At Mercers we have a number of Private Client Solicitors who are accredited members of Solicitors For the Elderly (SFE), which this month became The Association of Lifetime Lawyers (TALL).

Rebranding from SFE to TALL was thought important as advice previously considered pertinent to older clients, has become equally valuable to our younger clients.  Lifetime Lawyers aim to provide specialist legal advice covering Inheritance Tax, Wills and Powers of Attorney, delivered with extra care.

We advise clients in relation to Inheritance Tax, Wills and Powers of Attorney at various stages of their lives.  Whether they’re buying a first home, expecting or adopting a child, providing for grandchildren or looking after parents, advice can provide options, reassurance and greater certainty regarding looking after loved ones, in future.

We look forward to hearing from you if you need advice or have queries in relation to inheritance tax, Wills or powers of attorney.

Article prepared by Jenny Watson – Solicitor in the Private Client Department

Inheritance Tax planning is a crucial aspect of financial management, yet it is often shrouded in misconceptions and myths. As the New Year begins, it’s an opportune time to debunk these common misunderstandings and shed light on the realities of effective Inheritance Tax planning. In this article, we’ll address and dispel some of the prevalent myths surrounding Inheritance Tax, providing clarity for individuals and families seeking to secure their financial legacies.

Myth 1: Inheritance Tax Only Affects the Wealthy

One of the most pervasive myths is that Inheritance Tax is only a concern for the wealthy. In reality, the threshold for Inheritance Tax is applicable to a broader range of estates. Understanding the current thresholds and exemptions is essential for effective tax planning, regardless of the size of your estate.

Myth 2: Giving Away Assets Automatically Reduces Inheritance Tax

While gifting assets can be a legitimate strategy for reducing Inheritance Tax, it’s not a one-size-fits-all solution. The timing and nature of gifts, as well as the relationship between the giver and receiver, can impact their tax implications. It’s crucial to seek professional advice to navigate the complexities of gifting and ensure compliance with tax regulations.

Myth 3: A Will Alone Is Sufficient for Inheritance Tax Planning

A well-crafted will is undoubtedly a cornerstone of Inheritance Tax planning, but it’s not the sole solution. There are various strategies, such as trusts and lifetime gifts, that can complement your will and enhance your overall tax planning. A comprehensive approach that considers all available options is essential for maximising tax efficiency.

Myth 4: Inheritance Tax Can Be Entirely Avoided

While there are legal ways to minimise the impact of Inheritance Tax, completely avoiding it is a misconception. Inheritance Tax is a legitimate tax levied on the transfer of assets, and attempting to evade it through questionable means can lead to serious legal consequences. It’s essential to focus on lawful strategies to manage, rather than entirely eliminate, the tax burden.

Myth 5: Inheritance Tax Planning Is a One-Time Activity

Inheritance Tax planning should be viewed as an ongoing process, not a one-time event. Changes in personal circumstances, tax laws, and financial landscapes may necessitate adjustments to your Inheritance Tax strategy. Regular reviews and updates are critical to ensuring that your plan remains effective and compliant with the latest regulations. The earlier the advice is sought, the more opportunities will be available to you.

Myth 6: Inheritance Tax Planning Is Only About Property

While property is a significant consideration in Inheritance Tax planning, it’s not the sole focus. Other assets, such as investments, savings, and personal belongings, are also subject to Inheritance Tax. A holistic approach that considers all aspects of your estate is crucial for developing a comprehensive tax strategy.

Myth 7: Agricultural Property Relief or Business Property Relief will be available in full

The reliefs available to some Estates are applied on a case-by-case basis and should be considered carefully. The reliefs need to be considered with professional assistance.

Conclusion

As you embark on Inheritance Tax planning in 2024, it’s essential to separate fact from fiction. Dispelling common myths surrounding Inheritance Tax allows for a more informed and effective approach to securing your financial legacy. Consult with legal and financial professionals to develop a personalised and legally sound Inheritance Tax plan that aligns with your unique circumstances and goals.

For more information on another common misconception, see our article on “What is a GROB (Gift with a Reservation Of Benefit)?”

If you have any questions relating to the above article please do not hesitate to contact us, our team of expert solicitors are on hand to help.

The Chancellor’s autumn statement ended with a flourish when Jeremy Hunt closed his speech by pulling a two per cent cut to the national insurance rate for employees out of his exchequer hat.

This will see the rate paid by employees reduce from 12% to 10%, with similar cuts announced for the self-employed, with the abolition of class 2 contributions and a one per cent reduction on class 4 contributions, which will go down to 8% from 9%. 

Jeremy Hunt also confirmed a widely anticipated decision to make permanent what is known as “full expensing” for businesses.  This is a 100% first-year allowance for companies to claim a deduction from taxable profits for qualifying plant and machinery assets. 

And there was £500m of funding towards establishing the UK as an AI powerhouse, following the recent international summit hosted by PM Rishi Sunak on the topic, to enable further innovation centres to be developed, similar to those already established in Edinburgh and Bristol. 

