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Law&Life Private Client Newsletter from Wright Hassall ISSUE 9 SUMMER 2017

Why make a trust?The tax efficient way to inherit a person’s assets either during their lifetime or upon their death.

wrighthassall.co.uk

PEER TO PEER LENDINGWill it generate a better return for your investment?

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Alpro UK Plant Power for the peopleSome businesses really do care about the products they make and their impact on the environment.

WelcomePeter LowePartner and Head of Private Client

JUNE 2017

ANTHONY AND CLEOPATRA AT THE ROYAL SHAKESPEARE COMPANY Until 07 SeptemberStratford Upon Avon

JULY 2017

LEAMINGTON MUSIC SUMMER CONCERT 07 JulySt Mary the Virgin Church, Ullenhall

Julian Vickers and Daniel Bovey play music by Mauro Giuliani, Nikita Koshkin, Mario Castelnuovo-Tedesco, Gary Ryan, Sergio Assad, Domenico Scarlatti and Astor Piazzolla.

COVENTRY GODIVA FESTIVAL 07 - 09 JulyWar Memorial Park, Coventry

Coventry’s free three day music festival with Example and The Darkness headlining on Saturday and Sunday night.

DEMENTIA FRIENDS INFORMATION SESSIONS 19 July & 19 September Belgrade Theatre, Coventry

Dementia Friends Information Sessions are about learning more about dementia and the small ways you can help.

AUGUST 2017

ART IN THE PARK 05 & 06 August Jephson Gardens

With over 100 artists exhibiting there is a wide mix of styles, mediums, crafts and arts on show.

SEPTEMBER 2017

HERITAGE OPEN DAYS 07 - 10 September Coventry Transport Museum

A rare opportunity for one weekend only to venture behind the scenes at the Herbert, discover what historic treasures lie in the vaults of the Archives and visit the storage facility of Coventry Transport Museum.

Hello and welcome to the latest edition of Law & Life.

I referred to the pace of change in the autumn edition of Law & Life with the expectation that we would have a more settled and reflective start to 2017. I could not have been more wrong: a Trump presidency in the US, a win for Emmanuel Macron in France, and the calling of an unexpected, snap election by our own Prime Minister which has resulted in her losing her parliamentary majority.

For many families concerned about the impact of some of the manifesto pledges on their finances, our private wealth team make some suggestions about how to pass assets to the next generation while minimising inheritance tax. Of course, there is never any certainty that what is legal today will remain legal tomorrow but this should not stop us planning for the future.

In this issue we profile Alpro UK, a real success story. Although the company is based in Belgium, its UK headquarters are tucked between Birmingham Airport and railway station. Alpro is a great example of how to create a profitable business founded on the principles of sustainability and environmental responsibility.

Many of you might be familiar with the Ilott case in which Heather Ilott contested her mother’s will after she was disinherited and which eventually reached the Supreme Court after many twists and turns. The bottom line is you can still leave your assets to whoever you please – but a dependant, even an adult one, can challenge the provisions in your will if their financial circumstances merit a claim.

We also introduce you to Peer-to-Peer lending, a relatively new way of introducing borrowers and lenders, bypassing traditional banks and building societies. We have to declare an interest having recently been appointed to the legal panel of one lender but this is an innovation worth a look for the experienced investor.

Finally, it is with much sadness that we report the death, in April, of Robin Ogg, our former senior partner. Many of you will have known him well and his loss will be keenly felt among clients and colleagues alike. Our deepest condolences to Liz and his family.

Law&Life SUMMER 2017 1

Dates for your diary

Contents03 Peer to Peer Lending Generating noticeably better returns for its investors

than traditional banks and building societies.

05 Focus on… The Ilott Judgment The case of Ilott v Mitson and how this made

headline news as the claim went all the way to the Supreme Court.

07 Business Profile - Alpro UK Top 50 brand and the business that really does

care about the products it makes and their impact on the environment.

09 How to make a personal injury claim

Six points to think about when making a personal injury claim.

11 Introducing… Jeanette Whyman, Rachael Flanagan,

Catherine Puffett and Jennifer Russell.

13 Why make a trust? The tax efficient way to inherit a person’s assets

either during their lifetime or upon their death.

15 Inheritance Tax Residence Nil Rate Band

Potential questions answered on the new RNRB which became available from 6 April 2017.

16 Keeping it in the family Information on Family Investment Companies.

17 No-fault divorce: time for the UK to catch up?

Does Tini Owens’ divorce case increase the argument for reform?

