Private ClientFILE October 2009
Family Legal Advice Clinic Now Open at Brethertons
Having family problems and don’t know which way to turn? Concerned about making the first steps? And worried about how the change in circumstances might affect the children? The questions are endless at such a difficult time in your life but at Brethertons we understand this and we can you get through it.
Free legal Advice
From now until Christmas, we are offering a FREE 30 minute consultation with one of our expert legal advisers, who will be able to discuss your situation with you and provide you with the information you need to make the right decision for yourself and your family.
Even if you’re not yet ready to formally instruct solicitors but wish to know what your legal position would be, feel free to book an appointment to see one of our expert legal advisers. This will give you the opportunity to discuss your circumstances and to find out what the possible consequences might be if the changes in your family relationships went ahead.
Following the free 30 minute consultation you are not committed to take any course of action if you feel that it is not right for you.
Need to see a Solicitor outside office hours
Due to strong demand and as part of our on going commitment to meet your needs, we are offering a family legal advice clinic at our Rugby office every Wednesday between 5:00-7:00 to enable us to fit around your working hours and busy schedules. To ensure you are able to see an Adviser you will need to pre-book an appointment.
Want to make an Appointment
If you wish to make an appointment, please call Lisa Warden on: 01788 532 926 or email lisawarden@brethertons.co.uk
Appointments are held at our Church Street Office - 16 Church Street, RUGBY, CV21 3PW.
Lasting Powers of Attorneys = Peace of Mind
Leading regional law firm Brethertons LLP is encouraging people to get their affairs in order this autumn in case the worst happens! Most of us have not directly experienced the devastation dementia, mental illness, or brain injury can bring to a family. Not just the physical effects, and sense of loss family and friends suffer, but also the administrative hurdles that exist, which family and friends must overcome before they can get their financial affairs in order.
From the beginning of October until the end of 2009 Brethertons will provide clients with a fully registered and effective Lasting Power of Attorney (LPA) for an all inclusive price of £279.00 per LPA. This includes all the costs of preparing and registering the document, and even includes VAT and the Court registration fee of £120. This is about half the usual price in an attempt to raise awareness of the importance of LPAs.
Elizabeth Young, partner with Brethertons explains: “Everyone knows they need to make a Will to ensure their affairs are in order when they die, but far fewer are prepared for illnesses or accidents which may affect their ability to manage their finances or make decisions about their health or welfare during their lifetime.
The advice is; don’t leave it until it is too late! In many cases individuals may not be able to complete an LPA if they have already suffered some level of incapacity. “
Elizabeth, who as well as being a solicitor is also a Court of Protection appointed Panel Deputy says: “If your affairs need to be managed by a third party and you do not have a valid LPA (or Enduring Power of Attorney – their predecessor) then the only real alternative is for your next of kin to make an application to the Court of Protection. This is a long winded, invasive and expensive process which can so easily be avoided.”
It goes without saying that we cannot predict the future, apart from the fact that life is rarely simple! However, as Elizabeth states: “Everyone can be prepared for future misfortune, as far as possible, with a carefully considered and well drafted Will, tax planning and asset protection advice. LPAs are an essential part of this planning package and will ensure a smooth handover of responsibility to close family, friends, or advisers - people you really trust, in case accident, illness, or old age means you can no longer manage your finances.”
To take advantage of the Brethertons LPA offer, please reserve an appointment by contacting:
Carly McPhillips (Rugby) on 01788 559510 or Emma Blackman (Banbury) on 01295 661440 and in either case please quote Autumn 2009.
Divorce – Future Pension Not Taken Into Account
A recent, bitterly contested ‘big money’ divorce case shows how reluctant the courts are to upset financial settlements on the basis of contingencies and reinforces the point that bad behaviour is not a basis for changing the division of the assets.
It involved, as do so many high profile cases, a man who was successful in the City and his wife. The couple had lived together for five years before they married in 2003, but the marriage broke down in 2005. The couple had one child.
