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A B C D E F G H I J K L M N O P R S T V W Y

Private Client Law

In this monthly bulletin the Private Client team keep their referrers and contacts up to date with the latest legal and tax developments which also includes regular updates on Family law matters.

Latest Issue

In the latest issue of our Private Client Law bulletin we look at the implications from Brexit for private client and family law matters.

Follow this link to read Paula Milburn's blog on how Brexit will affect family law proceedings.  

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The soaring cost of private education and the impact on divorcing families

Wednesday 29th July 2015

Private Client Law Bulletin - Issue 93

In our Private Client Law Bulletin (Issue 93) we look at the soaring cost of private education with a blog from our Family team.


Flying the Nest and Intergenerational Property Agreements

Thursday 18th June 2015

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Private Client Law Bulletin - Issue 92

Looking after your money when helping children to buy their property

Buying a property is not getting any easier for young professionals. Increasingly parents and grandparents (perhaps with the ulterior motive of getting their ‘age 30 plus’ offspring out of the nest) are providing substantial deposits to help their children buy their first property.

Sometimes financial help is needed so a young family can upsize to meet their growing needs, or to provide financial help, if a child is separating or divorcing, so that with support they can stay in their existing home.

Is the money a loan or a gift?

In any family scenario, where money is passing between the generations, it is important that there is a written agreement about whether the money is a loan or a gift. If it is a loan, what are the repayment terms? Is a loan inheritance tax efficient given the family circumstances? Can the deposit money be provided through a trust and then lent to the child? If it is a gift, who is the gift to – just to the child or a joint gift to the child and their partner?

It may seem mercenary and showing a lack of faith in their adult child, or the child’s partner, to draw up legal agreements but without the protection of legal advice and documents the family runs the risk of paying large inheritance tax bills or losing their deposit money if the child separates from their partner. In many families the loss of all or a percentage of the deposit that they have provided will not cause financial hardship, within the context of their wealth, but it is often not the amount of the financial loss but the emotional fall out of disputes within families that causes the grief.

All too often families think that they can avoid future difficulties by buying properties in their names and letting their adult child and their partner live at the property. This not only creates inheritance tax issues but, if the property rises in value, there will be capital gains tax on sale of the property. If there is conflict between the generations or between the child and their partner then there may be difficulties in getting possession of the property, especially if there is no tenancy documentation in place.

The other option many families think provides an easy solution is putting a property in their adult child’s name rather than the child buying the property jointly with their partner. That does not solve the future risk of a partner being able to make a claim against the property.

Are intergenerational gifts and lending too complicated and risky? Do the adult children need to remain in the nest until their 40’s to keep saving for the deposit? Not at all - the solution is to look at the family's priorities and work out the most tax efficient and best wealth protection solution backed by having the right written agreements, such as loans, declarations of trust and cohabitation agreements, in place.

If you would like more information about any of the issues raised in this article or to discuss any aspect of family law please contact the Family team.
 


Changes to Cross-Border Succession Laws

Thursday 14th May 2015

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Private Client Law Bulletin - Issue 91 

A complex area for clients with property in more than one EU state

In 2012, the European Council took steps to try and unify the laws of succession for the citizens of the European Union. The legislation that was passed is known as “Brussels IV” which was promoted as being the solution to the complex cross-border issues that arise when someone dies owning property in more than one EU state or has a connection with more than one EU state. For example, in many EU countries there are “forced heirship” rules which means that certain individuals must receive a pre-determined share of your estate which conflicts with English law concept of testamentary freedom which permits you to choose who should inherit your assets.

Historically, our advice to clients who own properties abroad has been to make a Will in the country where that foreign property is situated to deal exclusively with that asset and your “English” Will would cover your estate in this country. Inevitably this meant that such clients would make separate Wills dealing with the division of their worldwide estate to ensure that the distribution of your assets complied with the internal succession laws of the country in which those assets are situated.

Brussels IV will be relevant for deaths on or after 17th August 2015 but it should be noted that the UK opted out of the provisions applying to assets situated here. However, whilst the regulations do not apply in this country, the new rules will be relevant for clients who either (i) own properties within the EU or (ii) clients who are habitually resident in a member state within the European Union.

Impact of Brussels IV

In simple terms, for EU member states that have implemented Brussels IV, the general rule is that the law of the state in which the deceased was “habitually resident” when he or she died will apply to the succession of their estate unless otherwise provided.