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Although the sector has its fair share of sceptics, a Bank of England report considers that P2P is very much in the UK tradition of financial innovation, driven by financial professionals considering ‘the fundamentals of the banking business’ rather than as the result of an external shock. Nonetheless it was an external shock – the financial crash – which gave the nascent sector the expansionary boost it needed. As banks increasingly tightened their lending criteria, with a fourfold increase in the number of loan applications being rejected, the SME sector bore the brunt of the financial fall-out, opening the way for P2P lenders to plug the gap.

Peer-to-Peer lending joins the mainstreamThe first ever P2P lender, Zopa, was founded in 2005 by three ex-Egg employees who, alarmed by the increasing opacity of banking operations, wanted to return to the basics of banking, namely to match prospective lenders and borrowers. Their concerns that banking had lost its way were borne out by the 2008 banking crash which, combined with ever improving technology and investors looking to beat low interest rates, gave P2P the opening it needed to join the mainstream.

Although P2P is not risk-free (none of the funds invested via P2P platforms are protected by the Financial Services Compensation Scheme) most P2P lenders are run by people with relevant backgrounds in, principally, financial services, law and property. In addition, the sector has been regulated by the Financial Conduct Authority (FCA) since 2014, and the government has created an ‘Innovative Finance’ ISA for P2P investors. Although it is a very young industry and has yet to be fully stress-tested against all the bumps in the road it is likely to encounter in the credit cycle, its future looks robust.

Risk mitigationThe number of P2P lenders has increased to around 40, giving potential investors several different investment options: some only lend to property-backed borrowers; others primarily to consumers; some loans are secured, others not, and the relative level of risk involved in each option is reflected in the interest rates offered to borrowers and investors alike. In the absence of FSCS protection, most of the established P2P lenders have ways of reducing the risk to investors including provision funds

Investors are doing it for themselvesIndividuals dismayed by low interest rates and creeping inflation may well be tempted to test the water with Peer-to-Peer (P2P) lending that has, in its relatively short life, generated noticeably better returns for its investors than traditional banks and building societies.

Peer to Peer LENDING

4 Law&Life SUMMER 2017

(designed to cover expected and unexpected losses); taking a charge over borrowers’ assets; carrying out due diligence using third-party data; and diversifying across a number of different investments. Nonetheless, all investors must be fully aware of the inherent risks of investing via a P2P platform and be prepared to lose their investment (although, to date, most P2P lenders have a good track record and share data on their loan to value ratios and default rates enabling investors to make an informed decision).

Wright Hassall appointed to Folk2Folk panelWe have recently been appointed to the legal panel of FCA accredited Folk2Folk, a P2P lender founded in 2013 by a Cornish firm of solicitors. Like other P2P lenders, Folk2Folk operates via an electronic platform but, unlike others, it also has a high street presence because its mission is to match local investors with local borrowers and it is particularly strong in rural lending.

This is where we come in: because of our experience in the agricultural sector, and our knowledge of our local and regional communities, we will be able help match the right investor with the right borrower as well undertaking the necessary security work to complete the loan process. This will be an interesting journey but we like this innovative approach to lending, particularly the modern twist it adds to rural lending.

A modern solution to an old problemClearly this is a very new market but its acceptance by the FCA regulator and the government indicate it is here to stay. It is still the case that investors must exercise caution when deciding which platform to invest through and understand that they are potentially risking their money, but most platforms are upfront about disclosing loan data enabling their respective performances to be judged. There are different investment entry levels for investors: some require an initial investment of only £100 whereas others require several thousand. When Zopa first started out, it initially identified two broad types of investor: the philanthropist looking to invest in worthwhile projects, and experienced investors looking for a way of diversifying their portfolios. This probably remains the case although the number of experienced investors has grown exponentially as more and more people make active investment decisions in the face of dramatically falling returns.

Because of Wright Hassall’s experience in the agricultural sector, and our knowledge of our local and regional communities, we will be able help match the right investor with the right borrower as well undertaking the necessary security work to complete the loan process.

Background to the caseMrs Ilott’s mother, Melita Jackson, a widow who died in 2004, had been estranged from her daughter since 1978 and thus had made no provision for her in her will. Instead, most of the £486,000 estate was left to three charities with which Mrs Jackson had little connection. This decision left her daughter who was, by then, a mother of five living in difficult financial circumstances, with nothing.

Therefore Mrs Ilott brought a claim under The Inheritance (Provision for Family and Dependants) Act 1975, (the Act) against the executors of Mrs Jackson’s estate and the three charities which were to benefit from her mother’s will. The Act provides a framework under which a child’s claim for ‘reasonable provision’ from a deceased parent’s estate can be assessed consistently, taking into consideration the claimant’s income, outgoings and savings.

The original judge held that Mrs Ilott’s financial circumstances and her mother’s unreasonable conduct warranted that some provision from the estate would be appropriate and awarded her £50,000, specifically for her maintenance. The case went to the Court of Appeal twice as each side contested the decisions made.

