The Law Commission released its final report on Intestacy & Family Provision Claims on Death on 14 December 2011:

(http://www.justice.gov.uk/lawcommission/publications/intestacy.htm ). In summary it recommends a package of reforms modifying the current legal rules to reflect modern social expectations and where possible to remove arbitrary or unduly technical aspects whilst retaining the fundamental English concept of ‘succession’ to an estate.

2011 ended with a flurry of developments which all contribute to keeping the tax adviser on their toes. Here are five things you need to know:

1.  What is ‘reasonable excuse’?

‘Reasonable excuse’ is not defined in statute but it has been the subject of several tax cases. The law does specify two situations that are not reasonable excuse:

When a child may, by virtue of a Will trust or intestacy, become entitled to capital at 18 it may be necessary to consider a deferral of the date on which he might become entitled to that capital and in the case of Wright v Gater [2011] EWHC 2881 Mr Justice Norris summarised the approach to applications made under the VTA 1958.

The issue in this case is quite simply whether the two purportedly attesting witnesses were in fact both present when the deceased signed his Will. There was a pretty standard attestation clause and there were two witnesses who signed in the allotted spaces below the testator but the deceased’s daughter, Balvinder, argued that the deceased signed the Will in the presence of just Mr Grantham at his house and subsequently obtained Mr Ahluwalia’s signature, who was not present at the same time.

This was a claim for rectification brought out of time by the deceased’s daughter, Caroline. The executors were willing to admit the claim and the residuary legatees who would otherwise inherit had written to the court confirming they would not oppose it. The court however, had to consider whether the grounds for relief had been met.

The Supreme Court handed down its judgment on 9 November 2011 in the case of Jones v Kernott [2011] UKSC 53, which concerns the property rights of cohabitants, some years after one party left, in respect of the division of a property purchased jointly by them. The Court of Appeal had previously determined the equitable interests were still owned 50:50 despite the fact that Mr Kernott left the property in 1993.

This case provides a useful reminder of how essential contemporaneous file and attendance notes are in examining the validity of a Will.

The facts

Mrs Helen Imrie Blofield (the deceased) died on 19 October 2008 having made her Will on 13 November 2006.  She appointed Lionel Cranfield (Lionel) as her sole executor and left him her entire estate.

The deceased’s granddaughter, Mrs Leigh Cowderoy (Leigh) disputed the Will and sought revocation of the Grant issued to Lionel.  If the Will failed Leigh would be the deceased’s sole beneficiary under the intestacy rules.

Should the Court provide an interim financial award when the estranged spouse argues to be in special financial need? Does the Court have jurisdiction to permit occupation of the deceased’s property pending the making of the final award in probate action? Smith v Smith [2011] EWCA 2133 considers the position under the Inheritance (Provision for Family & Dependents) Act 1975 (IPFD).

Following the coming into effect of Outcomes Focused Regulation (OFR) the vexed question of how to approach taking Will instructions from couples raises its head even more starkly.  This piece tries to spot the traps.

Who is the client?

Is it each individual person in a marriage who is the client or the married couple as some kind of entity?

Our professional Guide used to say:

Well, after months of waiting expectantly for the advent of a new era in the operation of the legal services market 6 October 2011 has arrived and is something of a damp squib.

Lay trustees often rely on tax and trust professionals to deal with the tax side of the trust’s affairs. However, the duty and responsibility to pay the tax by the due dates for payment rests with the trustees and it will not be a reasonable excuse to say that the trustees relied on professional advisers. However, the failure of the professional advisers to pay the tax on time will doubtless colour the trustees’ view as to whether they wish the said professional to handle the trust in future.

In the recent case of Morris v Davies [2011] EWHC 1773 the deceased, Owen Davies, died unexpectedly in Paris. He was born in England and was a British Citizen but at the time of his death he was based in Belgium and weekly commuting to a place just outside Paris. His last Will was made on 30 March 1996. Which jurisdiction should deal with the validity or otherwise of his Will?

Preparing trusts in Wills providing for the testator’s disabled child is a balancing act between generating a flexible vehicle for both the disabled person’s lifetime and beyond their death and deciding whether the trust needs to be a Disabled Person’s Interest for IHT or whether it would be better to be a Discretionary trust subject to the relevant property regime. The recent case of Barclays Bank Trust Company Ltd as Trustees of the Poppleston Will Trust v HMRC [2011] EWCA 810 examines the construction of such a Will to determine its correct tax treatment on the death of the disabled beneficiary.

