This article was first published in the Financial Times.
Most individuals spend their lives building wealth with the intention of passing it onto their loved ones either during their lifetime or when the inevitable happens. However, unfortunately it is often the case that lifetime gifts or intended inheritance ends up in unintended hands.
The common pitfalls which result in the misdirection of assets during lifetime, or post death, usually come from a misunderstanding or misconception.
In the UK the number of married couples are decreasing, whilst the number of unmarried couples is increasing. This is true across all age categories, according to the Office of National Statistics. Of particular note is the increase in the numbers of unmarried couples for those in the 25 to 29 year old category whose cohabiting proportion increased from 56.5% in 2011 to 71.6% in 2021. This percentage jump certainly explains the increasing number of disputes we're seeing, and instances of assets potentially falling into the wrong hands following the breakdown of unmarried couples' relationship.
A common scenario is one where parents and grandparents make lifetime gifts of funds to assist their child or grandchild to purchase a property. Often this purchase will be undertaken by the recipient with the recipient's other half. However, the parents or grandparents often fail to adequately protect that substantial gift solely for the intended individual. The person gifting merely presumes everyone is aware that if anything happens, their gift should be considered to be the property of their family member rather than their other half. When an unmarried relationship breaks down matters often turn sour when the realisation hits that the ex-partner has acquired an interest in the gift due to the way in which the property is owned and a failure to protect the sum solely for the intended family member.
It is surprising how often it transpires that when an ex-partner realises they have a much larger share in the property than anticipated, all of a sudden they maintain that share was always intended to be due to them. Misunderstandings surrounding the true nature of the gift, and how it is documented, can often see part of a substantial gift falling into unintended hands.
Death is no different. There are no end of stories about individuals who have made claims against estates for an interest or a greater share resulting in the intended beneficiaries receiving a reduced or no interest against the deceased wishes. Again, death disputes are on the increase - and taking into account the statistics this has come as no surprise. In Will research commissioned by Royal London in September 2021, it was reported that more than half the UK's adults don’t have Wills.
Many blended families enjoy a life in harmony but there is no shying away from an increase of complex family dynamics.
Arguably, the statutory rules which govern the distribution of an estate where there is no Will or no valid Will, are not fit for today's society as they do not benefit unmarried partners. There is no end of needs and circumstances that could motivate a claim.
The main dangers post death usually centre around the misconception of the ability for a Will to survive marriage. Following a divorce, an individual will often make a new Will usually passing their wealth to the children from their previous marriage. However, marriage revokes a Will unless it has been prepared in specific contemplation of a particular marriage. This means that when the former spouse remarries, they incorrectly presume their wealth will pass in accordance with their Will.
However, this is unlikely to be the outcome and instead the new spouse will receive the bulk of the assets under the statutory provisions.
Perhaps the greatest indicator of the prevalence of family disputes in the modern era is the number of reports regarding inheritance that crop up following the death of a rich and famous personality. There is also many a television drama nowadays which has a contentious probate angle or bloodline dispute at the heart of the plotline.
The common theme which runs through all these disputes is usually a lack of clarity, misunderstanding and misconception as to how assets are owned and passed on following a relationship breakdown, death or second (or third) marriage.
There are ways to mitigate and manage these dangers.
For example, jurisdictions such as Guernsey, which as a mature international finance centre has nearly five decades experience and an ecosystem of expert providers, have greater advantages for individuals particularly on death which can ensure a greater proportion of the wealth created will pass to intended beneficiaries. To counteract the dangers of asset erosion you must fully understand pitfalls of any misconceptions may have upon assets both in the home jurisdiction and fully appreciate where other jurisdictions such as Guernsey can assist.
Charisse Crawford appeared at the Guernsey Private Wealth Forum in London on 2 November where she spoke as part of panel discussion titled: Changing families: increased mobility and generational handover.
