Frequently Asked Questions
For legal assistance in relation to any issues relating to wills/tax/probate/trusts please contact Simon Hughes (Head of Rowlands Private Client Team) on 01618352020.
Short changed by executors
Q. A relative died some time ago leaving several substantial bequests to family, charities and so on. Since the estate included a business and property probate was protracted, but I have now been informed that there were only sufficient assets to pay out 50% of any bequest. However I know that at least one monetary bequest was paid out in full. Is it possible for me to find out how the calculations were arrived at and what was paid to each beneficiary?
A. The residuary beneficiaries – those who divide the remainder once specific gifts and tax and expenses have been paid out – normally bear the liabilities of the estate, but if residue is not sufficient to meet the estate liabilities the same will be paid out of the cash and assets which would otherwise have funded any legacies contained in the will. Where this occurs pecuniary legacies would “abate” proportionately – that is, they will be reduced by the proportions which such legacies bear to each other – in order to leave funds available for paying the estate's bills. If you have evidence that a pecuniary legatee has not suffered such proportionate abatement you should ask the executors to show you the accounts. If they fail to do that, you could force them to produce the accounts in court. If they have not followed the strict rules that apply in these cases you could then sue them for your rightful share.
Daughter meets white knight
Q. We own a house that our daughter, a single parent, lives in rent free. She has met a man who has money and who has moved in with her. Marriage has been mentioned but there is nothing definite. They now want to extend and refurbish the house at his expense. What rights over the property will this give him, especially if they were to split up?
A. Your daughter's boyfriend may well acquire a beneficial interest in the property as a result of his investment – in other words, he will become a co-owner of the property and, as such, he will have a right to occupy the property – this means that if there is a split it will be very difficult to force the boyfriend to leave the house. I would suggest therefore that you arrange for legal documentation to be put in place before the investment happens under which the boyfriend will grant you an option to purchase his beneficial interest in the property at a price equivalent to the amount by which the improvements have increased the value of the property – you would of course have to be sure that you had the cash available to exercise this option. Subject to that, an option of this kind is the best way of protecting your daughter: white knights can turn into black knights.
Setting them up
Q. We bought a house for our daughter and grandchildren ten years ago for £40,000 with a loan secured against our own property. My daughter has paid the interest all this time and the mortgage is now due to be repaid. The property is now worth about £140,000 and we would like to sell it to our daughter for the original £40,000 it cost us. But we have been told there are all sorts of tax reasons why we can't do this.
A. If your daughter agreed ten years ago to be responsible for and indemnify you in respect of the £40,000 loan it's possible you would be regarded as nominees for your daughter and that she can be regarded as the true beneficial owner of the property – if this analysis can be supported by evidence (and the fact that she has made all the mortgage repayments is helpful in this regard), transferring the property to her now would not give rise to any capital gains tax or inheritance tax issues. There would also be no Stamp Duty Land Tax if the transfer is being made to your daughter in consideration of her being the true owner – such transfers are exempt. However, if the reality is that it was always intended that you (as opposed to your daughter) would repay the £40,000, you may have to pay Capital Gains Tax on the property's increase in value (unless you can show that you have been holding the property on trust to permit your daughter to occupy the property thereby bringing main residence relief into play). If the property is being sold to your daughter at this stage for £40,000 your daughter could pay Inheritance Tax in respect of the gift element contained within the transaction if either or both of you die within seven years; but that would only apply if at the dates of your respective deaths the amounts respectively gifted by you (ie £50,000 each) when aggregated with the amounts of other failed potentially exempt gifts and chargeable transfers respectively made by you in the respective seven year periods prior to your respective deaths exceed your respective nil rate allowances (currently £312,000 per person). SDLT will not be payable in respect of any such sale, since the amount your daughter will be paying you is well below the current threshold.
Live-in daughter can stay on
Q. One of our daughters lives with us and we have stated in our wills that she can live in the house as long as she wishes after our deaths. Eventually she will split the proceeds from the sale of the house with our other daughter, who has her own property. Now I'm told that the daughter who lives with us can only stay for 12 months, after which she would have to sell or buy the other daughter out. What is the point of a will if the wishes it contains can't be carried out?
A. I think you've been misled. If you hadn't made wills, or had made wills leaving the property to both your daughters equally, then the one that lives with you would be expected to either sell up or buy out the other's share within a reasonable period following your deaths. But since you've made wills giving your daughter permission to remain in the property she won't have to sell up or move. Discuss this with our Mr Hughes (head of Rowlands Private Client Team) if you require reassurance. I hope you have involved your other daughter in this decision, since it could be a long time before she receives her share. It sometimes helps to avoid acrimony by putting everyone in the picture prior to the event.
For legal assistance in relation to any issues relating to wills/tax/probate/trusts please contact Simon Hughes (Head of Rowlands Private Client Team) on 01618352020.