This default position can be overridden by an express election (e.g. in your Will) for the law of your nationality to apply to the succession of your estate. In theory, this would allow a British national to state in their Will that they want English succession law to apply to the administration of their French estate and thereby circumvent the forced heirship provisions that would otherwise apply in that country.

Summary

Whilst it is the intention of Brussels IV to simplify the administration of estates within the EU from August 2015, it would be fair to say that no one is certain how the provisions are to be implemented and interpreted by each Member State. It should also be stressed that Brussels IV does not affect the tax implications of owning assets abroad and so it is likely that clients will continue to need such advice to ensure that your worldwide estate is being administered in accordance with your wishes and dealt with in a tax efficient manner.

We believe cross-border issues will remain a complicated area and your individual circumstances will need to be reviewed carefully with your advisors both here and abroad.

If you would like more information about cross-border issues or to discuss how we can help you with any other private client law matter please contact:

David McGurnaghan
Associate, Private Client
Tel: 0151 600 3339
Email: david.mcgurnghan@brabners.com


Prenup Agreements and Common Misconceptions

Friday 24th April 2015

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Private Client Law Bulletin - Issue 90

Most professional advisors have for many years recommended prenup agreements to engaged couples to record how their assets will be divided if they later separate and divorce.

There are however three common misconceptions with prenup agreements:

  1. they are ‘legally binding‘;
  2. it is never in the weaker financially party’s interests to sign a prenup agreement; and
  3. once an agreement is signed the agreement will never need to be changed.

When couples learn that prenups are not ‘’binding’’ they often question why they should bother with one. Prenups carry weight with the court and if they have been prepared by specialist family lawyers, with safeguards in place, the prenup may be upheld in full or part, by the divorce court. Prenups often significantly reduce the award or the costs of the family court litigation that would have been spent without a prenup. However, in the same way as most financial advisors say investments don’t carry a guaranteed return, lawyers cannot say that a prenup will be upheld, only that it is more likely to limit expensive court proceedings if legal advice is followed.

With prenups there is often one person to the marriage who is the financially stronger wealthy individual. Whilst the standard advice is that they should not marry and, if advising their fiancée, that as the financially weaker party they should not sign a prenup, it is often in their joint interests to have a prenup. From the perspective of the professional advisor marriage for the wealthy individual brings tax opportunities and efficiencies. For the weaker financial party the prenup, provided the terms are fair, provides peace of mind in the event of separation as they know that they would not have the financial means, in a nasty split to take on their ex in a bitter divorce battle.

A prenup is a bit like a Will – it needs taking out of the cupboard, dusting off and checking if it is still ‘fit for purpose ‘, in much the same way as investments and asset classes need to be reviewed and changed to ensure they meet investment objectives. If a prenup is not reviewed, in accordance with the original terms of the agreement, or if there are major changes in personal or financial circumstances it may be less influential if there is a separation, so reviews are essential.

For advice on any aspect of prenup or postnup agreements or for a review of an existing agreement please contact the Family team.

 


Budget 2015: A look at some of the measures announced for the private client sector

Tuesday 31st March 2015

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Private Client Law Bulletin - Issue 89

With the final budget of the current parliament having been delivered, we take a look at some of the measures announced. Flexibility for savers was mirrored with a series of measures to deter tax avoidance, which is unsurprising. Probably the most concerning announcement for the private client sector is the Deed of Variation coming under scrutiny. It remains to be seen whether this is an immediate reaction to the revelations of the estate planning of Ed Miliband and his family. Of course, the election could affect some of the Chancellor’s announcements making this a potentially changing landscape.

Deeds of Variation under review

  • The government will be conducting a review into the use of deeds of variations for tax purposes.
  • Deeds of variation are used to vary the distribution of an estate and if made within two years of the deceased’s death, the variation will be treated as though it was made by the deceased for inheritance tax purposes.
  • Such variations can be used to rearrange the estate in order to maximise IHT reliefs and exemptions.
  • The outcome of this review is to be published by Autumn.

Disclosure Facilities early closure

  • The Liechtenstein Disclosure Facility and the UK facilities with Jersey, Guernsey and the Isle of Man are to close at the end of 2015, which is earlier than expected.
  • The current arrangement allows taxpayers to declare previously undisclosed assets to the HMRC with a view to settling their tax affairs on favourable terms.
  • To be replaced with a tougher disclosure facility for a limited period with higher penalties and no immunity from prosecution, before the Automatic Exchange of Information agreements are implemented.
  • Once implemented, financial institutions will be required to identify UK tax resident account holders and to collect and report information on them.

