35m overall
  • You have downsized or sold your residential property, or intend to, where the sale took place after 8 July 2015 and you have retained the proceeds

 

ENDS
Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Reference:

Clause 9 of the Finance Bill (2) 2015

https://www.gov.uk/government/publications/finance-bill-2015-public-bill-committee

http://www.publications.parliament.uk/pa/bills/cbill/2015-2016/0057/16057.pdf

https://www.gov.uk/government/publications/inheritance-tax-on-main-residence-nil-rate-band-and-downsizing-proposals-technical-note/inheritance-tax-on-main-residence-nil-rate-band-and-downsizing-proposals-technical-note

https://www.gov.uk/inheritance-tax


Property prices help fuel family inheritance court battles

Rising property prices are helping to fuel increased numbers of inheritance disputes reaching the courts, with second marriages another major contributory factor.

Such challenges are no longer the preserve of the wealthy, although they continue to feature highly. Recent cases hitting the headlines have included the family fall-out following the death of the billionaire owner of Sotheby’s, Alfred Tauber, through to a court case over a £600,000 estate destined for good causes, where the will was unclear.

The trend towards higher numbers of inheritance disputes has been attributed to a number of factors.

As in the case of the billionaire Alfred Tauber, who died earlier this year, the rise in divorce and second marriages is behind a growing number of children and step-children, and first and second spouses, warring over estates.  For the second Mrs Tauber, a marriage lasting over 30 years was not enough to protect her from a lock-out of her apartment in London’s Mayfair, as the children of the property tycoon’s first marriage took action to remove valuable artworks from the flat.

And the rise in property prices has meant there is often more at stake, and families are more inclined to take the costly step of litigation and get the matters before the courts, if they feel they have been unfairly treated.

Earlier this year, estranged daughter Heather Ilott won a share of her late mother’s estate in a landmark ruling.  Her mother expressly excluded her daughter, choosing to leave her £500,000 estate to animal charities.  An eight-year court battle saw the daughter, who had run away from home to get married at 17, finally win a one-third share of the estate, on the grounds that her mother had not made adequate provision for her, as her circumstances were such that she would be in a position of poverty, reliant upon state benefits.

The ruling focused on the lack of connection between the late Mrs Jackson and the animal charities named, as she had not been a regular supporter or shown interest in such causes during her lifetime.  Said wills and trusts expert Patrice Lawrence :  “The implications of the ruling are that it may prove harder for parents to disinherit children in future, unless they have strong grounds for doing so, and strong links to the alternative beneficiaries.  It has long been the case that a spouse or financially-supported child could challenge the will if they were excluded, but this ruling, and the sum awarded to the daughter, suggests a shift in approach by the courts.”

Another factor contributing to the rise in inheritance disputes is the rise of online and ready-made wills, as well as clerical errors in word-processed documents, leading to challenges on the grounds of lack of clarity of intention.  The sort of difficulties that can arise were highlighted in the recent High Court ruling in the case of the late Mrs Harte, whose will was unclear as to the charities she intended to benefit from her estate and how exactly it was to be divided. The causes were identified by recognised registered charity numbers, but the names did not match up, and the way the estate should be divided and distributed was described in different ways, with different terms being used interchangeably adding to the confusion.

A similar case reached the Supreme Court recently, when Alfred and Maureen Rawlings inadvertently signed each other’s will, but the error didn’t come to light until after they had both died.   The wills were identical, so-called mirror wills, leaving all to each other and to the same beneficiaries if their spouse died before them, but with the respective names changed to suit.   When Mrs Rawlings died, as property and assets were owned jointly they simply transferred to Mr Rawlings as the survivor, so the problem did not come to light until he died.   The Supreme Court decided that the wills could be rectified to reflect the intentions of the couple, and should stand as though they had each signed the correct will.

The ruling broadened the idea of what constitutes ‘clerical error’ meaning more such errors may be able to be corrected in future and was a landmark in how the Courts will interpret wills, making a shift towards that applied in commercial contracts, by trying to identify the intention of the person who made the will.

International mobility is also playing a part in the complexity of managing estates, where people have lived abroad during their career, or in retirement, as they may have assets which could be subject to the jurisdiction of the country where they are located. If that’s not been addressed in estate planning, it can give rise to outcomes that were not anticipated, such as where a country’s laws may insist on property passing down to family members in a particular way.

She added:  “In many cases the problem lies in lack of planning.  The number of instances where an off-the-shelf, pre-packed will is appropriate are few and far between.  It’s always going to be worth checking with a specialist to make sure that what you plan is right for your own unique circumstances.  Also, importantly, there will be corroborative evidence of your intentions that will be recorded and held by the professional drawing up the will, which can provide vital evidence if a case should reach the courts.”

To make a claim under the Inheritance (Provision for Family and Dependants) Act 1975, a claim must be made within six months from the date of the grant of probate. For cohabitees, they need to show they were living with their partner throughout the two year period before they died, in the manner of a spouse or civil partner.

ENDS

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Harte, Re [2015] EWHC 2351 (Ch) (15 July 2015)  http://www.bailii.org/ew/cases/EWHC/Ch/2015/2351.html

Taubman news coverage

http://www.telegraph.co.uk/news/uknews/11863818/Widow-of-Sothebys-billionaire-locked-out-of-flat-by-stepchildren-in-inheritance-row.html

Ilott v Mitson Michael Peter Lane (Personal Representatives of Melita Jackson Deceased) the Blue Cross Animal Welfare Charity Royal Society for the Protection of Birds Royal Society for the Prevention of Cruelty To Animals [2015] EWCA Civ 797 (27 July 2015)

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2015/797.html&query=melita+and+jackson&method=Boolean

UK Supreme Court : Marley v Rawlings and Anor [2014] UKSC 2

http://www.bailii.org/uk/cases/UKSC/2014/2.html