When does a power of attorney take effect?

If you have been asked to act as an attorney for someone you may wonder when it will come into effect, especially if the power of attorney was made some time ago when your friend or relative was in good health.

‘There was an important change in 2007, and so the way that a power comes into effect will depend upon the type of power or attorney,’ says Lucy Brown, head of the wills and probate team with Kidd & Spoor Solicitors. ‘Each type of power of attorney is distinct and takes effect in a different way and at different times, so it is important to be aware of these variations.’

Lucy outlines the differences.

Enduring power of attorney (up to October 2007)

Before 2007, it was possible to create an ‘enduring power of attorney’ which related only to financial decisions. Any enduring powers of attorney that were made before 2007 remain valid and many are still in use today.

An enduring power of attorney became effective immediately on being signed by all parties, in so far as attorneys can use the documents to assist the person who made the enduring power of attorney (referred to as the donor) provided the donor asks the attorney to do so. For example, if the donor has trouble physically getting to the bank, and does not have online banking, they could ask you to handle some transactions for them.

If the donor becomes ill and no longer has mental capacity to direct you in this way, the enduring power of attorney will need to be registered so that you can act or continue acting. The enduring power of attorney can only be registered once the donor no longer has mental capacity.

Registration of the documents is completed via the Office of the Public Guardian and the registration process takes approximately 8 to 10 weeks. During this time, you will be unable to use the enduring power of attorney and, if you find yourself in this position as an attorney, you should seek legal advice as to how to deal with the donor’s affairs during this interim period.

The registration process for enduring powers of attorney requires certain persons to be notified and this follows a strict order. If you are unsure about the registration process, we can assist.

Enduring powers of attorney relate to financial decisions only. If you made an enduring power of attorney and would like your attorneys to also assist with your healthcare decisions, should the need arise, you will need to make a newer lasting power of attorney for healthcare decisions.

If you are an attorney acting under an enduring power of attorney and the donor no longer has mental capacity, you do not have any powers in relation to their healthcare decisions. Any healthcare decisions will be made by the medical professionals involved in the person’s care.

Whilst an enduring power of attorney remains legally valid, these do not allow for as much flexibility as the newer lasting powers of attorney, and you may wish to consider whether an upgrade may be appropriate in your circumstances.

Lasting power of attorney (after October 2007)

Lasting powers of attorney were introduced in 2007 to allow people to appoint attorneys in respect of both their financial decisions and their healthcare decisions. Separate documents are required to appoint each type of attorney, although there is no obligation to make both types.

LPA – financial decisions

When the donor created the lasting power of attorney for financial decisions, they needed to decide whether the document could be used whilst they still had capacity (i.e. as soon as the lasting power of attorney was registered) or only in the event that they lose their mental capacity.

If the donor chose to give the power immediate effect, then you can only deal with the donor’s financial affairs when they instruct you to do so, for as long as they continue to have mental capacity.

If the donor prefers to manage their financial affairs until they lose their mental capacity, then you will not be able to act for them until such time.

When the donor has lost mental capacity, the lasting power of attorney must be registered with the Office of the Public Guardian. Unlike the enduring power of attorney, a lasting power of attorney can be registered at any time, even when the donor still has capacity. Most lasting powers of attorney are, therefore, registered in advance to ensure that they are available and ready to use in the event of loss of capacity, as the registration process is rather lengthy. Registration of a lasting power of attorney takes up to 20 weeks.

LPA – healthcare decisions

A lasting power of attorney for healthcare decisions follows the same registration process as the one for financial decisions. However, the key difference is that a healthcare lasting power of attorney may only be used if the donor no longer has mental capacity. There is no option for the donor to delegate their healthcare decision making sooner.

A general power of attorney

A general power of attorney has limited functions, which may relate only to a specific decision that needs to be made or, as the name suggests, they may be more general in nature. For example, a donor may make a general power of attorney allowing someone else to sign on their behalf for the purchase or sale of property. The general power of attorney may specify that it is solely for this purpose, or it may be granted only up until the property transaction completes.

A general power of attorney takes effect as soon as it is signed. It can prove a useful interim measure during the lasting power of attorney registration process if a donor wishes for their attorneys to act immediately.