The recent case of In the matter of the Duchy of Manchester English & Irish Settled Estates [2011] EWHC 1856 tackles the problem of whether or not certain children of 13th Duke of Manchester were eligible to benefit under the family settlements as ‘issue’ of the 13th Duke’s father or as ‘descendants’ of the 1st Duke given their parents bigamous marriage. Despite the aristocratic handles this is a matter of general interest in the interpretation of trusts particularly where relationships might not be all they appear and yet produce children.

At present there is no full statutory definition of tax residence and the Government believes there is a strong case for introducing one for individuals. Most practitioners would heartily agree, given the definition largely rests on conflicting case law.

Tax residence is an essential pre-requisite for determining an individual’s tax liability so should be clear in order to be fair. To this end HMRC and HM Treasury issued a consultation document:

http://www.hm-treasury.gov.uk/consult_statutory_residence_test.htm

on 17 June 2011 in the hope that the responses will inform the draft legislation for the Finance Bill 2012. Comments are requested by 9 September 2011.

The claim for Agricultural Property Relief (APR) on the farmhouse occupied by Dennis Golding is an interesting case for those advising small farmers where through age and infirmity little agricultural activity is conducted at the farm and low profits might be seen as determinative of lack of commerciality.

The Government announced in Budget 2011 that it wanted to support philanthropy, encourage charitable giving and reduce the administrative burden on charities. As part of that initiative a consultation is under way which concerns the decision to reduce the rate of Inheritance Tax (IHT) for those leaving 10% or more of their estate on death to charity – see http://bit.ly/kfjCV5

Should trustees and those who advise on the use of trusts to protect assets from broken marriages be concerned about the recent case of Whaley v Whaley [2011] EWCA Civ 617? The Court of Appeal certainly criticised the obfuscation of the husband (whose parents created the relevant trusts) as to the nature of the trusts and the behaviour of the trustees. It is a lesson in how the matrimonial court deals with trust property on divorce.

The Law Commission has issued a supplemental consultation to its Intestacy and Family Provisions Claims on Death consultation paper 191. It invites comment on its review of sections 31 & 32 Trustee Act 1925 by 21 July 2011. http://bit.ly/lTk441

The review focuses on those two well-known and important sections of the Trustee Act 1925 which deal with the administration of income and the advancement of capital.

Who would have thought that the current tax definition of an incapacitated person dates back to before 1918 and therefore uses terminology that most of us would now recognise as offensive such as ‘any infant, person of unsound mind, lunatic, idiot or insane person’.

 

To the government’s credit it was agreed as part of the Budget that the legislative terminology needed to be brought in line with the operational terminology which is both more appropriate and takes into account modern views on mental health conditions. Hence HMRC published a consultation document on 24 May 2011 – for a download see http://bit.ly/mjpqM4

A salutary warning for those advising PRs – remember that there is no time limit on bringing a probate action. However, fortunately, the absence of advice as to the risks of anyone pursuing a claim of which the PRs had notice is subject to limitation which saw the solicitors here defeating the PRs’ claim.

Will draftsmen and probate practitioners will be familiar with the requirements for a valid Will as far as execution of the document is concerned – it must comply with s.9 Wills Act 1837 but in what circumstances might the execution still turn out to be valid when not signed strictly in accordance with the basic requirements? The recent case of Barrett v Bem [2011] EWHC 1247 is a fascinating review of what passes muster.

End of life issues and how the Wills & Probate Practitioner might help

Did you know that it was Dying Awareness Week last week? I must confess I read about it in the Guardian and the Times (one of the consequences of lecturing around the country is you get to read a variety of newspapers) but had not previously heard of the organisation who planned it – Dying Matters. This initiative coincided with the investigation by the Times about the lack of available burial space in England and the publication of an interesting book by Patricia C Byron entitled ‘Last Orders’ – the essential guide to your letter of wishes.

All in all a great week for firms to engage with their clients and potential clients about the age old problem of making a Will and encouraging a tidy and organised death. What did you do? What could you do?

