A shorter version of this article was published in New Model Adviser on 13 August 2012.
Succession planning can help stem the rising number of family legacy disputes by dealing with more than just taxation.
As the Financial Times (14 July 2012) has recently publicised, disputes over family legacies are on the increase. Why is this so, as this has happened when there should be less money around to pay the legal costs involved?
To a degree it is a success story. Our courts are well placed to determine disputed wills, inheritance claims and family trust matters. In particular the High Court judges have a wealth of knowledge and experience with which to handle the complexities and strong feelings these matters can generate. Most of these cases are dealt with in the Chancery Division. It has just moved to the impressive Rolls Building, London, which is promoting itself as the largest specialist centre for the resolution of financial, business and property litigation anywhere. Hence, one could say that the increase should be welcomed, as the parties feel able to put their affairs into the hands of our courts. Particularly for personal representatives and trustees, the courts are there to help them when problems arise.
But there must be other reasons. One has to speculate as to what they are, but here are some suggestions:
- The impact of the current financial turmoil has left beneficiaries fighting to get a greater share from reduced estates
- Current intestacy rule have not kept pace with modern families and relationships
- The national press has given greater publicity to reported court decisions, thus alerting people to the existence of their rights
- A greater use of caveats, which prevent the issuing of a grant of probate and thus precipitate litigation
- A greater use of claims for family provision under the Inheritance (Provision for Family and Dependants) 1975 Act (‘the 1975 Act’), which have to be issued promptly
- No win, no fee (‘CFAs’) and after-the-event insurance (‘ATEs’) arrangements have extended beyond their traditional areas to claims against estates
- Legal aid, which has be severely restricted, still applies to challenges to wills and claims for family provision
- Inadequate off-the-shelf wills, poorly considered succession planning or a failure to update wills
- The rise in testators who live or have some of their assets are outside the jurisdiction of our courts and thus governed by entirely different succession rules.
However, litigation does not have to be the way to resolve these disputes. First, the sensible guidance of experienced practitioners can avoid the pitfalls and substantial expense of litigation. Succession planning should not be confined to tax avoidance. Anticipated or current family problems should be addressed then and wills or trusts drafted to seek to deal with them. Where a dispute is unavoidable, it is essential for participants to have a good and close working relationship with their lawyers, and not just passively delegate the issues to them: seek out a legal team that you can work with and not just the cheapest. Be wary about over-enthusiastic encouragement to go to court.
The overriding approach of the courts is that litigation should be the last resort. Parties who rush to court and put at risk the estate’s or trust fund’s assets do so at their peril. Lawyers are required to be outcome focused, whatever the merits of a case, and the attractions of CFAs and ATEs – which can be triggers to litigate - are going to be less attractive when new restrictions on costs recovery come into effect in most cases as from April 2013. The option of alternative dispute resolution, preferably through the use of mediator, is virtually a requirement. Provided the mediator and venue are well chosen, even the most difficult of disputes can be resolved through this informal and non-binding process.
Some legislative changes are proposed. In December 2011 the Law Commission made recommendations for reforms and presented drafts Bills that include a raft of reforms designed to simplify intestacy rules and remedy unfair restrictions that presently apply to the surviving spouses, and civil or unmarried partners, to protect the rights of children who are adopted after the death of a parent; and to remove limitations to 1975 Act claims.
Some changes have been declined, as the UK has opted out of draft EU changes to ensure that the succession to a deceased person will be dealt with as a whole, with the estate coming under the law of the nation where the deceased habitually lived just before death, unless he/she opted for his/her own national state’s law to apply.
Is there a chance of more reform? At present it seems unlikely. In time the supremacy of the English will is likely to have to be reviewed, as it is at odds with other EU nations, whose members are intent on harmonising their laws. The 1975 Act is now being interpreted more widely than it was at its outset in order to recognise the rights of the immediate family, but the discretion given to the courts means that there is a tendency to litigate, in the absence of established succession rights. A more ‘European’ approach many reduce such claims.
There is a case to restrict will drafting to those who hold recognised qualifications and work within enforceable codes of conduct. Also, the onus of upholding last-minute or controversial inclusions or exclusions in wills (especially those made by the elderly or vulnerable) could be placed on those seeking to rely on them. There is scope to introduce schemes similar to those for matrimonial disputes to reduce the need to go to court.
However, statutory changes in this area of the law are a low priority and slow in their implementation. Hence, the principal responsibility to restrict the rise in these cases is still in those who advise on succession planning or are instructed to conduct disputes.
This article concerns the law of England and Wales.