The Chancellor’s hour-long delivery was framed as an ‘autumn statement for growth’ and opened with forecasts from the Office for Budget Responsibility (OBR) that headline inflation will fall from its current level of 4.6% to 2.8% by the end of 2024, and to the government’s 2% target in 2025.  

But the OBR has downgraded its predictions for economic growth.  It now expects the economy to grow by 0.7% next year and by 1.4% in 2025, in a significant reduction from previous forecasts, which were 1.8% for 2024 and 2.5% for 2025. 

And while the plans for national insurance and full expensing for business were widely circulated in advance, one topic that didn’t rate a mention, despite inspiring many column inches before the day, was inheritance tax (IHT).  

We spoke with the Private Client team at Mercers, and this is what they had to say:

“It’s the elephant in the room as far as chancellors are concerned,” said Paula Nichols, Partner in the Private Client at Mercers. “It is brought up as a potential target for tax reform before each budget, but never gets a mention when it comes to the day.  In fact, it’s probably better described as a polar bear, as the nil rate band has been frozen for so long it’s forming its own glacier!”

Alex Parnell, Partner in the Private Client at Mercers adds: “People are fearful of the bills they will leave for their families, but the reality is that many who worry fall well below the threshold at which IHT is payable.  But with IHT charged at 40% it’s certainly worth doing a regular check on where you stand, as those who could be liable can minimise their liability by taking advice and planning ahead.” 

Last year, the Chancellor continued the IHT nil rate band freeze at £325,000 until April 2028, the residence nil-rate band at £175,000, and the residence nil-rate band taper continued to start at £2 million.   Each person can pass on a maximum of £325,000 in assets tax free when they die, including shares and property. There is an extra £175,000 allowance when the main home passes to a direct descendant.  If someone is in a marriage or civil partnership, they can leave everything free of IHT to their partner, and when the second partner dies, two allowances are added together when calculating whether tax is due on the combined value of the estate.

Ways to reduce the size of an estate for inheritance tax purposes while someone is alive include making gifts, either into a trust or to individuals.  A gift to an individual paid out of capital is not taxed at the time of the gift and will become wholly exempt if you live for seven years after the date of the gift.  A gift into a trust is taxable at the time of the gift if its value is over the nil rate band – though the life-time rate, at 20%, is much lower – and again the value of the gift will drop out of account after seven years.  Gifts can also be paid out of surplus income, where someone is able to maintain their normal lifestyle without the cash, or by making use of the automatic allowances, which include an annual exemption to allow gifting of up to £3000, together with a separate small gifts allowance of up to £250 per person.   

Paula further added: “Trusts certainly need specialist advice and even gifts can be complicated, with good record keeping essential, but often the hardest part is simply doing the sums and finding out what options might be available.  For many of us, like the chancellor, dealing with inheritance tax liabilities is something we keep putting off.” 

If you have questions about inheritance tax, please get in touch with our Private Client, who will be pleased to assist you.

Website content note: 

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

Ordinarily, when an individual (the donor) makes a gift*, it is considered to be a Potentially Exempt Transfer (PET) for Inheritance Tax (IHT) purposes. If the donor dies within seven years, the PET is taken into account on death and tax is calculated accordingly. If the donor survives for seven years, the PET can be disregarded.

With Inheritance Tax (IHT) levied at 40%, and the PET rules in mind, many aim to reduce their estates by gifting property.

Whilst gifting property may sound like an obvious solution to reducing an estate, there is a great deal to consider. In particular, where a donor continues to derive any benefit from the gifted property, their estate is not reduced. Instead, the gift is said to be one with reservation of benefit and the ‘GROB’ rules work to treat the gift as never made for IHT purposes.

When do the GROB rules apply?

The GROB rules are triggered when someone gifts property and one of the following applies:

  • The recipient did not take possession of the property and enjoy use of it for a period of either seven years immediately before the death of the donor or the date of the gift; or
  • The recipient did not enjoy use of the property to the entire exclusion, or virtually the entire exclusion, of the donor during either the seven years immediately before death or since the date of the gift.

The rules also capture transfers made at an undervalue, with gift elements.

What are the effects of the GROB rules?

Where there has been a reservation of benefit enjoyed by the donor, and such reservation continues until death, the property is treated as part of the donor’s estate for IHT purposes. This is usually the opposite of what the donor set out to achieve. However, it is important to note, that for Capital Gains Tax (CGT) purposes, the property is treated as gifted and therefore there is no uplift in value on the donor’s death.

Where there has been a reservation of benefit, but that benefit ceases whilst the donor is alive, the donor is treated as having made a PET at the date of such cessation. If the donor then outlives the PET for seven years, then the gift will have passed free of IHT in accordance with the usual rules. It should be noted that the donor must continue not to reserve any benefit up to the date of their death.