A recent case considers whether an award should be made for the surviving partner of an intestate where they had lived together for five years before his death and had an 18 year relationship. It is a claim which had to be balanced between the surviving partner and the deceased’s two adult children who inherited on the deceased’s intestacy. One wonders what the order might have been should some of the proposals suggested in the Law Commission report on Intestacy have been enacted.

Our work is never dull – the ground rules are always changing and we have to be nimble on our feet to avoid the potential to get stuck in the mud. Changes of Government particularly result in changes of emphasis or policy at the Treasury and therefore in the actions and behaviour at HMRC. Here I plan to provide the practitioner with a round-up of current developments in tax as they affect the Wills, Probate and Trust practitioner.

The recent case of Minkin v Cawdery Kaye Fireman & Taylor [2011] EWHC 177 presents all solicitors with a risk management lesson. Craft your retainer carefully, keep the client updated on costs and beware terminating your retainer without good reason and without reasonable notice to the client.

Trustees who took a decision to carry out work to trust property over a period of six years rather than sell it without taking professional advice were in breach of their duty of care owed to the beneficiaries.  However, fortunately for them, the result was not a loss to the beneficiaries and so no personal liability which would otherwise have fallen on the trustees. As the judge said “it is a case of a thoughtless breach of trust that happens to have turned out well.”

The purpose of the Excepted Estates process is to reduce the number of probate cases where a full Inheritance Tax (IHT) account (the IHT 400) has to be used. If the IHT 400 is not needed it reduces the amount of work required in the administration of the deceased’s estate. However, the IHT 205 form, which is considerably shorter, has to be submitted to the Probate Registry instead.

The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2011, SI2011/214 came into force on 1 March 2011. They bring into effect some tidying up of the rules but in essence their main purpose is to accommodate the transferable nil rate band.

Under the Inheritance (Provision for Family & Dependents) Act 1975 [IPFD 1975] the courts have a discretion to alter the terms of the succession to a person’s estate despite our jurisdiction’s adherence to the principle of testamentary freedom. This discretion may be exercised in favour of an eligible applicant who can show that the deceased failed to make reasonable financial provision for them.

In the recent case of Ilott v Mitson [2011] EWCA 346 the court had to consider the claim of an estranged adult child. It calls into question just what a Wills draftsman can do to minimise the risk of a testator’s Will being affected by such a claim.

The Disclosure of Tax Avoidance Schemes (DOTAS) system was introduced for certain taxes in 2006. Inheritance Tax (IHT) was not included at the start. The objectives of the disclosure rules are to obtain:

• Early information about tax arrangements and how they work; and
• Information about who has used them

which clearly gives HMRC the opportunity to consider their impact and where appropriate to put forward legislation to close a particular scheme down.

With effect from 6 April 2011 schemes which seek to avoid IHT charges associated with the transfer of property into trust come within the disclosure rules. Do you know which matters are affected? Do you know what you are supposed to do?

The lot of the probate practitioner grows more complicated and contentious as time goes by. The validity of Wills is challenged with regularity and whilst this may mean problems for the Will draftsman it inevitably results in delay in the administration of an estate. It is also true that changes to taxation are a regular feature of our legal system and keeping abreast with the minutiae is always tricky. This blog mentions a few of the latest developments.

Most solicitors preparing Wills are happy to offer their firm’s services when it comes to the provision of executors if clients are unsure who to appoint. However, do you suggest it is compulsory? Do you inform the client of the choices open to them? Do you make it abundantly clear how you will charge for acting as an executor?

Those of us drafting Wills for a living are increasingly tired of the old saw that most Wills are simple. The Law Society campaign arguing for the regulation of Will writing has included anecdotal evidence of poor drafting and sharp practice which may encourage regulation. Against this backdrop the Legal Services Institute has published a paper entitled: “Legal Services: What is the case for reservation?” and I would commend Will draftsmen to read it.

The Office of the Public Guardian (OPG) is the administrative office of the Public Guardian which role is designed to ensure that those entrusted with decision making authority on behalf of those incapable of making decisions for themselves do so appropriately without abuse and in accordance with the Mental Capacity Act 2005 (MCA 2005).

The fee structure is up for review and views are invited on the proposals contained in their Consultation Paper published on 28 February 2011. The consultation period is apparently due to end on 21 May 2011 and the initial date for the coming into effect of the changes (1 April 2011) has therefore been set back to 1 July 2011.

