Challenging wills and charity legacy disputes

A simple gift made by someone in their will can provide a primary source of income for charities, although this is not always as straightforward as it sounds.

Notwithstanding the principle of testamentary freedom under English law, it is not uncommon for legacy disputes to arise when it comes to charitable bequests.

Indeed, relatives can raise all sorts of challenges, from the validity of the deceased’s will to claims for financial provision for dependants. Needless to say, this can place a charity in the difficult position of deciding whether to defend their stake, notwithstanding the potential risk of reputational damage, as well as the litigation and costs risks involved.

Below we briefly examine how these types of dispute can arise and the risks involved in defending charity legacy disputes.

The different types of charity legacy disputes

A charity legacy dispute can arise in several different ways, although perhaps the most common scenario is where financial provision has not been made within the deceased’s will for a loved one and a claim is made to the court to vary the distribution of the deceased’s estate.

An Inheritance Act claim can be made against the deceased’s estate within six months of the issue of the Grant of Probate by certain categories of person, provided they can show that they were financially dependent on the deceased and that the deceased did not make adequate provision for them in their will.

Additionally, there are a number of circumstances in which a deceased’s family may seek to contest the validity of the will, and although this is highly unlikely to involve any direct allegations against the charity itself, a finding by the court in the family’s favour could serve to entirely negate any charitable bequest.

By way of example, the validity of a will can be challenged where it is argued:

• The will has been improperly executed, ie; the signing of the will has not been witnessed correctly.

• The deceased lacked the mental capacity when drawing up and signing the will, ie; s/he was not of sound mind.

• The deceased was coerced into making and/or signing the will, ie; s/he was forced into agreeing to certain provisions.

• The will is fraudulent, ie; the document, or some part of it, has been forged.

The risks involved in defending a charity legacy dispute

When deciding whether to defend a challenge made to the provisions of the deceased’s will, the guidance provided to trustees by the Charity Commission is that they have a duty to act in the best interests of their charity, together with a duty to protect and, where necessary, to recover, assets belonging to the charity.

First and foremost, therefore, it is important to ascertain exactly what sums are involved, not least if the charity has been named as a residuary beneficiary rather than being bequeathed a specific sum of money. The trustees can then begin to determine whether litigating any legacy dispute is in fact in the charity’s best interests.

The trustees should also make further inquiries as to the nature of any challenge raised by the deceased’s family, including the extent of any evidence in support, so as to assess the charity’s prospects of success.

Needless to say, seeking expert legal advice from a specialist in charity legacy disputes will not only help to determine the best course of action to take, based on the facts of the case, but also help the trustees to discharge their duties to protect and recover all charitable assets.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

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How to protect your pension following a divorce

Unless there is a consent or court order in place confirming settlement of all marital assets, either party to a divorce or dissolution of a civil partnership can stake a claim to their former spouse or partners’ pension decades down the line.

Divorce or dissolution of a civil partnership does not, of itself, cut the financial ties between two people. Nor does it matter, in the absence of a legally binding financial agreement or order, whether and to what extent any post-separation pension contributions have been made, or how many years have passed prior to a claim being raised by a former spouse or civil partner.

Accordingly, when considering a financial settlement, it is absolutely crucial that a court-approved agreement or order is put in place at the time, including how any available pension pot is to be divided. In many cases, after the family home, pensions held by either party are likely to represent one of the most valuable marital assets to which careful consideration should be given.

How will a pension be divided?

Once your marital assets have been properly assessed, including any pensions, there are several different ways to split a pension pot following divorce or dissolution of a civil partnership, including what’s known as pension sharing.

Pension sharing allows one party to take a percentage share of their former spouse or partner’s pension pot straightaway. This is called a pension credit that can either be transferred into an existing pension or used to create an entirely new pension. This can be useful where the parties are looking for a clean break.

Alternatively, where the court is asked to decide on how to divide the pension pot, an order may be made for a pension attachment order where part of a pension is paid directly to the other person when the pension holder becomes eligible to draw this.

The court, or the parties, may also elect to offset the value of a pension against other assets, for example, one party keeps their pension in full while their former spouse or civil partner is perhaps awarded a larger share of the family home.

How do I avoid a pension claim?

To avoid problems over pensions arising in the future, you should always endeavour to agree with your ex-spouse or civil partner how any pension(s) and other valuable assets are to be split.

Further, having reached an agreement with your ex, you will then need to instruct your solicitor to draw up a consent order to be approved by the court. This will legalise, and ultimately finalise, your financial settlement, such that neither party can make any further claims in the future.

In this way, your financial ties will be severed for good, and your pension and any other remaining assets, or what you are still entitled to under the terms of any agreement, will be protected. Needless to say, if agreement cannot be reached you should seek expert legal advice, or risk your pension being unprotected in years to come.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

What is commonhold?

Most of us will have come across the terms “freehold” and “leasehold”, but due to the relative scarcity of commonhold properties, very few can claim to be familiar with the phrase “commonhold”. Below we look at what this form of tenure means and why we shouldn’t necessarily shy away from it.

How does commonhold work?