Relevant Property Trusts – amendments to draft legislation

  • Following the announcement that a settlement nil rate band will not be introduced, instead there are new rules currently being drafted which targets avoidance through multiple trusts.
  • Amendments concern the Same Day Addition rules. We will have to wait to see the amended legislation when it is published.

Other anti-avoidance measures touched upon were:-

  • Confirmed measures to go ahead with introducing penalties for taxpayers whose planning is defeated as a result of the General Anti-Abuse Rule (GAAR).
  • More accelerated payment notices in relation to taxes which are disputed to be to be issued.

Pensions - Lifetime allowance reduced

  • Effective from 6 April 2016, the lifetime allowance will reduce from 1.25 million to 1 million.

Farmers - Income tax

  • Extending the period from two years to five years in which self-employed farmers can average their profits for income tax purposes.

Pension liberalisation continues

  • The pension liberalisation rules coming into effect on 6 April 2015 will not be available for individuals with an existing annuity.
  • With this in mind, the government has announced that those with an annuity, will be able to assign their income to a third party in exchange for a lump sum or some other form of retirement income structure.
  • Consent must be sought from the annuity provider and the buyer must be a third party i.e they can’t be sold back to the provider.
  • This announcement will not apply to annuity policies held by trustees within occupational pension schemes.

If you would like more information about these changes or for help with any other private client law matter please contact Duncan Bailey or your usual Brabners contact:

Duncan Bailey
Partner, Private Client
Tel: 0151 600 3451
Email: duncan.bailey@barbners.com


Spousal maintenance for life – is it coming to an end?

Thursday 12th February 2015

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Private Client Law Bulletin - Issue 88

After divorce, how much should one spouse pay the other in maintenance and for how long? This is often one of the most difficult issues for separating couples to resolve and was considered by Mr Justice Mostyn in the case of SS v NS.  The judgment focuses on the main principles for spousal maintenance. 

Judges have discretion as to how long maintenance should be paid for but guidance states spousal maintenance should end when the supported spouse is able’’ to adjust without undue hardship’’ – although a degree of not undue hardship in making the adjustment is considered acceptable. 

In SS v NS the husband was aged 40 and the wife 39. They had lived together for 12 years and had 3 children the youngest of whom was 7.  The husband was a banker and the wife had been a full time mother for 11 years but was working part-time in a gym. 

The husband wanted a decreasing level of maintenance to be paid for 11 years.  The wife wanted a high consistent level of maintenance, payable for 27 years with the option to extend spousal maintenance if required and a share of the husband’s bonus.    

The judge decided that maintenance would be payable for 11 years which could be extended by court application by the wife depending on her circumstances.  The term coincided with the youngest child turning 18 and when the husband anticipated that he would retire from banking.  The husband was ordered to pay the wife maintenance of £30,000 (representing 36.4% of his income after payment of the children’s school fees and child maintenance) and 20% of his bonus (capped at a maximum of £26,500) to the wife for a period of 7 years.  

The judge summarised the principles for spousal maintenance:

  • Have choices have been made during the marriage that have generated future needs for one spouse (e.g. the length of the marriage and children).

  • The amount of maintenance should be considered with reference to needs

  • The standard of living in the marriage is relevant to the amount of spousal maintenance payable.

  • The court must consider a time limit for spousal maintenance to allow for an adjustment to independence without undue hardship.The court should steer towards a term with the option of being extended, rather than an order for the rest of the parties’ joint lives.

  • Rather than looking at the budgets the court should look at whether the payments represent a fair proportion of the paying spouse’s available income.

Spousal maintenance will remain a contentious issue between spouses while the court has an element of discretion and expert advice should be sought on quantum and length of maintenance as well as varying existing spousal maintenance orders.

If you would like more information about the issues raised in this article or for advice on any aspect of family law please contact The Family Law team.

 


Appointing Joint Attorneys

Wednesday 14th January 2015

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Private Client Law Bulletin - Issue 87

Lasting Powers of Attorney (LPA) are an important part of putting your affairs in order. They will cover situations where someone is (perhaps unexpectedly) unable to manage their affairs.

The majority of people making an LPA will choose to appoint joint attorneys to act on their behalf should they not have the capacity to make decisions for themselves. The donor of the LPA must consider carefully how the attorneys will be able to act on their behalf.

The first option is to appoint the attorneys to act jointly. This means that they can only act together in making decisions on your behalf. If one of the attorneys in these circumstances died, or is unable to act for some other reason, then the Lasting Power of Attorney (LPA) would become invalid and the donor would have no attorney appointed to act on their behalf.