The supervising of the execution of husband and wife mirror Wills is usually stress free but in the drive to be friendly the danger is we all too easily get distracted by talking to our clients and the easiest job becomes a nightmare. The recent case of Marley v Rawlings [2011] EWHC 161 is such a sad tale.

The lawyer’s perception of what the client wants is very different to what the customer actually wants.....

Solicitors are intelligent human beings who are consumers themselves so why when faced with the same evidence over and over again of what the consumer of legal services wants from its providers do we simply complain that they ‘don’t understand’ and state that the solicitors’ brand ‘is better than our competitors’ so choose us?

A trainee solicitor was instructed to sell Mrs Hill’s property in a private sale for £145,000. Originally this was on the basis that her daughter would then join her in buying an alternative property. What onus is there on the solicitor’s firm to establish a person’s capacity to enter into contracts in such circumstances?

The recent case of Thorpe v Fellowes Solicitors LLP [2011] EWHC 61 provides some answers.

In many cases where one spouse decides to set up or buy a company through which to earn a living, tax advice has meant that it is usual to involve the other spouse as an owner of some shares. The dividend income can then be split favourably between them to avoid one spouse paying unnecessary higher rates of income tax by being the sole recipient of any dividend income.

HMRC tried to apply the settlement code to such situations and despite their failure in the Arctic Systems case have recently tried again in the case of Patmore v HMRC [2010] UKFTT 334 [2010] WTLR 125.

I have just come across a report by Steve Brooker for the National Consumer Council (http://bit.ly/gPNLEI) which identifies the way in which changes in society are revealing a number of gaps in our inheritance laws which must be plugged by making a Will. However, the report (which is essential reading) highlights that the very people who should be making a Will often are the group least likely to do so.

The awkward case of RSPCA v Sharp reached the Court of Appeal on 21 December 2010. It was an appeal by the RSPCA against the judgment of Peter Smith upon the interpretation of a testator’s Will. The interpretation of the Will had been challenged by the RSPCA as residuary beneficiary and caused much debate. He found against the charity and was most critical of their approach to the matter. The Court of Appeal unanimously disagreed with the trial judge and concluded the RSPCA should succeed.

Dr Christine Gill received much publicity in her fight to have her mother’s Will set aside. She succeeded at first instance and as a result inherited the family farm estimated to be worth £2.1 million. The Judge decided the case on the basis of undue influence and the RSPCA appealed. The Court of Appeal unanimously declined to accept the basis of the finding on 14 December 2010 in favour of Dr Gill but supported her cross-appeal and so supported her case but decided it on a different basis.

Happy 2011 to you all! After the festive fizz now the new year slumber but hopefully not slump. 2010 was something of a transitional year with a change in government and the beginning of a slight improvement in the economy but 2011 is the beginning of the Coalition’s economic deep freeze which will start in earnest to-day with the increase in VAT to 20%.

As the historians say you cannot understand the present without understanding the past I thought it was timely to review some of the ‘highlights’ of 2010.

Gill Steel's Blog - Steel Snippets will be back from 4 January 2011.

Wishing you a successful and prosperous New Year.

Who would have guessed that the Office of Tax Simplification (OTS) set up by the Government in July 2010 to remove reliefs which:

• Were largely historic,
• Were not frequently used;
• Create distortions in the tax system; or
• Are used by a number of taxpayers but that are complex for business and/or HMRC to administer

would be advocating the removal of some core reliefs which Wills, Probate and Trusts practitioners might have regarded as sacrosanct.

You may have wondered whether I had dropped off my perch or was sunning myself on some foreign shore. Neither in fact. I was none too well and then rather overwhelmed in catching up so my apologies for leaving you in the lurch just as the snow and cold hit.

While I have been off the air I have been busy with a number of conferences, consultations and considerations. What has become all too apparent from recent events is the inexorable rise in contentious probate. Is it time for all non-contentious probate practitioners to consider becoming litigators or at least understand what is involved in the processes and procedures of litigation and mediation?

Trustees must always distinguish between what is capital and what is income in the management of their trusts since different classes of beneficiaries may benefit from capital compared with income and different taxes apply.