At the second Court of Appeal hearing, the court increased Mrs Ilott’s award from £50,000 to £143,000 so that she could buy her housing association house, plus a capital award of £20,000 which was set at a level unlikely to interfere with her state benefits.

There were a number of reasons for their decision which essentially boiled down to the fact that the charities considered the money a windfall; Mrs

Ilott’s mother acted unduly harshly, particularly as Mrs Ilott had attempted to heal the breach; and that Mrs Ilott’s financial circumstances were sufficiently impecunious that they outweighed the fact she was an adult child, who had lived independently for many years. The executors appealed this decision to the Supreme Court which upheld the original court’s decision, overturned the Court of Appeal’s award of £163,000 and reinstated the £50,000 award.


In March this year, the case of Ilott v Mitson, whereby Heather Ilott had made a claim against her mother’s estate from which she had been disinherited, made headline news as Mrs Ilott’s claim went all the way to the Supreme Court after a number of twists and turns.

The executors appealed this decision to the Supreme Court which upheld the original court’s decision, overturned the Court of Appeal’s

award of £163,000 and reinstated the £50,000 award.

Most of the £486,000 estate was left to three charities with which Mrs Jackson had little connection.

FOCUS ON…

JUDGMENT THE ILOTT

What do I need to know?The legislation which governs claims under the Act has not changed. The Act sets out who is eligible to make a claim and also sets outs the extent of maintenance that will be awarded, depending on an applicant’s status.

The Act lists various factors which should be considered by the Court when arriving at a decision. In the case of Mrs Ilott, the Supreme Court upheld the original court’s decision that she should be awarded £50,000 as representing reasonable financial provision for her maintenance, given her circumstances.

How does the decision impact me?Adult children are eligible to bring a claim pursuant to the Act. The judgment could be said to highlight the fact that need alone does not give an automatic right to financial provision, when considered alongside other factors specific to the case in hand. This is not however, new. It has always been the position that all the circumstances must be taken into account.

There is also the option to grant a ‘life interest’ in property, if appropriate, rather than making an order for a lump sum payment. Both these options have always been included in the Act; however, a court may

give more consideration to the way in which a need for accommodation is met in light of this comment in the judgment.

What should I do if I think I have a claim?If you think you may have a claim pursuant to the Act, seeking advice from a solicitor at an early stage is advisable. This gives you time to explore the merits of bringing a claim and will allow you to correspond with the opponent early on. Further, there may be the possibility of exploring alternative dispute resolution. A claim can be brought before a Grant of Representation is issued.


The judgment could be said to highlight the fact that need alone does not give an automatic right to financial provision.

Is there anything else I need to know?All claims are assessed on their own facts and it is these that the court will consider when reaching its conclusion. Claims under the Act should be brought within six months of the date of the Grant of Representation being issued. In some circumstances this period can be extended, but advice should be sought as soon as a claim is contemplated. The Court allows very few claims to made after the expiry of the six month time limit.

There is also the option to grant a ‘life interest’ in property, if appropriate, rather than making an order for a lump sum payment.

FOCUS ON…

JUDGMENT THE ILOTT


Originally created as a soya-based alternative to milk by Belgian family-owned company, Vandemoortele, as part of a philanthropic project to work with soya farmers in Africa, the brand has retained those core values. Initially treated as a niche product aimed primarily at vegans, vegetarians and those with food allergies, the brand is now firmly established in the mainstream – as evidenced by its recent acquisition by Danone, the French dairy conglomerate.

If you have yet to discover Alpro, the brand encompasses a wide range of plant-based drinks and alternatives to milk, cream, yogurt, and ice cream (which has just been launched). The brand has achieved an astonishing 25% household penetration in just three years (from 14.6%*) resulting in it becoming a top 50

brand according to leading retail magazine, The Grocer. Although most supermarkets, with the notable exception of Tesco and Waitrose, were initially sceptical that Alpro

would prove to be more than a passing fad, a growing range of products are now widely available with urban stores seeing the biggest take up.

As Sue Garfitt, Alpro’s Commercial Director in the UK and Ireland, notes: “People’s eating habits have changed significantly since the 1980s; most people understand the need for a more varied diet and many are actively looking to add more plant-based products to their weekly menus. We’ve spent years

researching how to make our products look and taste great and the sales figures prove that we’re succeeding.”

Alpro UK Plant Power for the people

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For those consumers who may be more than a little sceptical about corporate claims of sustainability and ethical behaviour, the story of Alpro may help to restore their faith that some businesses really do care about the products they make and their impact on the environment.

