You will find in this update recent case law and legislative changes relevant to the private individual and charities. Contact details for our Private Client Partners can be found on our website at Private Client Partners, if you would like further information on these issues. Please also take time to review our new website and, in particular, our Private Client service pages, for more information about our Private Client and related services.
In an important development, a charitable legacy equivalent to 10% of your estate could soon reduce the amount at which inheritance tax is charged on your death by 4%. Gifts to charities already benefit from being exempt from inheritance tax which reduces the overall value of the estate chargeable to the tax on death. Under current proposals, there will be an added incentive; a charitable gift of 10% or more will lower the rate of inheritance tax to 36% on your estate, further reducing the actual cost of the gift to other beneficiaries. The draft legislation which will introduce this reduction was open for technical comment until 10 February 2012. It is anticipated that the changes will apply to all deaths from the new tax year onwards. For further information on the proposals, including a worked example of how the benefit will be applied, see our briefing note Charitable Legacies or speak to Richard Monkcom, head of Druces LLP’s Private Client team.
Digital technology continues to develop a pace. However has your Will kept up with such changes? Until recently, it was common for photos, music and films to all exist in a physical format. Today such items are increasingly owned in an electronic form only and with moves towards Cloud storage technology, such files may not even be easily visible on a computer at home. In addition to questions about who inherits these items, there are also issues surrounding what happens to your online social networking profile or your email accounts when you die. Does someone know your passwords to access such material and is there anything which you would not like loved ones to stumble across? While certain providers have policies in place for deaths of account holders, these may not accord with your wishes. Increasingly, people are choosing to leave details of online accounts and passwords with their Will or trusted individuals together with instructions as to what they would like to happen to their Digital Estate when they die. A copy of Druces’ full Briefing Note on this subject can be found at iWill.
The Inheritance (Provision for Family and Dependants) Act 1975 (“1975 Act”) was enacted to give dependants a chance of receiving “reasonable financial provision” from a deceased’s estate even if they were not named in the deceased’s Will. However disputes often arise out of cases brought under the 1975 Act, particularly where the person making a claim is an adult child who lives independently and is not in financial need. In the case of Ilott v Mitson  EWCA Civ 346, the Court ruled that the adult daughter of the deceased was to receive a share of her estate, despite a clear letter of wishes left with the Will explaining why her daughter had been excluded. For further details of this case, and the implications it has for anyone who is making a Will excluding an adult child or leaving a legacy to charity, see our briefing note Ilott v Mitson.
The case of Quigley v Masterson  EWHC 2529 (Ch) serves as a reminder of the importance of severing the joint tenancy of a property correctly. While all houses in joint ownership must be owned legally by joint tenants, the beneficial title may either be held by the owners as joint tenants or tenants in common. Under the latter, each co-owner has a notional share in the property which they are free to dispose of as they wish. This enables the co-owner’s share of their property to pass under their Will when they die. When the beneficial interest is held on a joint tenancy, the property passes on the death of one of the joint owners to the survivor/s. Severing a joint tenancy to create a tenancy in common has therefore signifciant implications with regard to how the property passes on death. The case of Quigley v Masterson illustrates the importance of getting this procedure right. For details of the case, and information on how Druces could help you with severing a joint tenancy, please see our briefing note Quigley v Masterson.
It has been reported that the Charity Commission has decided not to appeal against the decision in the case of the Independent Schools Council v Charity Commission for England and Wales and others  UKUT 421 (TCC). The case, which was heard by the Upper Tribunal (Tax and Chancery Chamber), concerned guidance issued by the Charity Commission following the introduction of a public benefit test under the Charities Act 2006. The guidance, which suggested that many Independent Schools would not meet the test’s requirements, was challenged by the Independent Schools Council through Judicial Review. While overall the ruling did not provide the clarity hoped for in the area of public benefit, it offers an interesting insight into the charitable position of Independent Schools. For further information on this case, including some examples of when an Independent School would qualify as a charity, please see our briefing note Charity Commission and Independent Schools.
In June last year, HM Treasury produced a consultation paper proposing new statutory tests for individuals. This was a response to the UK’s current residency rules which have been widely criticised. The Government wanted to produce a transparent, objective and simple test with the aim of providing certainty for individuals and businesses. However HM Treasury announced in December that the statutory residence test will take effect from April 2013, a year later than planned. It appears that the 12 week consultation raised a number of detailed issues which require careful consideration to ensure the legislation achieves its aim. The Government’s response to the consultation is expected to be made around the time of this year’s Budget. The reforms to the taxation of non-domiciled individuals announced in Budget 2011 will however be included in this year’s Finance Bill. These changes include the introduction of a higher £50,000 annual remittance charge, a new relief to encourage business investment and technical simplifications to some of the existing non-domicile rules. For a Briefing Note explaining the basic rules relating to domicile and residence and their impact on UK taxation, please see our briefing note Domicile and Residence.
Many people choose to leave a cash legacy or even the entirety of their estate to a charity. Occasionally such legacies are challenged by disgruntled beneficiaries or individuals who have been excluded from the Will altogether. This challenge may involve argument as to the validity of the Will, or that the testator has failed to make reasonable financial provision for the claimant. This presents a problem for the charity; on the one hand, they have a duty of care to make sure that they receive the monies which are due to it. On the other, the costs of pursuing the legacy may be inhibitive. It is important to balance the merits of the claim against the prospects of success. However a Charity should not be afraid to assert their rights if a legacy has been legitimately left to them. For further information, please click Charities and Contested Legacies.
Administering an estate means ascertaining the assets and liabilities of a deceased person, confirming the authority of the executor or administrator, settling the tax position, and distributing the assets in accordance with the Will. Our briefing note Administering an Estate provides guidance as to these requirements.
Lasting Powers of Attorney (LPAs) are an effective way of dealing with a person’s affairs should they suffer a major illness or become mentally ill or lose their capacity to deal with their own affairs. Our briefing note Lasting Powers of Attorney provides further details.