Defining what is capital and what is income sometimes produces a lack of fairness between those beneficiaries who are entitled to the capital and those who are entitled to income. As a consequence the law intervenes and suggests apportionments. The Law Commission was asked to consider some practical difficulties as a result of concerns expressed during the passage of the Trustee Act 2000 through Parliament.

The recent case of Trustees of Bessie Taube Discretionary Settlement Trust & others v HMRC [2010] UK FTT 473 has also had to grapple with this issue.

Q. When drafting wills, we offer our services as executors, although the client may of course choose someone else. However, a solicitor who has recently joined the firm has questioned this practice. Is there anything improper in it?

A. It depends on the manner in which you do this and the information and advice you give to your clients. There is nothing improper per se in your firm being appointed as executors, but:

HM Revenue and Customs (HMRC) have published 3 further toolkits to help agents avoid common errors when completing clients’ returns.

The toolkits are downloadable from http://www.hmrc.gov.uk/agents/prereturn-support-agents.htm, and cover:

• VAT Input Tax
• Inheritance Tax
• Expenses and benefits from employment

The Mental Capacity Act 2005 requires those acting for persons who have lost capacity to make decisions in the best interests of the person lacking capacity. In situations where a statutory Will is requested the Court is in danger of encouraging numerous applications where the main issue is the validity of a new Will made when there was doubt about testamentary capacity or concern as to undue influence. This case sets out the applicable principles to be applied when authorising a Deputy to execute a statutory Will.

The function of rectification is to put right a mistake in the way the parties recorded their agreement. The problem often is that it is hard to distinguish the misapprehension about the tax consequences of executing a particular document from the parties’ specific intention as to how the fiscal objective was to be achieved in the terms of the agreement. Simple misunderstanding of the tax consequences does not justify an order for rectification as the case of Ashcroft v Barnsdale [2010] EWHC 1948 shows:

A lovely sunny morning; it’s Friday and thoughts turn to the weekend, drinks with friends; time with the family and generally achieving some work/life balance. I turn to the task of reading a number of consultation documents which affect the private client practitioner and notice the sunny morning has slipped into a rather grey and miserly afternoon; perhaps it is the thought of all those consultations!

Disclosure of IHT avoidance

To see the consultation document you need to download a copy from http://bit.ly/cE6B2O

This will mean that we have to .......

The ever difficult decision as to the division of property assets on the breakdown of a cohabitation relationship continues to cause inevitable pain. The Court of Appeal has reversed the first instance decision in Jones v Kernott. As Lord Justice Wall said:

“This is a cautionary tale, which all unmarried couples who are contemplating the purchase of residential property as their home, and all solicitors who advise them, should study. The facts are not in dispute and are unusual only in the sense that a great deal of time has elapsed since the parties separated.”

The perennial difficulty of a person married twice must be to divide his estate fairly between his second wife and the children of his first marriage. This case explores the modern version of this problem – the international family with the deceased a citizen of France but domiciled and habitually resident in England; his children born and resident in France and his second wife Argentinean but domiciled in England. It is particularly difficult when capacity might be called into question through poor health and there is always the old chestnut of ‘undue influence’ to add into the mix.

Every firm of solicitors, law centre, and certain in-house legal practices in England & Wales must have a principal who is ‘qualified to supervise’ in accordance with Rule 5 Solicitors’ Code of Conduct 2007 – to ensure “the supervision and management of a firm or in-house practice, the maintenance of competence, and the internal business arrangements essential to the proper delivery of services to clients”.

Should a lay trustee whose co-trustee was the Executor and Trust Company of a solicitor’s firm be entitled to argue that he had a reasonable excuse for the late payment of capital gains tax (CGT) on a share sale because HMRC had not drawn the payment on account feature to his attention?

The interesting article by John Woolley in Money Marketing entitled Double by-pass confuses points on perpetuity dated 19 April 2010 and the ensuing debate on the Trust Discussion Forum on this issue gives rise to some rather technical issues to be explained to clients thinking of using a pilot discretionary trust to receive their pension death benefits should the trustees of their pension scheme choose to exercise their discretion according to the member’s letter of wishes. It also calls into question the true benefit of making a by-pass trust for this purpose.

The Emergency Budget produced a modest 45 Budget notes to kick-start the Chancellor’s five year plan to rebuild the British economy. Somewhere in the mix are the 6 issues of interest to private client practitioners which are the subject of this summary.