If the donor loses mental capacity, a general power of attorney becomes ineffective and can no longer be used.

General powers of attorney have limited uses and should be used sparingly. Whilst many do implement these as an interim measure, the idea of lasting powers of attorney are that they are insurance documents that are useful to have in place in plenty of time should a loss of capacity occur.

Important considerations

If you have been appointed as an attorney for someone, it is important to remember that the power of attorney is the donor’s document, not yours.

It is the donor who makes the power of attorney and who determines how this can be used and, in some cases, when it will be effective. An attorney cannot override the donor’s decisions in this regard.

How can we help?

Powers of attorney are important documents, and they hand over a lot of control and responsibility to another person. It is important that you understand the nature, effect, and effectiveness of any power of attorney before starting to act.

For further information, please contact Lucy Brown in the wills and probate team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Probate is a term which is loosely used to cover the administration of an estate, and it has a reputation for being a lengthy process. The administration includes a number of key stages, including obtaining the grant of probate, paying out to beneficiaries, and finalising the estate. Complications and delays can arise in each of these stages, which mean the probate process can prove lengthier than many executors anticipate.

‘Liaising with financial institutions, beneficiaries, and other parties takes time,’ says Lucy Brown, head of the wills and probate team with Kidd & Spoor Solicitors. ‘The speed at which others respond is out of an executor’s control, but some common causes of delay can be anticipated and planned for in advance.’

Problems with the will

It may be that you are certain the person left a will, but you are unable to find it. Or perhaps you have only found a copy of the will or an unsigned draft. Professionally drafted wills that have been prepared with the help of a solicitor are typically stored at the solicitor’s offices, therefore reducing the likelihood of the original will becoming lost. With the help of a solicitor, not having the original will is not necessarily an insurmountable issue, but it will usually take longer to go through the probate process with only a copy of the original will.

If the will has been located, this could be invalid, in whole or in part. An invalid will means the intestacy rules have to be applied and researching the family history takes time. Similarly, if the person simply did not make a will, intestacy rules must instead be followed, and it will naturally take longer to establish these than it does to merely adhere to the terms of a will.

Some wills, particularly homemade wills, can be legally unclear. Interpreting the terms of an unclear will to the agreement of everyone concerned can prove time consuming and can lead to delays that could have been avoided with a professionally drafted will.

Obtaining valuations

The ease with which a valuation can be obtained will depend on the type of asset and the financial institution that you need to deal with. Whilst high street banks are often quick to provide information about basic current and savings accounts, it can be trickier to obtain details from more unusual investment arrangements.

Certain assets, such as artwork, antiques, collectibles or cryptocurrencies will need expert valuations, and it takes time to arrange for experts to view items.

Assets that are held overseas can prove particularly tricky, not least of all because communication is often especially protracted. As other countries have their own probate rules, even once valuations are obtained for overseas assets, withdrawing the funds often requires additional time-consuming steps, such as arranging for documentation to be translated or even reapplying for probate in the country concerned.

When seeking probate valuations from financial institutions, it is important to be as clear as possible about what information is required. Solicitors deal with many estates and are familiar with exactly what details are needed from financial institutions in order to apply for probate, this means that they know precisely what to ask for from the start.

Realising investments

While a single prompt payment is preferable, some assets pay out to the estate long after the date of death, thus preventing the estate from being finalised. This might be the case with some occupational pensions, or with certain complex investment arrangements such as peer-to-peer lending where you need to wait for all the loan parts to be repaid, possibly over a number of years.

Liaising with beneficiaries

Sometimes executors are unable to locate beneficiaries, or they cannot ascertain whether the beneficiary is still alive. While there are steps which can be taken to locate missing beneficiaries, these take significant time.

Even if all the beneficiaries have been located, there is no guarantee that they will be cooperative. Sometimes, a beneficiary may refuse to communicate, or to provide the details an executor needs to pay their share of the estate. Alternatively, there could be factors which prohibit a beneficiary from being able to deal with requests in a timely manner, or at not all.