A recent Court of Protection case showed the possible inflexibility of making this kind of appointment when the Judge declared as ineffective, provisions in an LPA which sought to reappoint the survivor or two attorneys, previously appointed to act jointly, in the event one died or was unable to act. The Judge pointed out in this case that if it was intended that attorneys could act jointly or with survivorship, this would have been provided for in the Mental Capacity Act 2005.

The Judge did offer a practical solution, by suggesting that a donor could execute two separate LPAs of the same type. Firstly appointing the attorneys to act jointly, then in the second LPA appoint the same attorneys to act jointly and severally with a condition that the second LPA came into effect only if and when the first LPA failed for any reason. This would give the donor a useful back up position where they would like their attorneys to act jointly, but if unforeseen events prevented this from happening, at least one of the original attorneys could still carry on the role of attorney.

The second option, and more commonly used route, is for attorneys to be appointed jointly and severally which means that they can act together or separately. Practically this type of appointment works more flexibly e.g. if a donor appoints their spouse and their child or children to act jointly and severally then it may be appropriate for the spouse to take the lead in the first instance and the child or children can step up when needed.

If you would like more information about appointing attorneys or to discuss how we can help you with any other private client law matter please contact:


Louise Scholes

Senior Associate, Private Client
Tel: 0151 600 3278
Email: louise.scholes@brabners.com


£370 Million – is it enough?

Tuesday 16th December 2014

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Private Client Law Bulletin - Issue 86

In late November 2014 details emerged of what is described as the biggest divorce pay-out ever awarded by a judge in England. The recipient is the American wife of the financier, Sir Christopher Hohn. She has reportedly been awarded £337M following a fight over the share of their reported £700m plus fortune. The size of this award makes Sir Paul McCartney’s £24.3m payment to Heather Mills pale in comparison.

Sir Hohn had argued that his wife should only receive a quarter of his conservatively estimated £700m plus fortune despite his wealth having been created during the course of their long marriage. His estranged wife, Mrs Cooper-Hohn sought an equal share of the family wealth on the basis of the “sharing” principle and disputed the extent of his fortune. Mrs Cooper-Hohn’s legal team contended that there should not be a departure from the generally accepted principle that matrimonial assets should be shared equally if generated during the course of a long marriage and that Mrs Cooper-Hohn’s contribution as a home maker was equally important to the financial contributions of her husband. Sir Christopher Hohn’s legal team advanced the case that his financial acumen was ‘special ‘and his financial contribution to their vast fortune was sufficiently “stellar” to justify a departure from equality.

The judge, who determined the extent of the award to Mrs Cooper-Hohn, held that only limited information should be reported to the media to provide confidentiality in relation to the couple’s financial affairs. Despite this ruling there has been extensive press coverage given the size of the award. Particular attention has been placed on the family lifestyle, reported as being a ‘swatch watch lifestyle’ as Sir Christopher wears an old swatch watch rather than invest in a Patek Philippe collection as many high profile fund managers do.

Mrs Cooper-Hohn is reported to be considering an appeal. One can speculate that this is because, had she divorced in America, she would have expected to receive an equal division of the post marriage generated assets. The couple met as students at Harvard university and all of Sir Christopher Hohn’s wealth had been generated during the course of their marriage with Sir Hohn being worth a reported £700m plus despite giving over £1 billion to his charity, The Children Investment Fund Foundation.

Although the £337m award reportedly makes Mrs Cooper-Hohn wealthier than the Queen the £337M may not be “enough”. A judge, at an earlier hearing in the case, had wondered just how much money could be spent in a lifetime and whether the costs, both financial and emotional, of the litigation were justified given the eye-watering costs and size of the family wealth. Only time will tell whether an appeal is launched but the couple’s high profile divorce is one to watch given the potential significance of any judgement on other cases where there is dispute over the value to be placed on the roles of husbands and wives as homemakers and breadwinners.

If you would like more information about the issues raised in this article or for advice on any aspect of family law please contact the family team.


Will drafting – Another charity challenging terms of a Will

Monday 24th November 2014

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Private Client Law Bulletin - Issue 85

Last month, the Court of Appeal passed judgment on the interpretation of a clause in a deceased’s Will which is the second Court of Appeal decision in recent years involving a charity challenging the meaning of a clause in a Will.

