11 JULY 2020 • SATURDAY DAILY MAIL


Time to get your affairs in order


Many families will have been rocked by the pandemic and the global lockdown. For some, it will have reinforced and strengthened their relationships but for others it may have fundamentally disrupted the dynamic of their ties to one another


As the world moves on from this challenging period it’s likely there’ll be an increase in the number of separations and divorces. Tis is, of course, for many, one of the most important events in a person’s life and they must consider how a split will affect their personal and finan- cial affairs both immediately and in the future. Tis is certainly the case for


the fictional couple Mr and Mrs Smith. Having lived together for several years in a happy rela- tionship, they decided to marry and purchase their dream home together. Within the first five years of marriage they had a son and a daughter. Life was good for the Smiths and they purchased a holiday home in France. Unfortu- nately, they started to experience problems in their relationship. Tey began to live separately and then decided to divorce. Mr Smith fell ill shortly after. Some aspects of this scenario


may feel familiar to you — and how the couple’s financial affairs have been organised may reflect where you also currently find yourself.


PRE-NUPTIAL AGREEMENTS Before getting married, Mr Smith received a substantial inheritance, which his parents were keen he protect. Mr Smith, however, felt a pre-nuptial agree- ment wasn’t necessary and that it would be somewhat unromantic. On separating from his wife and


beginning divorce proceedings, he was keen to protect his inher- itance in any financial settlement. Mr Smith had worked full-time throughout the marriage, and Mrs Smith had worked part-time, spending much of her remaining time looking after their children. As part of their divorce, the courts decided that


the assets,


including his inheritance, should be split 50:50 — a not uncommon starting place under English law. In reaching its decision on a split of assets, a court would also consider the circumstances of the case, how the parties’ needs


can best be met and, ultimately, what is fair. Although there’s no specific that makes


law pre-nuptial


agreements legal in England and Wales, judges will often uphold their contents when coming to a decision on a financial split, so long as certain criteria were met when the pre-nuptial agreement was originally entered into. In short, had Mr Smith had a


pre-nuptial agreement in place before he got married, he would have had a much better chance of protecting his inheritance and his family’s intergenerational wealth.


HAVING A WILL IN PLACE Mr Smith didn’t have a Will in place. Unfortunately, his illness was serious and he passed away before the divorce was concluded. Without a Will his estate would be distributed under what are called the rules of intestacy. If a person dies whilst married


or in a civil partnership (without children), their entire estate passes to their spouse or civil partner. It’s irrelevant whether they’re estranged, or


if they’re someone else.


cohabiting with If


the


separated divorce


had been finalised, of course, Mrs Smith wouldn’t have received Mr Smith’s estate. However, as Mr and Mrs Smith


had children the situation was a little different. Without a Will, if his entire estate had been below what’s called the statutory legacy (for deaths


after 6


“IT’S IMPORTANT TO HAVE A WILL, IN ORDER TO ENSURE YOUR ESTATE IS DIVIDED AS YOU WANT IT TO BE”


make an election for his interest in the French property to devolve according to English law — not French law.


ESTATE PLANNING Not having a Will meant that not only did Mr Smith lose control of who inherited his estate, but he also lost the ability to reduce the liability for inheritance tax. When he died, Mr Smith had a considerable estate valued above the inheritance tax nil-rate band threshold, which is currently £325,000. Mr Smith owned property (and


his estate was worth less than £2m) and he was survived by his children, so his estate will also benefit from the main residence nil rate band allowance (which is currently £175,000). Te share of his estate received


February


2020, this figure is £270,000), Mrs Smith would still have received everything. If his estate exceeded this


amount, Mrs Smith would still have received this legacy and his personal effects, but the remaining estate would have been split 50:50 between her and their children (and would be held in trust until they reached 18). Tis clearly shows why in such


situations, it’s so important to have a Will, in order to ensure your estate is divided as you wish it to be. In relation to the property in


“THERE ARE MANY WAYS TO REDUCE YOUR LIABILITY TO INHERITANCE TAX WITHIN THE PARAMETERS APPROVED BY HMRC”


France, this would have been subject to France’s succession laws, which are governed by the principal of forced heirship. However, when Mr and Mrs Smith purchased the property, they could have inserted a specific clause into the final transfer deed. Tis would have had the effect of the property passing to the surviving owner entirely. Also, if Mr Smith had made


a Will, he could have relied on what’s generally referred to as the Brussels IV Regulation to


by his wife is free of inheritance tax, as spousal relief applies, but the assets inherited by his chil- dren that exceed both the avail- able inheritance tax allowances (combined £500,000) would be taxed at 40%. If he had made a Will, he


could have ring-fenced assets — perhaps creating a life interest trust to provide a home for Mrs Smith, but ensuring that the children received the prop- erty on her death (this particu- larly protects the children’s inheritance if Mrs Smith was to remarry). Tere are many other ways you


can reduce your liability to inher- itance tax within the parameters approved by HMRC. Also, when writing your Will, it’s a good time to review your finances and to decide whether you can afford to make any lifetime gifts or change your investments into a more tax-efficient vehicle.


SEEK PROFESSIONAL HELP Tese scenarios provide an example of what could potentially happen if you don’t review and rearrange your affairs regularly. If you’ve spent lockdown consid- ering what the future may hold, then it’s essential that you now take time to review your personal affairs and put them in order.


NATALIE PAYNE, ASSOCIATE SOLICITOR — PRIVATE CLIENT TEAM


Financial planning & charitable donations


45


ALISON GREEN, HEAD OF FAMILY AND RELATIONSHIP TEAM


To find out how Mackrell.Solicitors can assist you with your personal affairs, please call 020 7240 0521 or visit mackrell.com


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