The family home

A typical example of when the GROB rules are encountered is when a person thinks about passing the family home to their children. For most people, their home is their most valuable asset, hence their desire to remove it from their estate. However, if the donor continues to live in the home, the GROB rules will work to treat the home as part of the death estate for IHT purposes. There is, however, no reservation of benefit where full market rent is paid for occupation, or when the donor is no longer able to look after themselves and the recipient allows them

to stay so that they can be cared for. Moreover, if a share of the home is gifted and the recipient and donor both occupy the home, such gift would be treated as a PET so long as both occupied the home. (The GROB rules would kick in if the recipient vacated the home unless full market rent were paid for the donor’s occupation.)

Measures taken to sidestep the GROB rules must be carefully considered. For example, in relation to the payment of full market rent, the donor and recipient should negotiate the rent and tenancy agreement at an arm’s length, each using independent advisers. The rent should be regularly reviewed, and the donor must ensure they have sufficient means for paying the rent until their death. (In terms of the recipient’s rental income, this would have to be declared and taxed to income tax at the recipient’s marginal rate, something which may make a gift less attractive.)

Negligible benefit

The GROB rules do allow for some minor benefit to be derived from gifted property. So long as the recipient enjoys the property to ‘virtually the entire exclusion’ of the donor, there is no reservation of benefit.

Short stays in a house or infrequent use of a car by a donor may not be treated as a reservation. However, each case hinges on its own facts. Variables such as whether the recipient is present and the donor’s normal habits before the gift would all be taken into account by HMRC. In any event, the continued use of gifted assets by the donor should be kept to a minimum and not impede the recipient’s ability to use the property howsoever and whensoever they choose.

Before making gifts

Careful consideration must be given before any gifts are made, regardless of whether the donor may like to continue to use such property.  Where a donor contemplates gifting an asset that they would likely not want to be without, particular attention must be given to the GROB rules. Along with IHT considerations, CGT must be fully considered prior to gifting assets. A CGT liability could immediately arise on a gift unless it is covered by available reliefs or exemptions.  Furthermore, the less well known Pre-Owned Asset Tax (POAT) may be lurking and could cause serious difficulties where a gift otherwise manages to avoid the GROB rules.

Aside from tax considerations, the very nature of a gift puts the property beyond the recall of the donor. Donors should ensure that their standard of living would not be affected by the loss of the property, and understand that property, say in the hands of their children, could be clawed at by divorcing spouses or creditors.

* with the exception of gifts into a Trust

Written by Oliver Clark – Trainee Solicitor – Private Client

If you have any questions relating to the article above please do not hesitate to contact us, our team of expert solicitors are on hand to help.

What is the statutory legacy?

If someone dies without having made a will, they are said to have died intestate. In such a scenario the estate of the deceased passes in accordance with the intestacy rules. (These rules also apply to any property which is capable of being disposed of by a will, but has not been disposed of – a partial intestacy.)

At a glance, the rules impose a trust over all property. Following the payment of debts and administration expenses, the balance becomes the residuary estate. From this, the surviving civil partner or spouse receives all chattels and then a fixed sum, being the statutory legacy.

New Statutory Legacy from 26 July 2023

From 26 July 2023, the statutory legacy available to a surviving civil partner or spouse was raised to £322,000. This was an increase from £270,000, as set in February 2020.

This means that in the case of an intestacy, if the estate is below £322,000, or the deceased had no issue (children or grandchildren-see below), the civil partner or spouse will receive the entire estate. If the estate is above £322,000, the balance over is split equally as to half for the civil partner or spouse and half for issue of the deceased (to be further split as per statutory rules).

For many, this is a welcomed change which will see civil partners or spouses receive more from the estate in priority. For others, this change will heighten concerns that they will inherit less and/ or the wishes of a loved one are not met. In any event, this update to the law reaffirms the importance of having a will to ensure the estate is distributed as desired.

Considerations

It is unlikely that the intestacy rules accord with the wishes of the deceased. The rules derive from a 1925 statute and family dynamics are now considerably different a century later. Contrary to popular belief, there is no legal recognition of common law partners/ spouses. The statutory legacy is applied strictly and cohabitees are not included.

Moreover, the rules do not include stepchildren as issue of the deceased, or provide for other dependants to inherit.

Ultimately, whilst the statutory legacy has been increased, this may not be sufficient for a surviving or spouse to retain their standard of living. At the other end of the spectrum, insufficient funds may not be left for issue or others who are the ones really in need.

Why have a Will?

  1. Without a will, the above rules have the potential to create inadvertent results.
  2. A will provides certainty. A will can be drafted to meet the requirements of the testator’s circumstances and ensure they can benefit whomever they would like, and in whatever way.
  3. A will also provides clarity. The personal representatives will have a clear document to work from, thus reducing the risk of disputes arising out of probate.

If you require further advice in relation to Wills, Intestacy or Estate administration, please contact Mercers

Article written by Oliver Clark – Trainee Solicitor – Private Client

Following a death, you may need to apply to the Probate Registry to be given the legal right to deal with a person’s property, money and personal possessions (their Estate) when they die. If you are an executor named in a Will then this will mean applying for a Grant of Probate which is an official document issued by the Probate Registry (part of the HM Courts & Tribunal Service). The equivalent official document if the person did not leave a Will is a Grant of Letters of Administration to be an administrator of their estate.