All the time estate funds remain undistributed, the executors cannot conclude the probate process. As an executor, you must act in the best interests of the beneficiaries and, in some cases, this may mean taking additional steps to ensure their understanding or their ability to be involved in the process.

If you are facing problems locating beneficiaries, or if you are dealing with an awkward beneficiary, a solicitor can help you to navigate the steps needed to track the person down or to negotiate with them.

Inheritance disputes

In some instances, certain people are entitled to claim for a greater inheritance if they feel that they have not been sufficiently provided for from a loved one’s estate. The probate process cannot be finalised until any such disputes are resolved which can take several months, or even years.

If you feel that a dispute is likely, it is best to seek legal advice as early in the process as possible to encourage a swift resolution. Often when someone makes a will, if they are already aware of a likely disagreement between their chosen beneficiaries, the best advice is to appoint professional executors to ensure that any dispute can be dealt with expeditiously.

How can we help?

While some delays cannot be avoided, seeking legal advice early in the process can at least prepare you in advance so that you, and the beneficiaries, are able to anticipate the likely timescales and plan accordingly.

Solicitors are well versed in the complications of overseas assets, continuing payments from certain investment types, missing or difficult beneficiaries, and other factors which may slow progress. Obtaining legal advice at the outset will ensure that you are on the best path to dealing with the entire process as smoothly and swiftly as possible.

For further information, please contact Lucy Brown in the wills and probate team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

On top of the heartbreak and worry that a diagnosis of a life-limiting illness can cause, there will be a raft of concerns and uncertainties about your care and financial affairs, and it can be difficult to know exactly how to prepare from a legal standpoint.

‘There are steps you can take to ensure that your care runs smoothly following a diagnosis,’ says Lucy Brown, head of the wills and probate team with Kidd & spoor Solicitors. ‘A health and welfare lasting power of attorney can be an essential part of future care planning for those with a life-limiting illness, alongside an advanced care plan.’

Considerations for a health and welfare lasting power of attorney

You may make a lasting power of attorney for your health and welfare decisions either alongside a property and financial affairs lasting power of attorney or independently.

If making both types of lasting power of attorney, it is not necessary to appoint the same attorneys for each. What is more important is that you are certain your chosen attorneys have the suitable experience and character to make difficult decisions on your behalf. You should also bear in mind your relationship to them, as well as the nature of your condition when considering their suitability.

Once you have chosen a suitable attorney, or attorneys, it is important to remember that they will have the power to make decisions about your care and personal welfare. They will only acquire these powers when you no longer have capacity to make decisions yourself.

Whilst any decisions they make should, ultimately, be in your best interests, they should also consider any specific wishes you have made. It is, therefore, imperative that you communicate openly with your attorneys about the types of decisions you would like them to consider in various circumstances that could arise whilst you have capacity.

Many people prefer to ensure that their views are recorded by including instructions and preferences within their lasting power of attorney. Having your choices written down makes it easier for your attorneys to recall your views and to refer to them as circumstances change over time. You do, however, need to be careful when including instructions and preferences to ensure that these are legally valid.

A health and welfare lasting power of attorney also allows for you to decide who should make any decision about life sustaining treatment if one needs to be made. You may either choose for your attorneys to make this decision or for the medical professional to do so. Either way, your care providers should always discuss the options with your attorneys before a decision is reached. If you leave this decision up to your attorneys, it is vital that you ensure it is a decision they will be comfortable making.

Other advanced care planning

A health and welfare lasting power of attorney will likely be the most valuable part of your legal planning following a diagnosis, But, as its main purpose is to provide your attorneys with authority to deal with your affairs, the opportunity to incorporate your own views and wishes is somewhat limited.

In addition to your lasting power of attorney, an advanced care plan allows you to set out in greater detail your personal choices regarding the care and treatment you should receive. Typically, this is prepared with the help of your care providers and is essentially a written document which sets out your choices. Those choices can include anything from a specific care home in which you wish to live to dietary requirements or personal care, such as haircuts and manicures. Your advanced care plan should be provided to your attorneys and to anyone involved in your care to ensure that everyone understands your wishes and is working together with the same aims in mind.