Tropical Breakfast


The profile of the average Alpro consumer is female, with children, digitally savvy and juggling a work/life balance. Sue points out that: “In most families, it is usually the woman who picks up on new trends and tastes and brings them into the house for the family to try. Once the product is in the fridge, everyone is happy to give it go.

“The age profile probably also accounts for why our plant-based drinks are so popular with the high-street coffee chains – and we supply all the major ones. Having developed a way of making the drinks foam, asking for soya is a no-brainer for anyone looking for a plant-based option to enjoy.

“Recipe sharing also gives us the perfect visual platform for promoting our products through beautiful photography, via social media. Because social media channels such as Instagram, Twitter and Facebook are so flexible, we can tailor our message for different audiences. The key message we want to get across is that our products taste great, are easy to use, and are good for you and the planet. We invest in TV advertising which, although less targeted than social media, allows us to raise awareness, and encourage product sampling so people can experience just how good they taste.”

Another key component of the Alpro story is that it is good for the environment. None of the soya comes from de-forested regions, GM crops are not used, and a lot of effort goes into reducing the company’s carbon footprint. This means that more than half of Alpro’s soya beans for the UK manufacturing site in Kettering come from European countries, such as France, Italy and Austria. The rest are imported from Canada, by boat, to ensure a lower carbon footprint.

Sue continues: “Sustainability and having a light eco-footprint is crucial to us as a business – the original product was developed by a philanthropist and his values live on. Our mission is to get the world to eat better but we can only do this with the support of our customers. They want to buy into an ethical product that tastes good and lives up to its promises – and that’s what we want to deliver.”

Alpro is aiming to be carbon-neutral by 2020 which, as Sue acknowledged, is a tough target but one

which has also been embraced by some of the biggest food companies. “The

food industry is the quiet pioneer of change; companies like us

genuinely care about our impact on the environment, indeed, we

stake our reputation on our ethical behaviour. Our brand reputation has taken years to build and we are determined to protect it.”

So what of the future? As well as the ice cream, Alpro has

also branched into the ‘food on the go’ market by launching ‘Go

On’, a single serving pot of plant-based alternative to yoghurt, high

in protein, created as snack to keep you going.

Alpro has plenty of competition in the plant-based product arena but this, says Sue, is

the perfect motivation to keep innovating and keep fresh. Even Arla, the largest dairy group in the country (with brands such as Cravendale and Anchor) has launched a plant-based, high protein range, proving the old adage: ‘if you can’t beat ‘em, join ‘em.’

* (source: Nielsen Data to 24/05/14)

“We invest in TV advertising which, although less targeted than social media, allows us to raise awareness; and product sampling so people can experience just how good they taste.”

Overnight Oats

The brand has achieved an astonishing 25% household penetration in just three years (from 14.6%*) resulting

in it becoming a top 50 brand according to leading retail magazine, The Grocer.


How toWhen many people think of personal injury they immediately think of whiplash compensation. Over 70% of personal injury claims are related to neck injuries but personal injury claims cover a broad spectrum of accidents and injuries caused in the workplace, on the roads, and trips and slips in public places.

Over 3 million people in the UK are injured in accidents annually, often through no fault of their own.

If someone or something is responsible for your accident, you may have a valid compensation claim.

There are two distinct types of compensation for injuries: special damages and general damages. General damages are specifically for your injuries and the pain caused, special damages are designed to cover your financial losses, such as time off work, rehabilitation and costs relating to your care and recovery.

In order to start the personal injury claims process there are several things that you will need, including:

• Details of the accident: date, place and how it happened;

• Details of any witnesses and / or photographs that may have been taken at the scene of the accident; and

• Details of all injuries sustained including diagnosis and treatment.

Other items which are useful include:

• Proof of loss of earnings and any expenses as a result of your injury

• Any insurance documents – many people take out legal expenses cover as part of household or motor insurance

Your solicitor will assess the evidence and then advise you if you have a claim for personal injury.

A medical specialist will need to ascertain the extent of your injuries. This can be arranged by your personal injury solicitor who will also use the resulting report to decide on the level of compensation you should seek. Your lawyer will then send notification to the person, or organisation, responsible for your accident (the defendant).

This will set out the nature and circumstances of your injury. The defendant should reply following their investigations either accepting or denying liability for your injuries. If they accept liability then your solicitor will aim to settle your case without going to court.

There have been a number of recent changes to the way in which claims can be funded but do note that public funding (legal aid) is no longer available for personal injury claims.

Different funding options include:

• No win no fee: you instruct your solicitor on a no win no fee basis (Conditional Fee Arrangements).

• Legal expenses insurance: you may be covered under your home, car or other insurance that will pay for all or some of your costs.

• Private funding: you can fund the cost of the claim yourself.