The overarching term for an executor or administrator of an estate is ‘Personal Representative’. The Personal Representative has a legal duty, set out in the Administration of Estates Act 1925, to provide (when requested by the Court) a full inventory of everything in the Estate. As a result, there is a statutory duty to produce the some form of accounts.

Therefore, it is advisable for Personal Representatives to keep comprehensive and accurate accounts setting out the full Estate assets (as they were at the date of death), any details of Estate debts, administration expenses, and any increases or decreases in the value of Estate assets once they have been liquidated. The Estate accounts should demonstrate what money has come into and out of the deceased person’s Estate, and also specify how the Estate assets have been, or are to be, distributed between beneficiaries.

What should be included in the Estate Accounts?

There is no prescribed format to Estate Accounts, but typically they include the following:

  • Summary – the first page typically sets out the name of the deceased, their date of death, the date of their Will (if they had one) or codicils, the names of the acting Personal Representatives and a summary of the terms of the Will/Rules of Intestacy.
  • Balance Sheet- this is a very important tool to show you what still needs to be done in the estate administration.
  • Assets and Liabilities– it is important to provide a full list of the assets (money, property and personal possessions) with the value of each asset at the date of death, and also a list of any liabilities at the date of death, such as a mortgage, credit card debt, or loan. These figures will be needed when applying for the Grant of Probate/Letters of Administration, the required net figure is the total value of assets minus the total value of liabilities as at the date of death.
  • Inheritance Tax Account– this sets out whether or not the Estate is liable for any Inheritance Tax. If it is then the amount payable and relevant Inheritance Tax calculations should be recorded, with any applicable exemptions detailed.
  • Administration expenses– this sets out any costs incurred after the date of death and during the estate administration. This may include the Probate Registry fees when applying for the Grant, funeral expenses, statutory adverts in the London Gazette and local newspapers, solicitor’s fees for administering the Estate, costs relating to the sale of property, and any disbursements incurred on behalf of the Estate.
  • Capital Account, Income Account and Distribution Account– the Capital Account should detail any changes to the value of the Estate since the date of death (including any Capital Gains Tax liabilities). The Income Account should include any income received on any assets from the date of death up until when the asset is transferred or encashed. The distribution account should provide the final amount due to each beneficiary.

Estate Accounts – why they are so important?

There are many issues that may arise if the Estate accounts are not produced. You may miss certain assets which are then not gathered in, or the Income tax paid may be incorrect. If the Inheritance Tax is being paid by instalments then it may be forgotten and the Personal Representatives might distribute all of the remaining funds without retaining a sufficient reserve, or distributions might not be equalised between residuary beneficiaries (if payments go out at different times and in different amounts to different beneficiaries).

The only people entitled to receive a copy of the Estate Accounts are the residuary beneficiaries of the Estate. This is because the administration of the Estate will have a direct impact on the amount of inheritance they receive. Once the Estate has been finalised, a residuary beneficiary who does not, upon their request, receive a copy of the Estate Accounts can apply to the Probate Registry for an Inventory and Account Order.

You may find it time consuming and frustrating preparing Estate accounts and applying for the Grant, but it is important Personal Representatives keep accurate Estate accounts for the purpose of ensuring that all assets have been properly accounted for, and the correct information has been submitted to HMRC and the Probate Registry.

Our Private Client team can make the probate application process easier by advising on the valuations of estate assets and liabilities which are required, submitting inheritance tax forms to HMRC, preparing the Estate accounts, applying for the Grant and making sure that you submit the correct information to the Probate Registry, and accurately distribute the Estate.

It can be a demanding and complicated process administering an estate, particularly after losing a loved one. If you are unsure about whether you need to apply for a Grant, or if you seek assistance with the estate administration process and the preparation of Estate accounts, please contact a member of our highly experienced Private Client team. 

Written by Anouschka Fenley – Paralegal

Naidoo v Barton [2023] EWHC 500 (Ch) recently clarified the approach to be taken when assessing whether undue influence was exerted on those making mutual wills. It was determined that the test applicable to lifetime transactions is to be preferred over the probate test.

Naidoo v Barton [2023] EWHC 500 (Ch) Background

Dr Naidoo and Mrs Naidoo were the testators in this case. Their son, Charan, was the Claimant and accused his brother, David Barton, of exercising undue influence over their parents in relation to a number of aspects of their lives, including their execution of mutual wills in late 1998. Such wills left everything to each other, then to Mr Barton, or Mrs Barton should he predecease his parents.

Dr Naidoo was unwell for some time and died in 1999. In the following years Mrs Naidoo sought advice as to enforceability of the mutual wills and later created several new wills, including the most recent one in 2015. This latest will appointed Charan as sole executor and beneficiary. Mrs Naidoo died in 2016.

Charan’s claim was for an order pronouncing the 2015 will and for rescission of a number of transfers by Mrs Naidoo.