When preparing an advanced care plan, you should consider the current and future anticipated effects of your illness, the type of care needed bearing in mind accessibility and affordability, the benefits and risks of different treatments, and the type of care or treatment you are happy to receive. Your advanced care plan should be continually reviewed by you and clearly communicated to your attorneys, family, friends, care providers, and anyone else who plays an important role in your life.

Whilst it is a good idea to set out your wishes in this way, you should avoid being too rigid and you should try to consider as many eventualities as possible and how you would like to be treated in each case. Before writing an advanced care plan, it is always a good idea to obtain legal advice to ensure that your wishes are legally valid and that they do not contradict anything already contained within your lasting power of attorney or any other legal document.

Will considerations

Putting plans in place for the remainder of your lifetime will, naturally, be your key priority, but the diagnosis of a life-limiting illness may also prompt you to consider your will and any wishes related to your death.

If you have not already made a will, you should think about who you would like to benefit from your estate after your passing. If you already have a will, it is important to revisit this to ensure that it remains in line with your wishes. If you are in any doubt about whether your current will is still suitable, you should seek legal advice to either ensure that you are entirely satisfied with the terms or to make a new will to reflect your current wishes.

How can we help?

If you are struggling to know how to prepare yourself legally following the diagnosis of a life-limiting illness, our solicitors can advise you on all aspects of your legal planning.

For further information, please contact Lucy Brown in the wills and probate team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Acting as an executor means that you are responsible for reporting the value of the estate and declaring any inheritance tax due, so it is important to make sure you follow correct procedures.

‘Since January 2022, new rules apply in respect of reporting inheritance tax’, says Lucy Brown, head of the wills and probate team with Kidd & Spoor Solicitors. ‘Whilst it is intended that these rules should make the probate process smoother, you could easily be caught out if you are not familiar with their full scope.’

When the estate value still needs to be reported

Under previous rules, in order to obtain probate, it was necessary to report the value of all estates to HMRC using either a short form or long form return. Whilst this used to be the case even when no inheritance tax was due, the new rules mean that when there is no inheritance tax to pay reporting to HMRC may no longer be a requirement. However, if you are an executor of an estate on which inheritance tax falls due you must still report to HMRC using the long form return.

You also need to be careful if you are an executor of an estate which is not subject to inheritance tax, as it is not the case that all non-taxable estates need not be reported.

The new rules apply only to deaths which occurred from 1 January 2022 onwards. If the person whose estate you are dealing with died prior to this, you will still need to submit an account to HMRC even if no inheritance tax is due.

For deaths on or since the introduction of the new rules, you may still need to report to HMRC if the deceased made gifts during their lifetime. If they made gifts within the seven years prior to their death which exceed £250,000 in value, or any gifts from which they continued to benefit personally during this time, you will need to send valuation details for the estate.

Certain assets may also mean that reporting remains necessary. If the deceased held foreign assets worth more than £100,000, or if they left a life insurance policy to be paid out to someone who was not their spouse or civil partner, you will need to report to HMRC. Trusts may also mean that you are required to report. Where the deceased benefited from a trust which has a value greater than £250,000, or if they held more than one trust, you may need to submit a return.

Another consideration is where the deceased lived when they passed away. Different, more complex, rules apply in relation to foreign domiciled or deemed domiciled persons. These terms have very specific legal meanings, and you should seek advice if the domicile of the deceased is in any doubt whatsoever.

One further factor is the overall value of the estate. Where it exceeds £3 million HMRC require valuation details even if no inheritance tax falls due, such as where the entire estate passes to charity.

It can be difficult to determine when reporting is needed, but if you are an executor, it is your responsibility to ensure that you are compliant with HMRC’s requirements. If you are in any doubt, you should seek professional advice.

When the estate value need not be reported

If inheritance tax does not apply to the estate, and provided you are satisfied that none of the reporting requirements exist, you can now obtain probate without reporting the estate valuation to HMRC.

In such cases, you must still obtain accurate up-to-date valuations for all of the estate assets, as the Probate Registry will require these details.