• Damages Based Agreements (DBA) means legal costs are based on the damages you receive.

THE COSTSNEXT STEPSTHE DETAILS

MAKE A PERSONAL INJURY CLAIM

Your solicitor will assess the evidence and then advise you if you have a claim for personal injury

As with all compensation cases there is a time limit for making a personal injury claim which, for most people, is three years from the date of the injury or the date you became aware of the injury.

The latter stipulation is usually particularly relevant for industrial disease cases where the injury does not become apparent for several years. It is therefore advisable to seek the advice of a solicitor as soon as you are aware of an issue.

Your solicitor will give you an indication of the value of your claim but you will need to discuss how much compensation you are willing to settle for. Once agreed, your solicitor will make a ‘Part 36 offer’ which is an offer to settle for the amount of compensation you agreed. The defendant can respond in one of three ways:

• Accepting your Part 36 offer;

• Respond with their own Part 36 offer; or

• Not accepting your Part 36 offer.

If the defendant does not accept your offer, or offers you a lower sum than you are prepared to accept, then your lawyer will advise you on the next steps which may involve going to court.

If your case goes to court, the timetable will be in the hands of the judge. The court will let you know the date of your hearing and your solicitor will let you know what you need to do. The judge will then look at the detail of your case and make an award.

Under normal circumstances you can expect to receive your settlement after about a month.


SETTLING YOUR CLAIM GOING TO COURTTIME LIMITS

Your solicitor will assess the evidence and then advise you if you have a claim for personal injury

Rachael Flanagan Legal Executive

Jeanette is head of the medical compensation team, specialising in medical negligence and personal injury claims.

She has many years’ experience dealing with all types of cases but has a particular interest in NHS compensation, neurological and obstetric claims. Jeanette joined Wright Hassall in 2004 to practise claimant personal injury and clinical negligence, heading up the department in 2005 and becoming a partner in 2009.

Having worked previously for Hospital Trusts, Jeanette has extensive knowledge of hospital practices and procedures. This means that she is able to assess a case speedily and to anticipate the other parties’ position – this enables her to put forward the best possible case on behalf of her client.

Talking about her work, Jeanette says “as a people person I like to know I have helped my clients in some small way to come to terms with what has happened to them.”

Chambers UK 2016 describes Jeanette as an “experienced practitioner” and sources highlight her as “very compassionate” and also note her “clear-headed attitude to cases.”

Jeanette is an accredited member of the Law Society’s Clinical Negligence Panel which recognises her excellence in the medical negligence field.

Rachael is an experienced personal injury and clinical negligence specialist and a member of the Association of Personal Injury Lawyers (APIL).

She has helped many clients over the years, securing damages on their behalf but also arranging treatment to help her clients in their recovery. While the majority of the work she undertakes is for claimants, Rachael has also acted for defendant companies where claims have been made against them.

Rachael advises on a variety of claims ranging from accidents at work, trip and slip cases, road traffic accident claims (involving untraced, uninsured and foreign registered vehicles), claims arising from cosmetic treatments, and claims involving animals.

Rachael also advises on medical negligence cases in particular fatal claims, dental negligence claims, and claims arising from delayed and / or misdiagnosis of cancer.

A satisfied client described Rachael as having an “expert, professional and friendly manner.” The client said, “I will not hesitate to recommend your firm and, more importantly, you in the future”.

Jeanette Whyman Partner


the Personal Injury team


Catherine Puffett Paralegal

Jennifer Russell Solicitor

Catherine is a paralegal and is currently training to become a Chartered Legal Executive.

Her expertise lies in a broad spectrum of personal injury claims, in particular road traffic accidents, accidents in the workplace, trips and slips in public places and medical negligence.

Catherine previously worked at Keoghs LLP undertaking personal injury work and joined Wright Hassall in 2016.

Talking about her role Catherine says: “This area of law tends to be a stressful and emotional time in people’s lives and it requires you to be supportive and compassionate whilst remaining professional. It is a line you have to balance but I enjoy the human aspect of my work, you really get to know your client which motivates me to achieve the best outcome for their case.”

A very happy client said, “Catherine dealt with my case in a professional manner, kept me updated constantly throughout and provided me with expert advice. I cannot thank her enough!”

Jenny is a solicitor in the Private Wealth team and a member of the Society of Trust and Estate Practitioners (STEP).

She advises clients on wills and estate planning, including trusts, tax and powers of attorney, as well as applications to the Court of Protection.

Part of her role involves setting up personal injury trusts for clients who have recently received compensation for a personal injury. Creating this type of trust allows the compensation to be lawfully and legitimately ring-fenced so that it is not taken into account when assessing eligibility for means-tested benefits or assistance with long-term care costs.