HHJ Cadwallader found that the 1998 mutual wills were mutual wills before deciding the test applicable for undoing the agreement by undue influence.

Mutual Wills

The elements constituting mutual wills were not contested in Naidoo. Mutual wills are joint or separate wills made in consequence of some agreement between the parties not to revoke the wills without consent of the other testator. They usually confer reciprocal benefits before leaving property to identifiable beneficiaries. Mutual wills create a binding obligation on the survivor to ensure that the beneficiaries originally identified do ultimately benefit. They are one step beyond ‘mirror wills’ due to such obligation.

Whilst both testators are alive, the wills can be modified upon agreement between the parties. Following the death of one, the property which will ultimately go to the intended beneficiaries is held by the surviving testator on trust.

The agreement between the parties to enter into mutual wills must be an enforceable contract and so comply with all the usual principles. The agreement can be in the will, or explicitly or impliedly outside of it, or even oral. It is preferable that it is written into the will.  

The burden of proving that there is a mutual wills agreement rests upon the person seeking to rely upon it. In Naidoo, this was the Defendant, Mr Barton. In its assessment , the court presumes the improbability of the testator fettering their ability to change their will later.

Undue Influence

Undue influence, formerly labelled duress, is a principle that prevents someone exerting and abusing power they have over someone else. There are two types: overt acts of unreasonable pressure or coercion, and the exploitation of a relationship of trust and confidence.

The burden of proving undue influence generally rests with the person claiming it. However, in cases of the second type, where there is a transaction that calls for an explanation, the burden shifts as a presumption of undue influence arises. Unless a satisfactory explanation can be provided, undue influence will not be rebutted.

In probate claims, undue influence is never presumed, and so there is a harder evidential burden to discharge. In relation to lifetime transactions, presumed undue influence may be established, thus switching the burden. Naidoo is important for clarifying which test should be applied to mutual wills.

The Court’s decision

HHJ Cadwallader answered two issues of note in relating to the interplay of mutual wills and undue influence.

Firstly, HHJ Cadwallader determined that in cases such as this, where there are mutual wills, but for some reason such as undue influence, the agreement is voidable, the equitable principle of mutual wills is not to be held up as there is ‘no basis for equity to intervene to impose a trust’. ‘To do so would mean that equity would be speaking with two voices’.

Secondly, HHJ Cadwallader determined the test to be applied to discern whether undue influence affected the agreement. HHJ found it to be the less stringent test, equitable doctrine as applicable to lifetime dispositions. HHJ distinguished the agreement as a contract and not a testamentary disposition.

HHJ Cadwallader’s reasoning was that the agreement does not require the same execution formalities and in the present case it was accepted by the Counsel for the David Barton that the agreement did not affect the validity of any of the subsequent wills. Thus, HHJ found it ‘impossible to see why a test of undue influence developed for probate purposes and concerned with the validity of a will’ should be used instead of equitable doctrine designed for avoiding contracts and lifetime dispositions.  

HHJ Cadwallader ordered the rescission of the 1998 wills and the admission of the 2015 Will to probate.

Article written by Oliver Clark – Trainee Solicitor

A Letter of Wishes is a document that can be drafted to accompany your Will. It can provide important guidance to the executors, trustees and/or family dealing with your estate or with any trusts that are to be set up after your death. It sets out your views on how you would like your assets to be dealt with, and how you would like your executors and/or trustees to exercise their powers.

While there is an element of discretion to your executors and/or trustees in making decisions, it can be desirable to make your intentions clear in order to help them fulfil your aims and wishes after your death. It creates a strong moral obligation for those involved in your Will to follow your guidance.

In contrast to a Will, a Letter of Wishes is not legally binding, it is commonly confidential, and you can easily change or review it.  

  • It can be amended or updated by you whenever you wish, without the need to amend your Will.
  • Unlike a Will, which becomes a public document if a Grant of Representation is obtained, a Letter of Wishes can remain confidential to your family, trustees and/or executors. Therefore, it typically contains more detail of one’s family and affairs, and it can be written in your own words. It is important it is written in a clear and concise way to avoid any possible misinterpretations.

What can my Letter of Wishes cover?

Your Letter of Wishes can cover anything relating to the management of your estate. It can provide a great deal of flexibility, but equally it can be used to guide your executors and/or trustees on more specific decisions you have made.  Here are some examples:

  • Information on the allocation of your personal possessions. You can list the personal possessions you would like specific people to receive (provided you have the requisite clause in your Will giving the executors flexibility to distribute).
  • You can explain how you would like any trustees in your Will to exercise their discretion. This may relate to appointing capital or income to beneficiaries, or you can explain how you would like them to manage your money or any assets you would like them to keep if possible (e.g. a house).
  • You can include details about your children’s future, explaining how you would like funds to be used for your young children and/or how you would like them to be brought up, for instance in relation to their education or religion.
  • You can explain how you would like your trustees/executors to consider taking Inheritance Tax planning steps, such as passing assets down a generation if your Will contains a trust. This may be relevant when including the surviving spouse as a beneficiary, particularly if she or he may have decided they have sufficient funds for their financial stability without the trust assets.
  • You can explain decisions you have made that may be considered controversial or that may be challenged, such as omitting someone from your Will.
  • You may include specific funeral wishes, such as instructions for your funeral service.