Reporting the estate valuations to HMRC for the purpose of inheritance tax was, and remains, only a small part of the overall probate process. As an executor, your duties are to the beneficiaries and are governed by pre-existing inheritance and estate administration laws. If you fall foul of your duties, you can find yourself personally liable for any loss arising. If you are in any doubt about the probate process, it is wise to speak to a solicitor. Being an executor is a big responsibility and should be tackled with care and diligence. Always seek advice if you are at all unsure about the process.

How can we help?

If you are an executor and you are struggling to get to grips with the new HMRC reporting rules, our solicitors can help to guide you through the process and can explain your duties to help make these clear.

For further information, please contact Lucy Brown in the wills and probate team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Deciding who should inherit from you in your will, how much they will get and in what shares, are big decisions to make. This can be made more difficult if you have particular concerns about a beneficiary and whether the inheritance could be at risk.

‘Second marriages, family disagreements, or children who have a lot of debt can all be reasons why you might want to retain some control over your assets, even when you are no longer alive to enjoy them personally,’ says Lucy Brown, head of the wills and probate team with Kidd & Spoor Solicitors. ‘In these circumstances, a conditional gift can allow for greater flexibility. They can, however, also become problematic if not considered with appropriate care and diligence.’

What is a conditional gift?

Many gifts made in a will simply allow the recipient of the gift to receive their money, or other assets, outright once you have died. A conditional gift is one which the recipient will only receive if a certain condition is met.

The condition could be something which is certain to happen, such as the death of another beneficiary, although the timing of the event is uncertain. Alternatively, the condition could be something which is not guaranteed, such as the recipient obtaining a certain qualification.

Conditional gifts are often referred to as ‘contingent gifts’ as they rely on the occurrence of the specified contingency.

Common conditional gifts

Many people choose to leave money to young beneficiaries only once they have reached a certain age. This might be, for example, 18, 21, 25, or any other age.

Whilst this is a condition that is likely to be met, it is not guaranteed. The beneficiary would only receive their money if and when they reach the required age.

A conditional gift may also be in the form of a trust. It is common for couples who have children from previous relationships to include in their wills a life interest trust for each other. Typically, the ultimate aim is for the money, or assets, to pass to their own children after their new partner has died. The children, therefore, are the recipients of a gift which is conditional upon the death of the partner.

Other reasons for making a conditional gift could be, for example, if you have reason to dislike or distrust a beneficiary’s spouse or civil partner, in which case you may make the gift conditional upon them having divorced by the time of your death. You might want to leave money to a grandchild, but only if they attend university.

Making gifts conditional on speculative assumptions such as these is, of course, more risky, as it might be less probable that your grandchild will go to university than them simply living until they are 25. A gift attached to a less probable condition should be made with extra caution, and you should always give thought to the possibility that the condition may never happen and how you would like the gift to be distributed if the condition is not met.

There are many reasons why someone may wish to make a gift conditional, and the suitability and terms of such a gift are highly dependent upon personal circumstances. It is always advisable to seek advice before including a conditional gift in your will.

Pros of conditional giving

Conditional gifts do allow for a greater level of control of your assets post-death, as they take into account alternative circumstances that could occur. If carefully drafted by a legal professional, a conditional gift could allow for a variety of situations.

Gifts which are conditional upon the beneficiary reaching a certain age may protect an inheritance, as many parents and grandparents share the view that their children would be less likely to make sensible investments with their inheritance at 18 than they might at 25.

A gift which is conditional on the beneficiary’s divorce can protect assets from becoming embroiled in divorce proceedings if the relationship is already rocky and likely to end in divorce, ensuring that your assets do not end up in the hands of a loved one’s ex-spouse.

Any gifts which are made conditional upon the death of another person mean that the asset in question will continue to pass according to your own wishes, rather than under the will of someone else.

Cons of conditional giving

If you try to include conditional gifts in your will where the conditions are too stringent or very unlikely to actually occur, those who you would have liked to inherit from you could end up with nothing at all.

A gift with too many conditions imposed upon it can easily become confusing and difficult to administer under your estate.

Including a conditional gift in your will without having taken appropriate legal advice may lead to misunderstanding and misinterpretation, causing the gift to fail or to not achieve the goal you had desired.

How can we help?