Both parties tried to keep secrets from the other. The husband failed to disclose that he would be the beneficiary of a ‘lucrative’ pension plan in 2023 and the wife failed to disclose that she had become pregnant by another man, with whom she had a relationship that could be described as cohabiting.
In late 2006, the husband was ordered to pay his wife £7,500 per month in maintenance and the family assets were apportioned. When she discovered that her husband was to benefit from the pension, the wife sought to obtain an increase in the maintenance payable for her and their child. The husband sought to resist her sharing in any wealth which he had created after their separation.
The outcome of the case was that the judge ordered some changes to the maintenance payments and the division of assets. However, the important points relate to the changes he could have made and did not.
With regard to the pension, he concluded that since it could not be touched before 2023, it would not in his view be fair to require the husband to share, in whatever proportion, the value of this fund with his ex-wife.
On the matter of the wife being deprived of a share in the post-separation earnings, the judge concluded that, ‘I do not accept that such contributions by a wife to the family after the end of the marital partnership can generally be said to warrant a conclusion that a proportion of the husband’s future income continues to be attributable to the wife’s domestic contribution and thus a fruit of the marital partnership’. He therefore denied the claim that she should share in the increase in assets between their separation and divorce. Interestingly, he remitted for negotiation whether the revised maintenance payments should be set in Pounds Sterling or (as the wife now lives in Ireland) in Euros.
Neither was the judge swayed by the wife’s commencement of a new relationship nor was the possibility of financial support from her family, who are wealthy, a factor which affected his decision.
In reaching this decision, the judge commented, ‘Sadly this has been an application, both during its gestation in documentation and its investigation in oral evidence, where both … have undoubtedly (and sometimes deliberately) reprocessed elements of the history for perceived tactical advantage’.
Brethertons’ Say:
“Financial settlements on divorce depend on many factors, but the bad behaviour of one or both of the parties is seldom if ever one of them.”
Court Must Hear Evidence Before Deciding
Cases involving the custody of children are often very contentious and need to be approached with sensitivity and care. Recently, the Court of Appeal was called upon to rule in just such a case, the critical issue being whether the judge in the family court should have taken account of the wishes of the child involved.
The circumstances were that the child, a boy of 10, had lived with his mother following the separation of his parents. When he was nine, she suffered from exhaustion to the extent that she could no longer look after him, so he went to live with his father. The mother subsequently became pregnant and the boy’s father sought a residence order.
A Children and Family Court Advisory Support Service (CAFCASS) officer prepared a report on the case and recommended that the boy should return to live with his mother. This was also the preferred course of action of the boy himself. However, when the father’s application for custody was heard, the views of neither the CAFCASS officer nor the boy were heard by the court. The judge ruled that the boy was settled with his father and ordered that he should remain with him.
The mother appealed, arguing that the judge should have heard evidence from the boy and the CAFCASS officer.
The Court of Appeal agreed, holding that the judge had erred in not taking account of this evidence. He had been too heavily influenced by the fact that the boy had settled well with his father.
Brethertons’ Say:
“Sometimes, as in this case, the judge just gets it wrong and an appeal is necessary to rectify the decision. If you are having problems over any family law issue, contact us for advice.”
Pre-Nups – Not Quite There Yet
The recent case in which the Court of Appeal ruled that a German heiress was able to rely on a pre-nuptial agreement made with her husband was widely reported as meaning that the traditional view of the courts, that ‘pre-nups’ are little more than persuasive, was shattered.
However, the circumstances of that case were somewhat unusual and the comments of LJ Thorpe, the judge who issued the leading opinion, make interesting reading.
Firstly, he was at pains to make it clear that the law regarding pre-nups needs to be brought into line with that of most other countries, where they are enforceable as contracts and ‘autonomous adults’ have the right to ‘govern their future financial relationship by agreement’. He also commented that the presence of a pre-nup would assist in avoiding the stress, anxieties and expense which often accompany the negotiation of financial settlements on divorce.