The commonhold regime came into force in 2004 under Part 1 of the Commonhold and Leasehold Reform Act 2002. This effectively introduced commonhold as a new form of freehold ownership.

These provisions were primarily designed to assist tenants of residential leasehold flats – ie; those with shared services and shared common parts such as hallways, stairwells and lifts – although commonhold can be equally useful in commercial or mixed-use developments where shared facilities exist.

Under a commonhold development, each individual property owner will own the freehold to their flat, office or shop, while the freehold to the structure and shared parts will be owned by what’s known as a “commonhold association”.

Each individual property owner will be a member of the commonhold association – a company limited by guarantee, with the details decided by the association’s prescribed form of memorandum and articles – and each member will be allocated voting rights.

Each commonhold association will also have a “commonhold community statement”, which specifies the properties within the residential, commercial or mixed-use development, and the rules of that commonhold.

Typically, each owner will be responsible for the maintenance of their own unit, with the commonhold association responsible for the repair of the structure and common parts. Each individual owner will also be liable to contribute towards the expenses of the commonhold association, similar to the service charge payable under the leasehold regime, with provision for a reserve fund.

What are the benefits of commonhold?

Since its introduction, the use of commonhold has been implemented mainly in new developments – although technically an existing leasehold development can be converted into a commonhold scheme – such that there are still only a limited number of commonhold properties across England and Wales.

This does not mean, however, that you should shy away from purchasing a commonhold property, not least because there are several benefits to owning a property under this form of tenure.

One of the main benefits of owning a commonhold property is that you will have the opportunity to actively take part in how the building is run, with the ability to take steps to effectively enforce any breach by other property owners.

Further, in addition to having an increased level of involvement in your own commonhold community, the commonhold regime also addresses one of the main problems currently encountered by tenants of residential leasehold developments, namely the diminishing value of leasehold property as an asset.

In contrast to leasehold, there is no limit on how long you can own a commonhold property. A commonhold owner will instead own the freehold interest to their property that will not depreciate towards the end of any lease term. As such, commonhold properties may attract a premium as a result.

What are the drawbacks of commonhold?

Needless to say, the commonhold regime is not without its own problems, not least that it is up to the members of the commonhold association to enforce the rules under the commonhold community statement, easily leading to disharmony amongst residents.

There is also no requirement for the commonhold assessment – namely, the estimate of the overall costs of managing, maintaining, repairing and insuring the building – to be reasonable, whereby individual property owners will not have the benefit of any statutory protection over service charges available to residential leasehold tenants.

Accordingly, if you are thinking of buying a commonhold property, you should always seek expert legal advice so that you can make an informed decision about the pros and cons when buying against the traditional leasehold.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

How to avoid an inheritance tax investigation

Notwithstanding the emotional and financial difficulties that you may find yourself facing following the death of a loved one, the taxman may still elect to investigate the inheritance tax liability on the deceased’s estate – and issue hefty penalties where payment is found to have fallen short of what is due.

Needless to say, it is vital that you get the right advice at the right time. Below we look at how it all works and the importance of securing expert legal advice long before the taxman takes a look at what is owed.

How does inheritance tax work? 

As the law currently stands, we are each entitled to an inheritance tax allowance of £325,000. This is known as the inheritance tax nil-rate band. The net effect is that you are able to pass on to your loved ones up to £325,000 tax-free.

For anything over and above this threshold, a standard inheritance tax rate of 40% will apply to the remainder of the estate. For example, if an estate is valued at £500,000, the tax bill will be £70,000, ie; 40% of £175,000, the difference between the value of the estate and the nil-rate band of £325,00.

However, as of April 2017, where you are leaving property to a family member you may also be entitled to a residence nil-rate band. This will mean you will pay even less inheritance tax. For 2019-2020, this new allowance rose to £150,000. It will rise by £25,000 again in April 2020, to a total of £175,000.

In most cases, married couples and civil partners are also allowed to pass their possessions and assets to each other tax-free. As such, by using both tax-free allowances, this can effectively double the amount a surviving partner can leave behind to their loved ones without incurring any inheritance tax liability.

What is likely to cause the taxman to investigate?

Although the available tax allowances mean that many estates will not be subject to any inheritance tax whatsoever, there are plenty of instances where the value of an estate will still exceed the relevant thresholds.

Furthermore, following the recent legislative changes that saw the introduction of the new residence nil-rate band, HMRC is increasingly targeting estates it believes have undervalued residential property to avoid the payment of IHT.

Statistics show that almost a quarter of estates are investigated over IHT. For the tax year 2018 to 2019, HMRC opened 5,537 inheritance tax investigations, equating to almost one in four of the 22,000 estates on which the tax fell due.

How do I avoid an inheritance tax investigation?

There is no guaranteed way of avoiding an inheritance tax investigation. That said, you can minimise the risk of this happening by ensuring that you instruct an expert to deal with the legalities of your loved ones’ estate.

The legislation relating to inheritance tax rates, not least the rules for the new residence nil-rate band can be complex. Moreover, even where there is nothing to pay, you may still be required to fill in complicated tax forms to notify HMRC.

By seeking expert advice, you can have the peace of mind that the estate will be administered correctly, and an investigation by the taxman is far less likely.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.