Conditional gifts are a useful way of retaining some element of control over your assets, but you should always seek advice as to its appropriateness and legal effects. We can help to ensure that the gift will be legally valid and that it reflects your wishes.

Our solicitors can advise you on preparing a will in a way that ensures your choices are clear and legally binding, as well as helping you to ensure your assets are left in the exact way you intend.

For further information, please contact Lucy Brown in the wills and probate team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

There are many reasons why someone might choose to leave money to charity in their will. Tax planning may be a key incentive, or it could be due to a lack of close family members. Some may simply wish to create a longer lasting personal legacy or they might have strong feelings about a certain cause.

‘Last year, Fisherman’s Friend heiress Doreen Lofthouse hit the headlines when she left £41.4 million from her family’s fortune to the Lofthouse Foundation.’ Lucy Brown, head ofthe wills and probate team with Kidd & Spoor Kidd Solicitors, explains ‘Doreen contributed generously to causes close to her heart throughout her lifetime and leaving such a significant sum on her death was designed to allow the foundation to continue her philanthropic work.’

Lucy explores the key motivations for charitable legacies and highlights the benefits.

Charitable gifts are a great option for those without close family

Whilst Doreen Lofthouse did leave behind a son who has carried on her family legacy, sometimes a person might be the last living family member.

If you no longer have any close family or friends, you might not want your money to end up with distant relatives you never speak to or see. If you find yourself in this situation, a gift to charity could have more meaning to you. Or perhaps, like Doreen, you may feel that your family is not in need of your entire estate and that you would prefer to leave a portion of it to causes you care about.

Making a will in which you clearly set out your wishes is the only way to ensure that any charities can benefit from your estate. If you die without a will then the predetermined intestacy rules apply, and these never provide for money to pass to charity. Even if you leave no distant relatives, intestacy will mean all of your assets end up being left to the Crown. Most prefer for their money to pass to a good cause of their choosing.

Creating a lasting personal legacy with charitable gifts

Leaving any sum to charity under your will allows you to ensure that you are remembered for the causes that mean the most to you.

In Doreen Lofthouse’s case, her sizeable donation was made to allow the Lofthouse Foundation to use the funds for revitalising her hometown of Fleetwood in Lancashire. Having set up the foundation for this purpose in 1994, this was clearly a goal of Doreen’s throughout her lifetime. Not only will the donation benefit those in the area, but locals have also called for a memorial to be erected in Doreen’s honour to ensure her personal legacy will endure beyond the monetary gift.

Whilst not everyone who leaves money to charity ends up with a permanent memorial, charities are grateful for any sums they receive and your legacy will live on in the meaningful work they are able to provide as a result of your gift, whatever size it may be.

The effect of charitable giving on inheritance tax

For many, tax saving is not the key consideration for leaving sums to charity, but it is usually a welcome side effect.

Any gifts you leave to charity in your will pass free of inheritance tax, as charities count as exempt beneficiaries. This reduces the value of your estate by the amount of the gift before any tax-free allowances are taken into account, leaving a smaller pot to fall subject to inheritance tax.

In addition, if you leave 10 per cent or more of your estate to charity the remainder benefits from a reduced inheritance tax rate, meaning a greater share for your other beneficiaries. Inheritance tax calculations and tax-planning is complex, and it is advisable to seek advice before finalising decisions on the basis of tax.

How can we help?

If you wish for some, or all, of your assets to pass to a charity close to your heart, the only way of ensuring this happens is to include clear instructions in your will. Making a will allows you to control how your estate passes when you die, including specifying charitable gifts, whilst making sure everything passes in the most tax efficient way.

Our solicitors can advise you on preparing a will in a way that ensures your choices are clear and legally binding, as well as helping you to create the legacy you wish to leave.

For further information, please contact Lucy Brown in the wills and probate team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

Your home is often your most important asset, and you may be lucky enough to own other property such as a holiday home or a buy-to-let investment.  Over time, if your personal circumstances change; you may want or need to transfer a share in a property.  This could be the transfer of a share in the value of your home to your former spouse if you are getting divorced, or to a new partner if you have moved in together.

