Quite often when considering the importance of wills, particularly for those people with complex family situations or reasonably large estates, the statement is made,
“Why can’t I just give away my assets during lifetime? The taxman will never know.”
Theoretically anything is possible, but beware of the consequences you may create for those you have so generously considered. The Society of Trust and Estate Practitioners this week highlighted the case of a beneficiary who was penalised to the tune of £87,000 by HM Revenue and Customs for failing to tell his fathers executors about a cash gift he received a year before his fathers death.
The Father, Robert Hutchings died in 2009 with an estate worth approximately £3 million. Hutchings had 5 children but in his final will executed 6 months before his death, he had excluded 2 of them. A further 2 were left legacies of £150,000 each. The residue went to the 5th child Clayton Hutchings. In preparation for probate, the executors wrote to the family beneficiaries asking if they had received any gifts from their father in the preceding seven years. No disclosures were made by any members of the family. However, HMRC received an anonymous tip off that Clayton Hutchings had an undisclosed offshore bank account.
Following a request by HMRC for a formal disclosure, it emerged that it April 2009 Claytons father had transferred nearly £450,000 from his own Swiss account into Claytons. This disclosure led to HMRC to claim an additional £47,000 in IHT on Clayton Hutchings personally. However, HMRC also charged him a penalty of 65% on the potential loss of IHT revenue linked to the gift which was calculated at £113,794 though later reduced to £87,533.
This case should serve as a warning to beneficiaries that they must take care to respond openly and honestly to executors enquiries. It should also remind executors of the challenging role they hold and the importance of making and properly documenting the administration of the estate.
Most importantly, during lifetime, support your client in getting their affairs in order and seek further advice if necessary. Be clear about their tax position and ensure the legacy they leave behind really does reach the people they intend it to.
You can find out more about Beneficial Trust & Will Co Ltd at www.btwc.co.uk
If you would like to have a chat about developing your Estate Planning service offering, feel free to call 01522 500823 or email enquiries@btwc.co.uk