Jenny advises individuals on putting tax-efficient wills in place to ensure that their assets pass to their loved ones on their death, and on making powers of attorney to enable their chosen attorneys to manage their affairs if they are unable to do so themselves. These issues are especially important for those who have received a personal injury compensation award.


Why make a trust?Trusts are a tax efficient, flexible way for someone who wants certain people to inherit their assets either during their lifetime or upon their death. A trust is a legal relationship created (either during lifetime or on death) by a person (the settlor) placing assets under the control of another person or persons (the trustees) for the benefit of others (the beneficiaries). For example, A transfers his property to his trustee, B, who becomes the legal owner of the property and holds the property on trust for the benefit of A’s children, C and D.

A trust can provide flexibility, which in turn opens up a number of useful tax planning opportunities.


By transferring your assets into trust whilst you are alive, you may be able to reduce the value of your estate on your death and your consequent inheritance tax liability.

You may also be able to reduce any capital gains tax liability arising on increases in the value of your assets through the use of trusts.

Tax law changes frequently so you may want to take advantage of current, beneficial tax reliefs by transferring your assets into a trust in advance of any change in the law or your circumstances meaning that the relief is no longer available.

There are reasons other than financial ones for setting up a trust. A trust can protect your assets from a family member’s divorce or future bankruptcy. You may want to protect someone who is vulnerable or currently unable to manage their own finances or wish to provide for your family in the future, by using a trust to support minor and unborn children or grandchildren.

In these circumstances, a trust can provide for the intended beneficiaries without giving them full control of the assets within. You could even appoint yourself as a trustee to retain some measure of control.

TRUSTS A tax efficient, flexible way for someone who wants certain people to inherit their assets either during their lifetime or upon their death.

The practicalities of trustsTo set up a trust during lifetime, a settlor would usually execute a trust deed, appointing the trustees, detailing the powers the trustees will have, and setting out the people (or institutions) who should benefit from the trust’s assets. The assets would then be transferred to the trustees, who will become the legal owners of the assets.

To set up a trust to take effect after death, a settlor would include similar provisions to those of a lifetime trust in their will.

ConclusionIt may be that setting up a certain type of trust would be suitable in light of your own personal and financial circumstances. You might be concerned that your children may go through a divorce or bankruptcy and wish to protect any assets you wish to give to them.

You may simply want to withhold certain assets until you feel your children are at an age to deal with such assets responsibly. A trust can also provide flexibility, which in turn opens up a number of useful tax planning opportunities.

Types of trusts and using them effectivelyThere are a number of different categories of trusts and the one you choose will depend on your and your beneficiaries’ personal and financial circumstances. The most frequently used trusts are known as a discretionary trust and a life interest trust.

The benefits of trusts

DISCRETIONARY TRUSTSA settlor gives to his or her trustees the control over an asset or assets, and it is ultimately for the trustees to decide exactly which of the settlor’s specifically named or class of beneficiaries should benefit. The settlor can tell the trustees what they would like them to do, but this is not legally binding and the final decision rests with the trustees. This allows them to take into account the beneficiaries’ future circumstances and is particularly useful where the settlor wishes to benefit minor/unborn children, vulnerable beneficiaries or charities.

LIFE INTEREST TRUSTSIn a life interest trust the trustees hold the assets, transferred by the settlor, on trust for a particular beneficiary (the life tenant). The life tenant will usually have the right to any income the asset produces or, if the asset is a property, the right to live in the property for the rest of their life. In some circumstances, for example where the life tenant is the settlor’s widow(er), the settlor may also state that the interest comes to an end if the life tenant remarries or lives with someone else before he or she dies. After the life interest comes to an end, the assets will then pass to specified beneficiaries, or remain in trust for their benefit, as set out in the trust document.

This is a useful arrangement where a settlor wants someone to benefit for the rest of their life, but for the asset(s) ultimately to pass to someone else. A life interest trust is often used following second marriages where the settlor wishes to benefit a second spouse during their lifetime but then for their assets to pass to children of a first marriage.


Inheritance Tax Residence Nil Rate Band

The new Inheritance Tax Residence Nil Rate Band (RNRB) became available from 6th April this year, meaning that an additional tax-free allowance of up to £175,000 per person may apply if the family home passes to certain relatives, including children, grandchildren and step-children, on death.

By 2020, combining a married couple’s, or civil partners’ nil rate bands and RNRBs will total £1million, but this maximum amount will only be available if certain conditions are met.

I have a discretionary trust in my will – do I need to change it?If you have a discretionary trust in your will this does not have to be changed. In many circumstances a discretionary trust offers the most flexible planning and should be able to use the RNRB (taking into account all the circumstances at the time).