‘Transferring property between family members is not always straightforward,’ warns Patricia Hall, head of the conveyancing team with Kidd & Spoor Solicitors. ‘Your plans will need to take account of ownership structure and should be consistent with your longer-term goals.’

Patricia looks at the issues to consider when transferring property between partners.

Establishing the legal and beneficial interests

The first step will be to establish the current ownership structure. Land ownership can be multi-faceted, but basically there are two types of interest in land: legal and beneficial:

• The legal owner is the person in whom the property’s title vests. With registered land, this will be the person entered as proprietor in the Land Registry’s register of title.
• The beneficial interest in a property exists independently from the legal title. It represents the value of the property, for example a financial stake or the right to live there.

This division can sometimes be difficult to appreciate fully, but any transfer needs to address both the legal and beneficial interests in a property. On the plus side, it allows a lot of flexibility in dealing with joint property ownership and the creation of multiple interests in land.

If you already own property with someone else, the ease by which you can transfer your share of the property will depend on whether you are tenants in common or joint tenants. The legal estate will always be held jointly. However, you can hold the beneficial interest as joint tenants or tenants in common. The law treats a joint tenancy as indivisible: neither you nor your partner own a defined share in the property. In contrast, as tenants in common, you and your co-owner each own a distinct share. You can hold the beneficial interest in equal shares, or another split, which means either of you can choose to transfer your respective share to someone else.

If it is not clear whether you are joint tenants or tenants in common, we can help you work it out by examining the HM Land Registry records and the deeds.

Transferring ownership when your relationship changes

If your relationship breaks down, you could buy your partner out or they could agree to buy you out. In this case, a transfer of equity would ensure both the legal and beneficial interest in the property pass to the buyer. As there is usually no need to carry out the full range of property searches, a transfer of equity usually takes less time than a conventional purchase. However, if the property is subject to a mortgage, you will need your lender’s consent.

If you are joint tenants, you will also need to sever the tenancy first. You can do this by serving notice. This will effectively convert your joint tenancy into a tenancy at common, leaving you free to deal with your respective shares. It is important to follow the correct procedures for this to be effective. We can prepare the notices and ensure their correct service, guarding against the risk of any subsequent challenge. You and your co-owner can then sign the transfer of equity, which we will send to the Land Registry to record the change in ownership. Without this, problems could arise when you come to sell or take out a new mortgage.

Instead of buying a partner out, one of you may agree to gift their share. However, if you are getting divorced, always discuss your proposals with your solicitor first. This can avoid the risk of having to reverse the transfer later if the court orders a different settlement.

Becoming a co-owner with someone else

Conversely, you may already own a property but now want to share ownership with someone else, for example a new partner. The process is very similar to the one described earlier except as the sole owner you will not need to sever the tenancy. You and your new co-owner will, however, need to agree whether to be joint tenants or tenants in common and, if the latter, the proportions in which you will share the beneficial interest in the property.

If your property is subject to a mortgage, you will also need your lender’s consent. Your lender may need to carry out credit checks on your partner if they will also be responsible for the mortgage. Alternatively, you may choose to pay off your mortgage in full or remortgage. So, it is a good idea to discuss your plans with them early on. We are familiar with the requirements of all the major lenders, and we can complete the necessary formalities smoothly, ensuring the release of the old charge and registration of the new one at the Land Registry at the same time as the transfer.

The transfer should include a declaration of trust setting out your respective interests. This will determine the split of the net sale proceeds in the future, which reduces the risk of any dispute arising.

When dealing with the Land Registry, as well as ensuring the register reflects the change in ownership, we will check the appropriate restriction is entered. In practice, should you die before your co-owner, this helps ensure your personal representative, and ultimately your chosen beneficiary, can step into your shoes. Your co-owner will then have to agree with them what to do with the property.

Tax and other implications

You should always take independent advice before transferring property, especially if you are gifting it to another family member. There will often be tax implications.

Our conveyancing team can help

If you are looking to transfer property because of a change in your relationship we can ensure it is effectively legally and we can advise you of any wider implications.