Looking at the circumstances, however, the main issue was that both of the parties to the pre-nup were financially astute people (the husband had been a successful banker) and although the husband did not take professional advice before entering into the agreement, he had every opportunity to do so. He fully understood its effect. He had not asked his ex-wife for details of her finances. Crucially, it was the husband’s choice to accept the pre-nup he was offered rather than negotiate.
Brethertons’ say:
“We may expect legislation in due course to make indisputable the validity of pre-nups that are properly entered into, but there is no indication when such legislation is likely to occur. This ruling is a big step towards legitimising pre-nups, but we are not quite there yet. Until that time, it is essential that a pre-nup is entered into with full disclosure and with the benefit of professional advice on both sides.”
Failed Property ‘Try On’ May Be a Crime
An appearance in the criminal court may await a property owner who tried to be too clever with his local planning department.
The property owner submitted a planning application to build a barn to store hay. This was granted on the condition that use was limited to the storage of hay or some other agricultural purpose. When the building was constructed, it looked, from the outside, like a hay barn. However, internally it was fitted out as a house. The owner moved into the property, using it as a home from August 2002 onwards. In 2006, he applied for a certificate of lawful use on the ground that the property had been used for four years as a dwelling. Such applications can be made when the owner can show that the property has been occupied in breach of planning control for the required period of time. The appropriate time limit is four years where there is a breach of operational development or change of use of a building to use as a single dwelling.
The council refused to grant the certificate of lawful use. The property owner appealed the decision and the building inspector upheld the appeal. The council then appealed that decision.
In court, it was accepted that the property owner had intended to deceive the council from the outset regarding the true use of the building. This, as it turned out, may have been an unwise admission, as the court suggested that the property owner might have committed a criminal offence by obtaining planning permission by deception. If the offence of deception were proved, then the profit from the crime could be subject to confiscation under the Proceeds of Crime Act 2002.
The court ruled that the certificate should not be granted. Firstly, the construction of the building was not unlawful. It had planning permission and was capable of being used for the allowed purpose. There was therefore no breach of operational development. Secondly, there was no change of use to a dwelling. It has always been used as a dwelling. Accordingly a certificate of lawful use could only be correctly applied for after ten years and the council has until August 2012 to issue an enforcement notice. In the circumstances, the council is unlikely to miss the opportunity to make an example of the property owner.
Brethertons’ say:
“In this case, the property owner was well and truly ‘hoist with his own petard’. Had he remained in residence beyond August 2012, he would most likely have succeeded, although the question of unpaid council tax on the property would have caused disquiet to the council. Any resolution of the situation is likely to prove expensive. It is always better to get it right first time and be safe rather than sorry.”
Funding the First Step On the Ladder
Even though property prices have fallen considerably in recent years, getting ‘on the property ladder’ has never been harder as lending criteria have been tightened considerably since the ‘boom’ days of 125 per cent mortgages.
Young people wishing to buy a home of their own are increasingly looking to their parents for assistance.
Even if you are able to do so, it is often difficult to know the best way to give such help.
Here are the pros and cons of the usual methods:
1. Lending the Money
This seems like an easy option, but it may not be! Firstly, one has to ask the question of whether the loan from the parents is to be by way of a mortgage or not. If by mortgage, this would normally be a second mortgage to ‘top up’ the first mortgage from a bank or building society. If so, the first lender has to agree to it and the charge must be registered to be fully effective. Also, the repayment terms (if any) must be agreed. On the plus side, if the loan is by way of mortgage and is made to a child whose relationship breaks up or your child gets into financial trouble, it is likely to be recoverable. If a loan is made on which interest is payable, this will be taxable on receipt. Also, any loan will remain an asset of your estate and will not therefore produce any saving of Inheritance Tax (IHT).
2. Gifting the Money
A gift of money will reduce your estate for IHT purposes by the amount of the gift, assuming you live seven years. However, once money is gifted, it is gone for good, no matter what happens.
