Wills and their ways

Wills, trusts and executries is probably not the first area you would think of as subject to rapid legal change. But the effects of social change, IT (bringing new forms of assets), and tax and regulatory changes at home and abroad mean that practitioners still face an evolving landscape, as was well illustrated by the Society’s recent CPD seminar dedicated to the subject. This feature attempts to present a selection of the many points of interest that were brought out.

Legal rights: a bone of contention

Sometimes, of course, it is the hallowed rules that prove contentious. Lindsays’ Sandy Lamb took us through some of the issues arising from legal rights, such as identifying the relevant assets and calculating their value (think cryptocurrencies, or incorporeal moveable rights such as a debt owed, or rights in a trust). Then there is the heritable-moveable border: a farmer’s interest in a farming partnership which owns the farm land is moveable even if most of the value lies in the land; a secured loan owed to the deceased goes in the inventory as moveable but counts as heritable for legal rights purposes. 

Which costs can be deducted in calculating the pot; where the IHT burden falls; changing valuations as assets are disposed of – all have to be considered. Even the question whether a solicitor acting in the executry is under a duty to advise a family member of their legal rights has caused difficulty, resulting in guidance from the Society covering the different circumstances that may arise.

Audience discussion also revealed tricky problems regarding the status of the proceeds from a house sold prior to death; and what to do when a family member cannot be contacted in relation to claiming or discharging their legal rights.

Assets in the metaverse

The increasing prevalence of digital assets, and practical issues that arise from these, was the subject of a stimulating breakout presentation from Louise Levene of Finders International (who along with software providers Advanced were the conference sponsors). Difficulties can arise even as to knowing when such assets exist, as some people can be very secretive and there may be nothing on paper – Levene recommended doing a “legacy stocktake” with a client to compile a list of what they hold, and where possible getting them to put access details in a sealed letter of wishes. (Warning: using a password that has been passed on may be a breach of terms and conditions of use.)

She would not advise starting a search for assets without some leads to follow, because of the costs. And even where a foreign bank account is known about, if the sums involved are small the formalities involved – for example, European countries often require notaries – may make it not worth the effort. With US assets, be prepared for a long drawn-out process, especially if above the $60,000 threshold for a certificate being required from the Internal Revenue Service.

Assets may be of sentimental rather than money value – social media accounts and music archives being the prime examples. It can be a source of great distress to families if these cannot be obtained, yet with, say, music the account holder likely only held a licence to use the music, and their account will be deleted on their death. Some platforms are now appointing legacy contact people who can allow limited access to enable a representative to retrieve documents and photos, but Levene warned that there is a long way to go here.

Good intentions not enough

Alan Eccles of Bannatyne Kirkwood France & Co gave a survey of issues around charitable legacies.

One such concerns charities that reconstitute themselves, particularly by incorporation. Although provision will be made for all assets to transfer to the new entity, a bequest in a will that has not yet taken effect is a mere spes and not an asset, and without some provision conferring power on the executors to pass the legacy to another charity with similar purposes, may prove ineffective. Perhaps this will be addressed following the current review of charity law: the English Register of Mergers can avoid such difficulties.

Sometimes, also, conditions attached to a legacy can cause problems. A charity may decline a bequest that comes with strings attached that it considers problematic, or indeed if a particular asset would be awkward for it to manage. Eccles would encourage a client with such intentions to speak to the charity in advance and find out whether what they propose would be acceptable and workable. Further, how would compliance with the conditions be monitored, and what would happen to the legacy in the event of a breach?

He advised caution with the wording of the purpose of bequests. Anything beyond “charitable” might lead to HMRC asking questions about whether a bequest is truly a charitable one – bearing in mind that the somewhat different English view of what is charitable is applied for this purpose. Other tax matters to consider include whether lifetime or death giving would be more tax efficient; and the potential for a deed of variation to mitigate tax – as he had employed when faced with a legacy to NASA!

The many uses of trusts

A panel session, featuring Gillian Campbell of Shepherd and Wedderburn, Ian Macdonald of Wright, Johnston & Mackenzie, and Carole Tomlinson of Anderson Strathern, focused on the use of trusts in succession planning.

To begin at the end, the wrap-up question was to the effect, is it worth it given the regulatory and compliance requirements? All three were agreed that while clients need to understand the implications, there can be huge advantages. Macdonald in fact recommended that advisers try to persuade clients to include a trust in their will if it could be useful to the family – it is much easier to cancel a trust if you don’t need it than to introduce one retrospectively by deed of variation, he observed.

Most of the session looked at three particular types of trusts: liferent trusts, life insurance trusts and trusts for family businesses. In addition to tax planning, liferent trusts can be used to limit the scope for legal rights claims, or allow for changes in family relationships – and to reduce or even eliminate the value of a house for the purpose of local authority care costs calculations. Life insurance trusts don’t necessarily reduce IHT liability, except through the premiums paid out, but can provide a lump sum to a beneficiary on a death to help pay the IHT. In the family business context, trusts are one option to consider for allowing some continuing control for the senior generation while helping develop the next into that role; have potential tax advantages; and could be a suitable long term structure for the family.

Advantage England

When is it advantageous to use English in preference to Scots trust law? The question was addressed by Barbara Gardener of St James’s Place.

The answer is that some aspects of English law lend themselves better to tax planning, especially IHT, as they enable the gift with reservation provisions to be overcome via the principle in Ingram v IRC [1998] UKHL 47. That case ruled that retaining one clearly defined interest in a property while giving away another such interest in the same property is not a gift with reservation. Whereas Scots law insists that trust property must vest in the trustees, with beneficiaries only having a personal right against the trustees, the English recognition of legal and equitable rights enables the settlor to “carve out” the latter and hold them in, say, a discounted gift trust: a section of the life insurance market caters for such arrangements.

Choice of law is open to the settlor under the Recognition of Trusts Act 1987, implementing the 1985 Hague Convention. There are certain statutory differences between Scotland and England to be aware of also, such as around the rules governing perpetuities.

See you out of court

Whatever the nature of a dispute, litigation should be the last resort. That was the clear message from Brodies’ Nicola Neal, who spoke on court actions involving executors. Litigation may be needed to preserve the value of the estate, but it must be necessary, reasonable and in the interests of the estate, given the costs involved – probably with only 50-70% recovery even in the event of success.

And there is potential personal liability in expenses for executors who the court considers have acted unreasonably.

Neal’s recommendation to allow a “really important role” for alternative dispute resolution – if nothing else, it shows a court that the executor has made efforts to settle the dispute – was followed by a breakout session on the use of mediation in executry disputes, presented by Rachael Bicknell, founder of Squaring Circles, who wrote on the subject at Journal, December 2021, 20.

When people complain

Complaints, and in particular their avoidance, was the focus for the SLCC’s Susan Williams in another breakout session. Last year executry related complaints overtook family law as the second most frequently complained of practice area, at 19% of the total (behind conveyancing at 26%). The top cause of complaints – probably nothing new here – was failures in (or lack of) communication. Clients feeling they were not enabled to make an informed choice from the advice given also featured regularly.

Frequently also, solicitors have been found to be “off the mark” in assuming what clients want. Before you take instructions, Williams recommended, ask the client what their expectations are for their family, and what they actually want. She strongly advised devising a “tool” that everyone in the office can use to keep them right. Oh, and keep excellent file notes.

There is no getting away from file notes, speakers agreed, especially if they may need to be relied on after the death of a client.