When settling a family’s estate, a duty of care exists to ensure all options are available to the beneficiaries, as soon as possible. This is particularly relevant in terms of utilising capital gains tax (CGT) exemptions, especially when the market appreciates after the death of the testator. Avoiding the downside if markets fall is also important. This might seem like stating the obvious but let me share some recent experiences with you.
Sadly, over the past two-and-a-half years, four clients have passed away. There have certainly been some problems!
What happened?
I’ve changed the names…
Sue – The bank lost the will and she was therefore deemed to have died intestate! Need I say more!
Geraldine – A firm of solicitors was appointed as executor, but went bust during the application process.
Jim – We settled the estate, no problem.
Alan – The solicitor lost the will so we had to swear on the office copy. This caused a considerable delay.
Why you have to be proactive…
The case of Geraldine
If estates aren’t settled quickly and efficiently, there can be a loss of market opportunity (i.e. the market may fall during the process, severely disadvantaging low-risk beneficiaries. Of course, the opposite can also occur. Take for example the case of Geraldine (the same applied to Jim, too): After her death there was a substantial recovery in the market. We found ourselves having to put pressure on the newly appointed solicitors to act quickly, as both beneficiaries wanted to move house.
In the tax year of death and the two immediately following, there is an opportunity to use capital gains allowances in respect of the estate. But it is more far reaching than that, as the beneficiaries themselves have capital gains allowances! In Geraldine’s case, over three tax years, having two beneficiaries, it could have been possible to use up nearly £100,000 of CGT exemptions, nine in all! By pointing this out to the newly appointed solicitors and exerting pressure on them, we were able to implement a strategy that achieved a more tax-efficient result. Had we left it in the hands of the solicitor, the beneficiaries would have lost those crucial tax allowances. The clients later confirmed to me that they believed they would have lost all of them! In all fairness, we did miss the first year’s allowances, as you might expect.
The case of Alan
In Alan’s case, we wanted to act quickly to maintain continuity of income to his widow and we expected to obtain probate within eight weeks, had the solicitor not lost the will. Alan also held infrastructure funds in ISAs and we wanted to swap these into ISAs for his wife, in order to avoid the prevailing 20% tax charge on infrastructure dividends (i.e. not held in ISAs). Fortunately, we managed to implement the ISA swaps and achieve what the surviving spouse wanted, albeit after a period of six months!
A new obligation
Going forward, ISAs will become a major issue for solicitors in terms of meeting deadlines. Why? Because in the autumn budget it was announced that the assets can be held in limbo for the surviving spouse, until probate is granted, whereupon they can resume as ISAs again, with the obvious tax benefits. If some of the investments are held in infrastructure funds, fixed interest bonds or convertible loan stocks, or indeed the surviving spouse is a higher rate tax payer, this could be a significant issue. Today, it is almost the norm for the majority of a person’s liquid assets to be held in ISAs.
In future it is more likely that solicitors are going to be put under considerable pressure by proactive clients and their advisers to move quickly in order to meet new deadlines. Furthermore, over a period of 367 days (yes, that could be three tax years) it will be possible for one individual to transfer £65,000+ into an ISA which is completely tax free (not even subject to a 10% dividend tax). I appreciate that we are talking about fine tuning here, but as a matter of course, we should all be trying to achieve this!
Take the initiative
My advice is to take the initiative, have a plan, and expect it to be implemented. After all, the beneficiaries are the solicitor’s future and they have a golden opportunity to impress.
We advise solicitors to work with clients’ financial advisers. They can help you achieve the best result. You should set goals, timeframes and objectives and above all work together and make them happen. Bear in mind that the clients see a lot more of their financial advisers than they see of their solicitors, so it could be very beneficial to keep that entity on their side.
In all four instances we had to be proactive and pressurise in order to get a result. We made it happen for the beneficiaries! Solicitors should be doing the same.
Take the time to read our recent testimonial from a client for whom we were proactive in settling his father’s estate and try to imagine the benefit to one’s reputation.
N.B. None of these estates were small. They were the assets of high-net-worth clients.