3. Co-purchase
One possible method is to join in the purchase, by buying a percentage of the property. This will guarantee that you continue to own a part of the asset. In practice, this can create complications as it will be almost impossible to sell the property without your agreement, you will need to make arrangements to ensure that you avoid liability for the expenses of the property and, if the property is sold at a gain, you may well have a Capital Gains Tax liability at an unexpected time. The need to provide for tax on a gain might mean you find ‘rolling over’ your loan into a new, more expensive property impossible to do – an often unanticipated problem for people preparing the budgets for their move. Make sure also that life assurance arrangements are in place – otherwise, in the unlikely event that your child were to pre-decease you, you might have to assume responsibility for the entire mortgage.
4. Acting as Guarantor
Guaranteeing payment of a proportion of the loan can often be a good compromise. The liability is limited to the amount of the guarantee and also, as the sum outstanding falls, the liability under the guarantee can often be reduced (although in many cases this will not occur until the sum due becomes less than the sum guaranteed). There are various protections which can be built into these arrangements if required.
5. Set Off
One arrangement which can be negotiated is for the parents to make a deposit with the lender and for the notional interest to be credited against the mortgage account. This is very advantageous where the depositor is a higher-rate taxpayer as the interest foregone would carry 40 per cent tax, whereas there is normally no tax relief on mortgage payments for the borrower. Such arrangements do require the money to be left on deposit for an agreed – and usually lengthy – period.
Other Considerations
One of the main considerations to bear in mind when making such arrangements is how they may affect relations with other members of the family. Another is your own financial circumstances. There are certain times of life when having large sums of money tied up may not be a good idea: one is when there is a need for long-term care and the means assessment makes a substantial contribution necessary because there is an assessed asset in the form of a loan to a child or a bank deposit in a set off account.
Whatever you do, you should always take legal advice to make sure that you have considered the pros and cons carefully and put any necessary paperwork in place.
IHT and the Recession
The recession hasn’t brought much favourable comment, but falling asset values do present opportunities for savings on Inheritance Tax (IHT). Here are some ways that you can save IHT when asset prices are depressed.
Lifetime Gifts
In general, the value for IHT purposes of an asset transferred is its value at the date of transfer. Giving away assets as lifetime gifts when prices are low means that a subsequent increase in value will belong to the new owner. Consideration should be given to transferring assets when values are low and the ‘best’ assets to transfer are those which are most likely to show gains.
Falling Property Prices
The IHT on the value of a property can be paid in instalments over 10 years. If, however, a property is sold within four years of death at a price below the valuation fixed for probate, then the executor can elect for the IHT liability to be recalculated based on the reduced value. Only the executor can make this election, so if the property is passed to a beneficiary and then sold, the election is not available. When a property is sold, the IHT due becomes payable immediately. Arranging the sale of a property just to save IHT requires careful thought as the costs associated with such a transaction are not inconsiderable.
Where a house is transferred to a beneficiary, the base cost of the asset will be the IHT value. Therefore, when the value of such an asset falls, a subsequent sale by the beneficiary may lead to a loss for Capital Gains Tax purposes.
Other Issues
The other main issue to consider as one gets older is the possible need to fund the cost of long-term care. This is a much greater threat to the wealth of most families than IHT, since the system is, in practical terms, confiscatory. Planning to protect family wealth and to fund future care needs must be approached with careful thought and knowledge of the relevant law.
Executor Costs – Beneficiaries Seek Change
Many families have lived to regret the appointment by a relative of a bank or ‘will-writer’ as the executor of their will.
It is not uncommon in such circumstances for a charge of four per cent or more to be levied by the executor for the service, plus disbursements. In practice, even a straightforward and quite modest estate can run up a five-figure bill and there is little the beneficiaries under the will can do about it, as the appointment was made by the deceased. The law does allow an executor to be removed from office if they have become disqualified since the deceased appointed them, are incapable of performing their duties or are unsuitable to hold the position of executor, but not on the ground of their proposed basis of charge.
However, this may be about to change as an action is being brought by disgruntled beneficiaries who are seeking to have a firm of will-writers removed as executors on the ground that their proposed charges are ‘excessive’.
The case will be heard later this year in the High Court.