When should I write a Letter of Wishes?

You can write a Letter of Wishes at any time, but we recommend writing a Letter of Wishes alongside your Will as it very important you do not duplicate, forget, or contradict anything in your Will. You do not want to risk your wishes being disregarded.

The Letter of Wishes should be signed and dated, but it must not be witnessed in the same way as your Will because you want to avoid any possible claims that it has become a legal Will or Codicil.

Your Letter of Wishes should be stored along with your Will, but do not attach it to the Will as this risks invalidating the Will. You do not want it to become separated from the Will because this could result in your executors and/or trustees being unaware of your wishes, and therefore, your wishes may not be followed.

Does a solicitor have to prepare a Letter of Wishes?

You can write a Letter of Wishes in your own words and this can provide a way for your voice to continue to be heard after you have died. But you should seek legal advice to ensure that the Letter of Wishes is suitable for your purposes and that it does not conflict with your Will. A member of our experienced Private Client team can guide you through the issues to think about and can provide further direction in drafting a Letter of Wishes in an appropriate format.

Our March 2022 article covered the importance of reviewing your Will every 5 years, or when a major change in your life occurs. Our Private Client team also recommends regularly reviewing your Letter of Wishes to ensure it covers changes in your personal circumstances and that it accurately supports your Will.

Written by Anouschka Fenley- Paralegal

Half of Wills in the South of England are out of date – Oxfordshire SFE accredited solicitor calls for residents to review their Wills for “Update Your Will Week” 28th March -3rd April 2022

Research commissioned by SFE (Solicitors for the Elderly) has revealed that almost half (48%) of people living in the South of England who have a Will haven’t updated it for more than five years, meaning nearly half of Wills made in the area are likely to be out-of-date. Of those, over a third (33%) haven’t updated it for over 7 years, and over a fifth (21%) haven’t dusted it off in more than a decade.  

Having an up-to-date and well drafted Will is crucial in ensuring your wishes are carried out in the way you’d like when you die.

This year, SFE, a membership body representing over 1,600 solicitors specialising in working with older and vulnerable people, has launched “Update Your Will Week” (28th March – 3rd April) in a bid to raise awareness of the importance of updating your Will regularly.

Mercers Solicitor’s recommend that a Will be reviewed and updated every five years, or when a major change in your life occurs that impacts you or your loved ones, such as divorce, marriage, a new birth or even death in the family. SFE’s research has revealed that almost a third (33%) of people in the South with a Will have had significant changes to their lives and circumstances since they drafted it.

Alexandra Crump, a solicitor in our Private Client department at Mercers, warns that an unchecked and outdated Will could cause severe implications for your loved ones after death – including missed inheritances and higher inheritance tax: “Many people assume that once you have drafted a Will you don’t ever have to review it, and that your wishes will be carried out as you wish them to be posthumously – but unfortunately, that’s far from true.

“If you remarry, for example, your Will gets revoked. Or if you marry into a family and have stepchildren that you’d like to inherit your assets – this won’t happen automatically unless you stipulate it in a new Will. All these details are crucial to avoid family disputes – which we know can be very distressing for your loved ones.”

In fact, SFE’s research revealed that:

  • Only 16% of Brits realise that remarrying invalidates a Will.
  • Less than a third (31%) of people realise stepchildren won’t be included in your Will unless you stipulate that separately.
  • 17% of people wrongly think you can update your Will by making changes on the original document and initialling them.

The findings have also revealed that 53% of people in the South of England don’t have a Will in place at all – a worryingly steep figure. The SFE research has highlighted that one in ten British families (11%) have been caught out by a ‘bad Will’ – a Will that is out of date or badly drafted – for example missing out on inheritance or their childhood home being sold without their knowledge.

Paula Nichols, a Partner at Mercers and head of our Private Client department, said “It’s great to see that many people living in the south of England have a Will in place – but we need to see a higher Will uptake, and for those that have a Will in place, it’s paramount that they review these frequently.

“I’d strongly recommend that people in the area look for their local SFE accredited solicitor.”

There are clear benefits to having a Will in place and updating your Will in order to ensure it reflects your current circumstances and wishes.

Mercers have a large number of SFE accredited solicitors, and our experienced Private Client Department have prepared and updated countless Wills. Please contact a member of our team to discuss preparing or updating your Will.

If you would like to find out more about your local SFE accredited solicitors, visit: www.sfe.legal

An Enduring Power of Attorney (EPA) is a legal document in which a donor gives a trusted person or persons (the attorneys) the right to make decisions on the donor’s behalf. The authority given by an EPA is limited to decisions about the donor’s property and financial affairs.