The important point to note is that the trustees must use their discretionary powers within two years of the date of death to make the best use of the RNRB. For married couples and civil partners this includes deciding whether to use it on the first death or pass it to the survivor to use on the second death.

I have been widowed – should I review my will?If you have been widowed then it is important to review your will to ensure that your estate will qualify for the RNRB. For example, if you are the beneficiary of a life interest trust you may wish to check that your children will benefit on your death by qualifying for the allowance.

As mentioned above, ideally action should be taken within two years of your spouse or civil partner passing away. As spouses and civil partners can transfer any unused RNRB to the survivor (in a similar way to the nil rate band), it is important to keep good records from the time of the first death.

Should I still leave assets to children in trust?Often we want to leave assets to younger children in trust for them until they reach a certain age, for example 21 or 25. However, holding the assets on trust until they reach such an age means that the RNRB will not apply automatically as the children do not inherit outright at 18. Nevertheless, the trustees of a child’s trust may be able to use their discretionary powers to give the child the right to inherit at 18 and so claim the RNRB, if they feel this is appropriate.

My estate is worth more than £2 million – will I qualify?As there is a tapered withdrawal of the RNRB for estates exceeding £2 million, couples whose estates are approaching this figure may wish to consider equalising the assets in their estates. Those whose estates exceed £2 million could consider making lifetime gifts, if appropriate, to bring their estates below the threshold.

I have sold my property – can I still claim the RNRB?If a person has downsized, selling a property and replacing it with a less valuable one before their death, or sold their property without buying a replacement, then it may still be possible to claim the RNRB based on the previously-owned property. However, it is essential to keep good records each time a residence is sold and a new one bought in its place.

Those whose estates exceed £2 million could consider making lifetime gifts, if appropriate, to bring their estates below the threshold.


Keeping it in the family

What would you do to set up a FIC?FICs are a long term tax efficient vehicle, useful for anyone with substantial wealth but they are complicated and need specialist legal and tax advice to set up correctly. Detailed legal advice from both a corporate and tax planning perspective should be obtained to ensure that there are no restrictions on the gifts which you make.

The main steps to set up a FIC are:1 Draft a company memorandum and

articles of association. A solicitor can do this for you and tailor it to your specific requirements.

2 Using your own cash/assets, you would subscribe for various classes of shares within the FIC. “Subscribe” means that the shares are newly issued by the company rather than having been in existence previously.

3 You would gift ordinary non-voting shares to your children and/or other beneficiaries while keeping voting shares yourself. This ensures that you keep control over the company and its assets.

4 You could also create an gift, or keep, other classes of shares with differing rights which enables you to withdraw funds tax efficiently, enjoy growth in capital value or protect a right to future dividends.

Family Investment Companies – also known as FICs – can be an extremely tax efficient way of transferring assets out of your estate for inheritance tax (IHT) purposes while retaining some control over them. They work well for people looking to transfer sums in excess of the nil rate band (currently £325,000 per individual; £650,000 per couple) as they do not create an immediate IHT charge at 20% as a trust would.

Considerations when setting up / managing a FICTRANSFER OF FIC SHARES TO BENEFICIARIESIf you gift FIC shares to a beneficiary these will initially avoid the 20% charge to IHT and will continue to be exempt from IHT if you survive for seven years from the date of the gift.

CREATING A TAX EFFICIENT LEGACYDuring the lifetime of a FIC, most dividend income received from other company shares held in a FIC is not subject to corporation tax. FICs are usually more tax efficient where income accumulates within them over the long term rather than being paid out to shareholders.

VALUE FOR DIVORCE OR BANKRUPTCY PURPOSESWhilst the underlying assets of a FIC are generally beyond the reach of the court or creditors in the event of a divorce or bankruptcy, the value of a shareholder’s holding can be taken into account when determining the total value of their assets.

NON-CASH ASSETSWhen you set up your FIC initially, you need to be aware that tax may be charged if you subscribe to your FIC shares with anything other than cash.

For example, capital gains tax at a rate of up to 20% (or 28% for residential property) may be payable on any increase in value of non-cash assets at the time of transfer into the FIC.

If other company shares/ property are transferred into the FIC, stamp duty or stamp duty land tax may be charged.

REGULATORY REQUIREMENTSFICs can be set up as unlimited companies to avoid the accounts filing requirements of private limited companies.

FICs are a long term tax efficient vehicle, useful for anyone with substantial wealth but they are complicated.

No-fault divorce: time for the UK to catch up?

There was a certain irony that the Appeal Court hearing into Tini Owens’ divorce case was scheduled for 14 February 2017. The subsequent judgment attracted acres of newsprint, with much criticism being erroneously directed at the judges for the outcome of the case. In a nutshell, Mrs Owens’ desire to divorce her husband was thwarted by his decision to defend the petition.