The valuation of real property for probate purposes has been under the spot light for some time. Practitioners are rightly concerned to do what is necessary to obtain an open market value of a property in an estate in accordance with s.160 IHTA 1984. However, the stance taken by HMRC over the question of valuation is causing a good many practitioners to question the number and type of valuations required to satisfy HMRC and demonstrate the correct value has been chosen for Inheritance Tax purposes.

The recent tribunal hearing in the estate of Raymond Francis Hewitt Hobart deceased is a welcome win for the taxpayer:

The law relating to mistake and the rule in Hastings-Bass, where trustees exercise their powers in a misapprehension as to the effect of the exercise of those powers, have developed along different lines. This is another case in which the Court was asked to apply the rule to protect the beneficiaries where the trustees had exercised their powers incorrectly because the resulting tax consequences were not as they had anticipated.

Managing risk is one of the hot summer topics as we enter the season for professional indemnity insurance renewal. Identifying the risk is the first step to ensuring that risk is managed. In the complex world of tax it surely makes sense to employ tools provided by HMRC which address the many mistakes they see, the impact of which may result in penalties and loss of reputation.

Why not consider the relevant toolkit for you and see if it can provide guidance as part of your firm’s risk management of tax advice and compliance?

When considering the availability of Agricultural Property Relief (APR) for Inheritance Tax (IHT) we must remember the provisions of s.117 IHTA 1984. The property must have been either:

• Occupied by the transferor for the purposes of agriculture throughout the period of 2 years prior to the date of the transfer; or

• Owned by the transferor and occupied by him or someone else for the purposes of agriculture throughout the period of 7 years prior to the date of the transfer

Where a farmer through Illness or old age is not in occupation then it would seem that there is no actual relief. In practice HMRC will allow 3 months absence but there must be an intention to return and it must be possible to re-occupy the property. This little case provides some useful clarification where the senior partner in a farming partnership had moved into a care home but the ‘bungalow was still used to accommodate the diminishing needs of the senior partner’.

This case involved a slight development in the Banks v Goodfellow test for mental capacity as it takes into account the testator’s decision-making powers rather than just comprehension which the Judge felt was necessary because of the development of psychiatric medicine.

The recent case of Fryer v HMRC [2010] UK FTT 87 is a reminder that cases brought before the new First Tier Tax Tribunal are limited to matters within their statutory authority – namely, they are to consider the statutory provisions as they are and not as the parties to the proceedings might want them to be on the basis of fairness. It follows that where a person is found to fall within a statutory provision, it must be applied.

In this case, the provisions in question were s.3 IHTA 1984 (relating to what is a transfer of value) and s.10 IHTA 1984 (providing for dispositions not intended to confer a gratuitous benefit).

What should you advise a client to do? The Government has just announced in the Budget 2010 that the Nil Rate Band (NRB) is frozen at £325,000 until 2014/15. The Conservatives announced some time ago that they intend to raise the NRB threshold to £1 million whilst retaining the transferable NRB (TNRB). Even with the current budget deficit the Conservatives maintain they will adhere to this policy, it might just be delayed.

Meanwhile, we have the Government’s statistics for the amount of money in millions of pounds generated by the various taxes both direct and indirect which shows just how small a contribution to the fiscal pot IHT makes. For 2009/10 it represented 2,251 million which sounds a lot until you hear that Beer duties bring in 3,151 million and it is likely that there are more HMRC staff administering IHT than Beer duty!

If the government’s coffers are definitely half full and considerable public sector retrenchment is ahead whichever political party gains power after the election one does have to wonder why we continue with IHT when a mere 2% on income tax would bring in more at the current time or even 3.5% on VAT.

It is this political uncertainty which is surely keeping clients from undertaking tax planning at the current time coupled with their need to retain as much capital as possible to fund their future in a low interest world. How do we suggest clients should approach Will drafting and estate planning against this backdrop?

A trustee will usually retire voluntarily under the statutory powers contained in the Trustee Act 1925. However, it is possible that the retirement may come about because:

• all the beneficiaries (being of full age and capacity) require it,
• by the exercise of an express power contained in the trust deed; or
• by order of the Court

Mr Gaines-Cooper’s appeal against assessment to £30 million of back taxes was heard with two other appeals regarding the same issue; namely, the apparent change in HMRC’s interpretation of the law and their use of the IR20 leaflet.