For further information, please contact Patricia Hall or Neil Shearer in the conveyancing team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

When applying for probate in regard to an estate which is subject to inheritance tax, the Probate Registry requires tax to be paid before the grant of probate application. This can prove difficult as most financial institutions will not pay out sums to executors without first seeing the grant, but there are ways to deal with this dilemma.

‘If assets are tied up in a business or property, then executors may not be holding sufficient liquid funds to pay the inheritance tax up front,’ says Lucy Brown, head of the wills and probate team with Kidd & Spoor Solicitors. ‘However, executors can apply to a bank which is holding estate assets and request the bank to pay HMRC directly. In addition, certain inheritance tax payments can be deferred.’

What are the rules for paying inheritance tax?

If inheritance tax falls due on an estate you are dealing with, you must pay this within six months of the person’s death. Payments made after the six month deadline will be subject to interest and possible fines.

This six month period represents a maximum time limit, as inheritance tax must be paid upon submitting the inheritance tax account to HMRC. Without first paying the inheritance tax liability, HMRC will not allow the Probate Registry to release a grant of probate, and without the grant of probate you cannot continue the administration of the estate.

As a grant of probate is needed in order to access most estate assets, it is common for executors to apply to one or more of the banks holding funds and to request the bank pays the inheritance tax due directly to HMRC. Once the tax liability has been settled HMRC will confirm this to the Probate Registry, and you will be free to obtain the grant of probate.

If funds held in bank accounts and other liquid investments are insufficient to cover the tax liability in full, you may find yourself in a position where you are unable to clear the tax until a grant of probate is obtained and assets can be sold, whilst also being unable to obtain the grant of probate until the tax liability is paid. In these circumstances speak to our solicitors to discuss whether deferred payments could be an option for you.

Paying inheritance tax by instalments

HMRC do allow inheritance tax to be paid by instalments over a ten year period on certain estate assets which are:

• land and real property;
• business assets;
• shares which gave the deceased complete control of a company; and
• certain unquoted minority shareholdings (dependent upon specific criteria).

Inheritance tax falling due in respect of any of these types of assets can be split into 10 equal instalments. However, the first of the 10 instalments is payable prior to the grant of probate being issued.

When opting for payment by instalments, it is important to note that interest may accrue. If instalments relate to business assets or shares, interest only arises on each instalment if it is paid late. With land or real property, the instalments carry interest from six months following the date of death until the full inheritance tax is settled, even if all instalments are paid on time.

Because of this, many executors opt for the instalment option in order to obtain the grant of probate but then pay all of the inheritance tax due as soon as assets are sold to minimise interest. When assets are sold which themselves are subject to inheritance tax by instalments, the full inheritance tax due on that asset must be paid at the point of sale. The minimisation of interest should also be a key factor when executors are considering their duties to the beneficiaries, as it is of course in the beneficiaries’ best interest to pay as little interest on inheritance tax as possible.

What can be done if funds are not sufficient to pay the first instalment of inheritance tax?

If you are the executor of an estate where all, or most of, the assets are land or real property, you may find yourself without available funds to pay any of the inheritance tax due prior to obtaining the grant of probate. You, or the beneficiaries, may have to temporarily meet the inheritance tax liability personally, by way of a loan to the estate. Alternatively, you can apply for a bank loan to cover the tax due.

Either of these options will require you to ensure that the terms of the agreement are clear and fair, and you should seek advice as to the suitability of these options in your individual circumstances.

Where executors and beneficiaries are unable to cover the cost of inheritance tax and a bank loan is not an option, HMRC may agree to the issue of a grant of credit. HMRC will require a professional undertaking that inheritance tax will be paid once assets are sold and may even require confirmation that a purchaser has already been found. As such, this option will usually only be available when you have a legal representative acting on your behalf.

How can we help?

Payment of inheritance tax can be tricky to navigate, as is it often a circular issue between payment of tax and release of the grant of probate. However, it is not an insurmountable issue and can be resolved with the correct professional advice. Obtaining advice as early as possible can prevent stress and unnecessary interest.

Our solicitors can advise you on the payment of inheritance tax and which options are likely to be the most suitable for your needs.

For further information, please contact Lucy Brown in the wills and probate team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.