It has not been possible to make a new EPA since 1 October 2007. The system was changed by the Mental Capacity Act 2005, and since that date it is only Lasting Power of Attorneys (LPAs) that can be made.

However, existing EPAs that were signed by both the person making the Power (“the donor”) and the attorney (s), and which were made correctly before 1 October 2007, continue to be valid. If you have a valid EPA, you can still act on the donor’s behalf to manage their finances.

When can I act under an EPA?

If the donor has mental capacity, but is physically incapable, then you can immediately act under the EPA and manage the donor’s finances with the donor’s direction. You will need to take a certified copy of the EPA, along with your identification, to the banks and other organisations where the donor’s funds are held.

If the donor is becoming or is mentally incapable of handling their own affairs then, if you’ve been appointed as an attorney under an EPA, you must register the EPA with the Office of the Public Guardian (OPG) in order to be able to act under it.

How do I register an EPA in England and Wales?

There is a two-step process for registration.

  1. Notification →Firstly, you must notify the donor and at least three of the donor’s relatives that you intend to register the EPA using the Form EP1PG.

Notifying the donor:

  • You are required to personally notify the donor and explain what registering the EPA means.
  • The notice can be posted if you are unable to visit the donor.
  • It is not necessary for the donor to understand the notice, for example in the case of a severely incapacitated donor the service and explanation of the notice can be relatively simple.

Notifying the relatives:

  • You must also notify at least three of the donor’s relatives. The categories (in order of priority) include the donor’s: spouse or civil partner, children (including adopted but not step children), parents, siblings (including half-siblings), child’s widow or widower or surviving civil partner, grandchildren, nieces and nephews, aunts and uncles, and first cousins.
  • If the donor has no family member in a category then you should move on to the next category. If you fall into the category of relatives as an attorney than you count as one of the three. Relatives who are mentally incapable or under 18 do not count as one of the three relatives to be notified.  
  • Once you have reached the appropriate category then every person in the category must be notified (even if it is more than the required three relatives).
  • You should try to post the notice. However, if this is not possible then the relative can give you permission to accept the notice by email, and you must receive a reply from them to confirm they have received it.

The purpose of the notice is to give the donor or/and their relatives the opportunity to come forward if they object to the registration of the EPA. The five valid grounds of objection are set out in Form EP1PG. Examples of objections include that the donor is not yet, or not yet becoming, mentally incapable, or it may be that the attorney is unsuitable. Any objections will need to be resolved before the EPA can be registered.

  • Registering the EPA → Secondly, you must apply directly to the Office of the Public Guardian (OPG) to register the EPA.

You must complete the Application for Registration form (EP2PG) and submit this to the OPG along with the registration fee of £82.

If there is more than one attorney listed in the EPA, it is important to check whether the attorneys have been appointed to act ‘jointly’, or ‘jointly and severally’.

  • If you have been appointed to act ‘jointly’ than you will need to apply together with your co-attorneys to register the EPA.
  • If you have been appointed to act ‘jointly and severally’ than either you or any of your co-attorneys can register the EPA, but you will need to notify each other of the application.

It can be a difficult decision to register an EPA, especially if the donor has sufficient faculties to comprehend some of the implications. However, if the attorney sees or is informed that the donor is demonstrating early stages of mental incapacity then it is important to register. You will have limited powers to maintain the donor and prevent any loss to their money and property until the EPA is registered. The registration process can take a long time and an early application is essential to avoid a complaint of negligence, particularly in the case of a complex asset portfolio.

Please contact a member of our highly experienced Private client department if you would like advice on whether an EPA needs to be registered or for more detailed information on the registration process.

Written by Anouschka Fenley-Paralegal

Our November 2021 article covered the benefits of a Lasting Power of Attorney (LPA) which is a legal document that allows you to give a trusted individual (s) the power to make decisions for you. You can make a financial LPA authorising the attorney (s) to make decisions relating to your finances, or a health and wellbeing LPA relating to your personal welfare.

However, the importance of a Business Lasting Power of Attorney (BLPA) is often overlooked. A Business LPA allows the donor (the business owner) to appoint a trusted attorney (s) to make decisions concerning their business interests when they lack mental capacity, or when they are unavailable (i.e. abroad on holiday or for business and cannot be contacted, or they have been in an accident and are not capable of acting).

Why make a business LPA?

Business owners should be aware of the risks if there is no BLPA in place and they are unable to make business decisions in the future. With nobody in charge there are many reasons the running of a business may become jeopardised, and it is necessary to consider the following:

  • Contracts entered into may no longer stand, payments of bills may need authorisation, insurances could be invalidated and bank accounts may be frozen.
  • Paying employees, creditors or tax becomes difficult, and investors may require their investments to be returned.
  • The value of the company may be affected, and other companies may no longer wish to trade with a business that appears rudderless.
  • For regulated organisations, such as solicitors, there could be professional implications with the potential for licenses to trade being withdrawn, or regulatory bodies intervening.
  • If you have not made a business LPA, then it may be necessary to apply to the Court of Protection to have a deputy appointed to act on your behalf. The process can be long, expensive, and there is no guarantee the Court of Protection will choose someone you would have chosen to run the business.