Mr Gaines-Cooper and his co-appellants contended that HMRC had misapplied and misconstrued paragraphs 2.7-2.9 of IR20 which deals with “Leaving the UK permanently or indefinitely”.

Those paragraphs say:

The interpretation of a testator’s Will was challenged by the RSPCA as residuary beneficiary which caused the judge to comment that the charity’s claim was “extremely weak and should not have been brought”. However, the charity argued that all it was trying to do was to honour what it believed was the deceased’s intention.

Trusts come in all shapes and sizes but the longer a trust lasts and the larger the potential value of the assets the more likely it is that the beneficiaries will look closely at how the trustees are managing it and this in part depends on their skills in observing the powers they have but also looking ahead to ensure they have sufficient powers.  Some recent cases illustrate the need for vigilance.

An interesting recent thread on the Trust Discussion Forum reveals how easy it is to do what the client asks and believe you have drafted a simple clause which will do precisely what the client wants but yet cause probate mayhem.

I am all for simplicity but will the outcome work in the way anticipated by the client if technical words are not used? Sometimes what is required may seem to a lay person legal jargon but nevertheless it is necessary. Our job is then to explain what the words do and why they are needed.

The origins of a European instrument to govern mutual recognition of succession across the EU first appeared in 1998. There followed an extensive Green Paper which was issued in March 2005.

On 14 October 2009 the European Commission issued a long awaited draft Regulation. This can be found at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0154:FIN:EN:PDF#page=2.

However, on 15 December 2009 Jack Straw, as Minister of Justice, announced that the UK government has chosen to elect to opt out of the Regulation – it can opt-in later in the negotiations.

How will your practice be affected?

Well it’s come and gone and we are none the wiser. The predictions that the Pre Budget Report on the 9 December 2009 would introduce draconian Capital Gains Tax (CGT) anti-avoidance rules in advance of an increase in the rate of CGT in the Budget in March did not happen; the abolition of Business Property Relief did not happen and where were the spending cuts? Certainly they were not announced in detail in the PBR.

Instead we got the following:

© Gill Steel, LawSkills Ltd. 2009

The publication of Lord Hunt’s report into the regulation of legal services on 5 October 2009 seems to have had a somewhat low key response so far.  In 115 pages he addresses the profession in the hope of helping ‘to build an effective, proportionate regulatory regime that would serve the public interest in line with the statutory regulatory objectives.’  What are the main issues he addresses and what will his proposals mean for the beleaguered probate practitioner?

© Gill Steel, LawSkills Ltd. 2009

In the case of Devas v Mackay [2009] EWHC 1951 (Ch) the family of a wealthy widow succeeded in their claim against a home made Will leaving her entire estate to the son of her carer. Mrs Devas had been isolated from her family by her dementia and arguably by the behaviour of her carers. Her capital was substantially depleted before her death in 2006 giving rise to the suspicion of fraud by those caring for her.

It might seem odd to start a piece entitled ‘the challenge of now’ with a story from nearly 15 years ago but as the historians say you cannot really understand the present unless you understand the past. The challenge of now is that in the worst recession the profession has experienced in most of our lifetimes we have the tsunami of change in the legal services marketplace just around the corner. You knew it was coming; it always seemed to be in the future but now it is almost here. Are you prepared for Alternative Business Structures? Do you have any idea of the impact they might have on your firm?

The STEP provisions 1st Edition were in need of updating to reflect both changes in the law and practical problems in administration.  It seems hard to think that since the 1st Edition was published we have had the Trusts of Land & Appointment of Trustees Act 1996, the Trustee Act 2000 and the FA 2006.

The Bill has now been heard by the House of Lords and has passed to the House of Commons which will not now be able to consider it further until after 12 October 2009.

Most firms conducting probate work continue to be busy despite the recession although converting enquiries into confirmed cases is increasingly challenging as personal representatives look keenly at prices and levels of service. What follows represents recent additional challenges in this area:

I was recently asked to advise a farmer on the prospect of retaining APR/BPR for IHT in the event of him agreeing to a Wind Turbine or two on his land. It certainly proved to be an interesting question - no answer, sadly, was to be found blowing in the wind on the Isle of Wight!

