Planning Ahead Can Save Precious Time
Many people fantasize about being heir to a fortune through some barely known distant relative. However, in real life, this process can take years and is extremely tedious and time consuming. Brewin Dolphin, an investment management company, conducted a research, in which it was revealed that, while 33% of the people expected to be in possession of their due inheritance within a span of three months, the actual time taken to acquire a grant ranged from six months to even three years.
It was also revealed that approximately 2 million Britons who were the inheritors of estate, had to encounter numerous difficulties that caused a delay in the possession of the inheritance. It is interesting to note that the famous author Charles Dickens understood very well the problems that could be caused by probate. Bleak House, one of his famous works, followed the numerous parties in their legal struggles as they tried to wrangle the inheritance of their respective shares of the Jarndyce estate.
Delays and their consequences
Obviously there is no court that has the time to decide the rightful inheritance from a disputed will, over the passage of generations. However it is pertinent to note that there have been delays that have frequently spanned years, even if the content of the will is not disputed by anyone.
Delays in receiving inheritance may just be a nuisance for some, but for other people it can create grave situations. The research by Brewin Dolhpin showed that over 40% of the Britons interviewed, intended to utilize the inheritance to sustain them during their retirement period. Over 25% of the Britons who were nearing their retirement had designated their inheritance for the settlement of all their debts.
Winding up: not as easy as you think
The process of finalizing an estate can be quite complex. The estate of the deceased (comprising their property, personal belongings and finances) has to be valued. After that, depending on the valuation, the Inheritance Tax liability has to be calculated and given to the HMRC (Her Majesty’s Revenue and Customs). Only then can the remaining estate be divided amongst the beneficiaries.
The return has to be prepared by the designated executor. The executor can be a family member, designated accountant or solicitor. They are the ones who have to prepare the return. However, third parties will be involved in this e.g. insurance companies and banks, as they would have the necessary information that would be needed for the computation of the return.
The house of the family and any other possessions will have to undergo valuation. After the return has been filed, the Inheritance Tax liability has to be paid off. If the estate just consists of property, then there is the option of making payments in instalments. It is only after this that the appointed executor can apply for a probate grant. Even after a grant of probate, there is the possibility of further delays in the distribution of assets amongst the inheritors.
Estates: Two components into which they can be divided
Usually estates can be divided into two components. There are legacies which are fixed amounts or specific assets in a will (example, £300 to an uncle or jewellery for some granddaughter). Then there is the remainder of the estate, which is usually bequeathed to the primary inheritor (these are usually the spouse or progeny)
The distribution of legacies is possible right after the grant of probate. However the remainder of the estate (also called the residue) cannot be distributed unless clearance has been received from HMRC. This can only be acquired once it has been ensured by the executor that the capital gains and income tax liabilities of the deceased have been paid off.
Poor planning of estate is what usually causes delays. According to Charlotte Black in Brewin Dolphin, delays are usually caused when there is no will or it is outdated. The percentage of Britons that pass away without a will–also known as dying intestate– is unusually high, at 70%.
Having foreign assets
Problems are not just caused by the absence of a will. If the deceased owned assets that are foreign, many more complications may arise
There are 800,000 Britons that have invested abroad in property. Therefore this is a complication that concerns many families. According to Henrietta Mason, solicitor at Withers in their Contentious Trust and Succession, it’s great to have a holiday home in a foreign country but people usually do not know how problematic it can be.
Henrietta says that there has been a lot of discussion and consultation on how succession law can be harmonized in the EU, but now there appears to be a conclusion that it may not be possible. Various member states have varying laws and concepts altogether.
One major difference that sets Britain apart from many other states is “freedom of testamentary”. That means that you have complete discretion in deciding who you want to leave your money for (with a few conditions). However, in Spain or France, you cannot disinherit a child.
There is no simplicity in the rules regarding how to account for assets that are foreign. Therefore the need for preparation is paramount. According to Henrietta, understanding the laws for winding up estates in other countries can prove to be extremely costly if a person is not prepared in advance. Legal advice in Britain and the state where the property resides becomes necessary. Solicitors have advised that a will be drafted for each jurisdiction.
Wills that are disputed considerably slow the process of distribution for all the involved people. According to Henrietta, disputes mostly revolve around “testamentary capacity”. To clarify, the example of Branislav Kostic can be examined. This businessman bequeathed his estate (worth £8.3 million) to the Conservative Party. This will was contested by his son. He claimed that his father had been “deluded and insane” when he was writing the bequest. This is one of the conditions of deciding the inheritors in Britain. There is an Act of Parliament in 1975 that allows for the contestation of a will if no provision has been made for a spouse or progeny.
Which steps need to be taken?
According to Amanda Edwards, who works with soliciting firm Boodle Hatfield, individuals can take a lot of steps during their lifetimes for that. Writing a will, and that too, one that is well advised, is of primary importance.
Edwards says that it’s best to rely on professional help to make a will which is effective and valid, and which does not complicate matters after the death of the person. It is usually simple to draft a will on your own, but usually that just leads to more problems than solutions.
Solicitors get to see a lot of ill-advised wills that have been self-made and a lot of time goes into untangling the issues that are created by such wills
Organized paperwork, up to date tax records and affairs and maintaining records of any gifts given are important things to do. It is important to keep in mind that gifts are only excluded from your estate if they were made more than seven years after your death.
Proper records need to be maintained for gifts, according to Edwards. That means dates and figures which are exact. Lots of people believe that these would be simply overlooked if they do not make a note of it. This should not happen and negligence in this regard can result in severe penalties.
It is also necessary to carefully choose your executor and doing so well in advance so that they can be prepared. It’s also best to let one’s family know about the necessary proceedings that will have to happen.
Author – Jeffrey Avery