Delays during a time when the business is already facing uncertainty can exacerbate difficulties, and may result in potential litigation for failing to complete contracts or pay staff. A business LPA is an essential part of any crisis planning for a company, and enables business owners to protect their own interests and their businesses.

Who needs a business LPA?

A BLPA will be appropriate in most circumstances, but it is still important to consider the type of business you own. BLPAs are particularly important for family businesses where the business is the main source of income and may provide capital for retirement.

  • Director– you should check the Articles of Association or Memorandum of Association. In the event the director loses capacity there is often a provision within the Articles of Association that will provide for the termination of a director. If there is no such provision than you should seek advice.
  • Sole Trader/sole director– you are not a separate legal entity to your business and you are at high risk without an LPA because the bank accounts may be frozen, you may be unable to appoint other directors, or unable to enter into contracts. For a sole director of a small private company, the Articles of Association will probably not terminate the director’s appointment and a BLPA is recommended.
  • Partners-you should check the terms of the Partnership Agreement. A BLPA may not be necessary if a partnership agreement already includes a provision concerning what should occur in the event a partner becomes incapacitated. But if you feel an LPA may be needed, or if you are unsure about the provision in the Partnership Agreement, then you should seek advice on the wording of the BLPA to ensure it does not conflict with any existing provisions.
  • Shareholder– you should consider your voting rights, without a BLPA you may be unable to exercise your voting rights.

Making a BLPA

A BLPA can be set up at any time, and if you have more than one business it is possible that you may need more than one BLPA.

While there is no practical difference between a Property and Financial LPA and a Business LPA, it is important that a BLPA is distinguished and specific consideration is given to the structure of the business, whether the business can continue, who to appoint as attorney (s), any additional skills or qualifications the attorney (s) may need, and the scope of attorneys’ powers in relation to the business.

You should consider appointing a different attorney for your business LPA and your personal LPAs, often people prefer to keep their personal affairs separate from their business affairs. The person you choose as attorney should not only be someone you trust, but they should also be able to cope with the business role if they are called upon.

While many businesses prepare for crisis management, such as computer hacks or floods, there are fewer businesses that consider preparing in the event that key decision-makers become incapacitated. There are clear advantages to having a BLPA in order to avoid disruption, therefore, we recommend getting expert advice from our Private Client team to help tailor a BLPA to your specific business. Please contact a member of our team to discuss how we can assist you.  

Written by Anouschka Fenley-Paralegal.  

In March 2021, the Government announced that from 1 January 2022, changes would be made to simplify the reporting and compliance requirements during probate. The proposals for change followed a Government consultation designed to reduce the administrative burden faced by those dealing with IHT. The changes have now been enforced and mean that over 90% of non-taxpaying estates do not have to deliver IHT accounts when a grant of representation is required.

So then, what are the changes and what are their effects?

Legal Background

In order to understand the effect of the changes, it is important to put them in their legal context.

When someone dies, their personal representatives (‘PR’) must determine the value of their estate – the sum of their assets and liabilities – and calculate whether the estate is liable to IHT. In order to obtain a grant of representation, and thereby administer the estate, the PR must report the estate’s IHT liability to HMRC through an IHT account. There are two main types of IHT account:

  • The IHT205 – this is a shorter form which is submitted to the Probate Registry at same time as the PR applies for the grant of representation. This can be applied for where the estate is an ‘excepted estate’ (i.e. it is of low value, it is exempt, or the deceased was not, has never been or never deemed to have been domiciled in the UK, provided conditions are met).
  • The IHT400 – this is a much longer form which is submitted to HMRC before the grant of representation can be applied for. This account requires much more detail, and prior to the reforms outlined below, it was often necessary to file this even where there was no IHT liability.

The Changes

The changes introduced by the Government are removing the requirement to complete an IHT205 account for excepted estates for deaths occurring on or after 1 January 2022. The PR will still need to report information relating to IHT liability, but this can be included in the probate or certificate of confirmation application. The most significant changes include:

  • Where the estate is of low value (i.e. the gross value is lower than the IHT threshold), the limit of certain lifetime transfers and trust property has increase from £150,000 to £250,000.
  • Where the estate is exempt (i.e. the gross value is higher that the IHT threshold, but the spousal or charity exemption brings the net value under the IHT threshold);
    • The value limit of the gross estate has increased from £1 million to £3 million.
    • The value limit of assets on chargeable trust property has increased from £150,000 to £250,000, but the value of assets in the trust is limited to £1 million where the trust includes assets which pass to the spouse or charity.
    • The value limit for ‘specified transfers’ has been increased from £150,00 to £250,000

If you are a Personal Representative and you need assistance with obtaining a grant of representation or with estate administration in general then please get in touch with a member of Mercers highly experienced Private Client Department to discuss how we can assist you.

Written by Tom Spratley – Trainee Solicitor.