In the summer clients often want their Wills prepared in a hurry before they go on holiday. The poor Will draftsman has to drop everything but what if the crucial problem is not asking the right questions about the connection this client has with his destination of choice? Could it be that the client is actually legally or fiscally linked to the jurisdiction in which his holiday is to take place? The Will draftsman will forget the critical questions at his or her peril.

The Finance Bill received Royal Assent on 21 July 2009 and as a result the new s.6 and Schedule 2 to the Finance Act 2009 brings in the provisions for an additional rate of income tax and an additional rate for dividends. The consequential amendments include increases to the trust rate and the dividend trust rate. By aligning the trust rate and the dividend trust rate with the highest rates of personal taxation this means that the trust rate increases to 50% from 40% with effect from 6 April 2010 and the dividend trust rate increases from 32.5% to 42.5%.

For events on or after 1 April 2009 the liable person(s) may be charged penalties if they do not take reasonable care in preparing their IHT account or excepted estate return. Have you updated your practice and procedures to avoid penalties?

The so-called simplification of Will drafting by the introduction of the Transferable Nil Rate Band (TNRB) has complicated matters for some clients. Where the clients have been married (or been in a civil partnership) before particular care is required in assessing the use or transferability of the previous spouse/CP unused nil rate band. The Will drafter should focus on where any unused nil rate band may be wasted and whether the client appreciates the options open to him. For a simple checklist to consider in such circumstances please click below.

CHECKLIST - download pdf here

© Gill Steel, LawSkills Ltd. 2009

Are special tax reliefs for furnished holiday lettings likely to become a thing of the past from 6 April 2010 in the light of the release on Budget Day of HMRC’s technical note sounding the demise of the legislative code for income tax and CGT contained in Income Tax (Trading & Other Income) Act 2005?

The vexed question of whether or not Will drafting should be regulated has dogged the legal world for years. However, as we await deliberations on the regulation of solicitors by Lord Hunt on behalf of the Law Society and the decision of the newly created Legal Services Board on which legal services should be regulated and which need not, it seems timely to re-visit this question. The overwhelming majority of those responding to the poll survey on this website were in favour of regulation.

Although no new Enduring Powers of Attorney (EPAs) can be created since 30 September 2007 there are nevertheless thousands of EPAs in existence and their validity may only be checked when registration is attempted.

There is no limit on the number of EPAs a donor can create and in the case of multiple appointments they can be concurrent or successive. The recent case of Re J [2009] EWHC 436 has considered whether a single EPA was valid, which purported to appoint the donor’s spouse but should she predecease the donor or be unable to act or continue to act then in the alternative his three sons jointly and severally.

HM Revenue & Customs (HMRC) are introducing a series of toolkits for agents to provide guidance on risk management (compliance from HMRC’s perspective), and to set out how agents can reduce the likelihood of mistakes occurring in returns.

HMRC believe that using the toolkits will help agents to ensure the completeness and accuracy of returns and thus reduce the potential risk of an HMRC enquiry or inspection.

In a Budget which has been criticised on all sides the Chancellor Alistair Darling has for once not taken the opportunity to alter much which affects the Wills, Probate and Trust practitioner who does not deal with offshore matters. The three headline items are:

• the significant increase in income tax rates on trusts with no interest in possession
• the expansion of the geographic area to which Agricultural Property Relief applies and
• the bringing of IHT into line with the new compliance regime

The Legal Services Act 2007 fired the starting pistol to the race for the provision of legal services by all sorts of new legal service firms instead of the traditional law firm. We all knew about the race; some may have been training for it for some time but the majority of practitioners were busy with fee earning work wondering how they would find work in future and how they might be organised to deliver that work was probably the last thing on their minds. Then the economic world as we knew it collapsed and with it the market for professional services, amongst other things; firms have had to make drastic, radical and short-term changes to stay solvent.

This is not a good time therefore to be facing some fundamental structural changes in our profession but they are upon us. If firms make only short-term decisions without reference to the new market for the provision of Wills, Probate, Trust & Tax services then any survival will be short-lived. It is necessary to have a plan which is flexible enough to address current difficulties but in alignment with the longer term project. False starts cause delay and may lose you the race.

HMRC are replacing the IHT200 with IHT400 with effect from 9 June 2009 but the new form is already available on the HMRC website. The basic concept of the IHT account is unchanged – it will continue to constitute a core form with various schedules.