In the case The Woodland Trust v. Loring & ORS, the late Mrs Smith made a Will in 2001 under which her family would receive a legacy of “such sum as is at the date of my death the amount of my unused nil rate band for inheritance tax” with the rest of her estate passing to the Woodland Trust.

The value of Mrs Smith’s estate on her death in 2011 was £680,805.

However during the ten year period between making her Will and her death, the transferable Nil Rate Band was introduced for deaths on or after 9 October 2007 where the unused Inheritance Tax allowance of a deceased’s spouse/civil partner could be transferred to their estate (if claimed by their personal representatives).

During the course of administering Mrs Smith’s estate, the Executors claimed the transferable allowance from her late husband’s estate with the result that £650,000 was left to the family and £30,805 passed to The Woodlands Trust.

The charity challenged the Executors’ interpretation of the Will on the grounds that (i) the actual transfer of the Nil Rate Band occurred after Mrs Smith’s death (ii) the reference to the word “my” in the relevant clause and (iii) the deceased could not have intended the extent of benefit passing to her family to depend on whether or not her Executors claimed her husband’s unused Nil Rate Band which was not in force when she made her Will and so The Woodland Trust argued that the deceased’s unused Nil Rate Band was £325,000.

The Court of Appeal unanimously upheld the High Court’s ruling that the clause was to be interpreted as including her husband’s unused transferable Nil Rate Band and so the legacy of £650,000 was to be inherited by her family.

The judgment makes it clear that you need to look at the purpose of the Will to find the answer and in their opinion, the implicit purpose of the clause was to give as much as possible to the family without incurring Inheritance Tax and to give the rest to charity.

Concluding thoughts on the case:

  • The Court decision is the right result and does not come as a surprise (which perhaps may explain why the issue did not receive the same media coverage as the RSPCA v Sharp case in 2011 despite the charity being successful in that case).
  • However, there are many variants of the Nil Rate Band clause used in Wills and so each clause will still need to be considered in the context of their specific wording.
  • The case also reinforces the importance that a client fully understands the legal and taxation consequences of their instructions and equally importantly that the solicitor drafts the Will with accuracy and with clarity so as to avoid any ambiguity between the Executors and beneficiaries.
  • Finally, it is sensible for clients to review their Wills with their legal adviser after changes in tax legislation.

If you like more information about the issues raised in this article or to discuss how we can help you with any other private client law matter please contact:


David McGurnaghan

Associate, Private Client
Tel: 0151 600 3339
Email: david.mcgurnaghan@brabners.com


Divorce Jurisdiction – What is in a Country?

Friday 31st October 2014

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Private Client Law Bulletin - Issue 84

The multi-million pound divorce involving the Laura Ashley executive and shareholder, Khook Kay Peng and his estranged wife has commanded a lot of media attention, not least because of his wife’s revelations about his work habits.

The recent press coverage has centred on the argument over whether the English divorce court or the court in Malaysia should decide on how the family assets are divided.  Unsurprisingly the wife wanted to pursue her financial claims in London, known in divorce circles as the divorce capital of the world. London maintains its popularity as the court jurisdiction of choice for wives. Doctor Peng maintained that as both he and his wife are from Malaysia the appropriate court forum was Malaysia.

The High Court, hearing the preliminary skirmish about jurisdiction heard arguments that the wife has been habitually resident at the family estate in the UK since 2009 and that she valued all that is “quint essentially” English. The legal point at the centre of the current court wrangle was whether the wife is habitually resident in the UK and, if so, whether the court should retain jurisdiction.

UK courts are increasingly being asked to make rulings on jurisdiction as many families now move across the world with one spouse working abroad or through emigration or frequent use of what was originally intended to be a second or third home. However few families can spend the two million in costs that Doctor Peng and his wife have spent in their initial battles to divide their wealth, the extent of which one judge described as “eye watering”.

Nowadays prenup agreements are increasingly popular for entrepreneurs and business owners. These types of agreement can be used to ensure that the jurisdiction for any subsequent divorce proceedings is determined at the outset so as to avoid such expensive preliminary litigation.

As for Doctor Peng and Ms Chai, the judge in London concluded that the divorce proceedings could be determined in either Malaysia or London with a hearing in Malaysia in a few weeks. When concluding that either country had jurisdiction to deal with the financial ramifications of their international life and separation the judge urged common sense and compromise on the basis that if Doctor Peng is worth an estimated  440 million according to his wife and in the judge’s view the couple would be hard pressed to spend that in their lifetimes.

If you would like more information about the issues raised in this article or discuss how we can help you with your Family Law requirements please contact the Family Law team.


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