Death the last sleep? No, the final awakening

The often cited quote of Sir Walter Scott has a relevance not anticipated by the man himself. The awakening is not that of the deceased but rather the family and loved ones left behind to sort out their estates.

The current economic climate has understandably resulted in many individuals focusing on matters of income and financial survival and not on the provision and security of their families on death. Even at a time when the world’s economy was booming, the number of people actually making wills and planning for the security of their family on their death remained woefully low. The mindset of many is that they are simply too busy to die.

The reality of course is that we do not live forever and the changing economic climate has magnified the problem of dealing with estates where there is no will (known as intestate estates) or estates where a will exists but it is so out of date that it no longer achieves its intended purpose.

Recent statistics produced by the High Court demonstrate the extent of the problem. The number of will and inheritance disputes issued in the High Court rose by a staggering 486% between 2006 and 2007. There is no doubt that the number has increased further over the last 15 months.

One law firm has suggested that the increase has been caused by a rise of “vulture syndrome” claiming that one in four deaths has sparked bitter rows between family and friends over the inheritance of the deceased. The figures quoted are a result of an internal survey and should be treated with caution. That said, the numbers making claims are undeniably increasing. Why?

There are a number of factors that have caused the current situation, including:

• The value of estates being higher then ever before (in spite of the recent drop in property values);
• The makeup of many second marriage families bringing children from first marriages together with no clear provision made for all;
• The mistaken belief that even without a will, a spouse’s estate passes in its entirety to their widow(er) on their death;
• Cohabitees being forced to bring Inheritance claims against intestate estates as they are ignored by the Intestacy rules;
• An aging population preparing their wills later in life giving rise to a greater number of will challenges based upon a lack of mental capacity;
• A increasing number of disappointed beneficiaries being aware of their right to make claims against estates;
• The effect of the credit crunch pushing family members to claim for bigger shares in estates.

Another less obvious route to the High Court is the situation where a will was prepared quite properly prior to the recession but not then updated before death during the current recession.

A recent case in point involved a retired gentleman, who wished to pass his entire estate to his wife upon his death after payment of a number of legacies to friends and to charity. At the time the will was made (pre credit crunch), the man’s estate comprised a property and saving investments that were large enough to cover the legacies, whilst the house plus the balance of savings were sufficient for the rest of his wife’s expected life.

Unfortunately, the credit crunch occurred between the making of the will and his subsequent death, dramatically reducing the value of his portfolio of savings. Consequently, there were insufficient funds to pay out the legacies and his widow looked like she would have to sell the house she had lived in all her married life. It also left his widow without savings or income beyond her modest pension. The situation was resolved, but only after court proceedings were issued, forcing the various legatees to defer their legacies until after the death of the widow.

Disputes in relation to wills and estates cannot be completely avoided but the risk of such can be reduced significantly by a carefully drafted will by an appropriate professional. This message is not a new one but it has increased in importance.

As disputes concerning wills and intestacy provisions increase, so have disputes concerning trusts or rather the manner in which trustees run trusts. Trusts are usually created during the life of an individual or their death through a will trust. The concept of a trust includes the appointment of trustees to administer a trust fund with specific objectives as set out in the trust deed itself. The position of trustee is an onerous one, being subject to a number of common law and statutory duties with any breach such giving rise to potential personal liabilities.

Again, we see the knock on effect of the current recession. As trust fund portfolios plunge in value and the objectives and/or returns on trust funds suffer, the beneficiaries of those trusts look for someone to explain the losses and reduction in trust value. Blame culture or not, the trustees are the first in line to explain their conduct and if they are unable to do so, then litigation may well commence. The route to safety is to ensure that the trust is running in compliance of the duties imposed. There is no substitute for regular professional trust reviews.

There is no doubt that of all escape mechanisms, death is the most efficient. But grief is hard enough to deal with even without having to contend with litigation over the deceased’s assets.

If you would like any further information, please contact our Wills, Trusts & Inheritance Tax Planning today.