She cited, as she must under the current law, the only one of the five reasons for seeking a divorce which was applicable - that of unreasonable behaviour.

Because her husband chose to contest the divorce, all the allegations underpinning her charge of ‘unreasonable behaviour’ were tested in the Family Court under the terms of the Matrimonial Causes Act 1973 (the Act), the most recent legislation in this area.

Because the judge found that her evidence was ‘flimsy’ at best and ‘scraping the barrel’ at worst, he had no option but to refuse her petition. She appealed and the Court of Appeal upheld the previous judgment – albeit with much criticism of the existing law.


No-Fault DivorceThe nub of the matter, acknowledged by both Judge Tolson in the Family Court and Lord Justice Munby in the Appeal Court, is the requirement for someone who wishes to get divorced to cite one of five reasons: adultery, desertion, unreasonable behaviour, two years’ separation with consent of both parties, or five years’ separation without consent. The law does not recognise unhappiness in a marriage as a reason to seek a divorce and, as it stands, only allows a judge to grant a divorce if, on the balance of probabilities “the respondent has behaved in such a way that the petitioner cannot reasonably be expected to live with the respondent”. In turn, this can only be established by applying the objective test of what would a “hypothetical, reasonable observer make of the allegations?”

Owens v Owens: the tale of an unhappy marriageMrs Owens filed for divorce in May 2015 (she had originally filed a draft petition in 2012 but did not follow it through). Although Judge Tolson acknowledged that the marriage had broken down, he refused to grant a divorce because Mrs Owens had failed to prove that, under the Act, her husband had behaved unreasonably. In total, Mrs Owens’ legal team put forward 27 examples of her husband’s behaviour which were examined in detail but Judge Tolson found, overall, that the incidents did not amount to much more than disagreements which might normally be expected to arise in a marriage of this length. The Court had to decide whether or not his behaviour was such that made living with him impossible and this required lengthy examination of the allegations to ascertain the cumulative impact on Mrs Owens. Any such judgment relies on what a ‘right thinking’ person might feel on considering the allegations made. At Appeal, Lady Justice Hallatt made the point that the criticisms levelled at the husband would probably be tolerated within an otherwise happy marriage but would be intolerable within an unhappy one.

Overall, Judge Tolson found Mrs Owens’ evidence ‘hopeless’ including her statement that her husband spent insufficient time with her and the family when they were growing up because he was concentrating on his career. He commented that the wealth Mr Owens’ business had created had contributed to her comfortable lifestyle about which she did not complain. He went on to acknowledge that his decision left Mrs Owens in no-man’s land because the reasons she did not want to continue living with her husband were down to causes not recognised by the law.

At Appeal Lord Justice Munby noted that the Appeal Court was not there to try and find error ‘by tortuous mental gymnastics’ in the decision under review, and it was only interested in substance not semantics. He went on to say that Appeal judges can only interfere in a decision which cannot be reasonably explained or justified. This was not the position in this case where they agreed that the wife had exaggerated the context and seriousness of the allegations and the resulting impact was modest. Therefore the Appeal Court upheld the decision of the Family Court albeit with a considerable ‘lack of enthusiasm’.

Time for changeAll the judges agreed that the law was inadequate as this marriage had quite clearly and irretrievably broken down but not in a way recognised by the law – and judges can only interpret the law made by Parliament. Almost all petitions are undefended as, generally speaking, once someone gets to the point of filing for divorce their spouse is aware that the marriage is over and accepts it as such. The anomaly in the law only comes to light if a petition is defended as in this case. Most petitions cite unreasonable behaviour and solicitors are encouraged by the Law Society and Resolution to use relatively uncontentious examples, not least to avoid inflaming an already difficult situation, so Mrs Owens’ legal team was following accepted practice. Of course, once the claims were tested, they were found to be too anodyne to stand detailed scrutiny. As the Appeal judges pointed out, the laws on which they have to base their decisions are based on ‘hypocrisy and lack of intellectual honesty’.

Argument for no-fault divorce is strongIt just so happened that the day before the Appeal hearing, the Lords’ spokesperson for the Ministry of Justice stated, in response to a question, that there were no plans to change the current law relating to the fault-based system of divorce. Most people trapped in an unhappy marriage can (and do) cite unreasonable behaviour, confident that their petition will not be defended. If it is, then unless they have made allegations which are sufficiently robust to stand up in court, they may find themselves left with no option but to wait five years. The argument for reform is strong and Mrs Owens’ experience may be just the nudge that Parliament needs to carry out a root and branch review.

Judge Tolson refused to grant a divorce because Mrs Owens had failed to prove that, under the Act,

her husband had behaved unreasonably.

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